The Treasury is attempting to manipulate the costs of debt by using more short-term notes, and the strategy is backfiring. The size of these auctions is simply overwhelming demand. $69 billion in 2 year notes and $70 billion in five year notes were auctioned. Imagine that, $140 billion in debt in one day. There will be many more days like this over the rest of the summer, and I would anticipate more poor results. The five-year note had to be sold at a higher interest rate than desired, and had lower demand characteristics. The two-year note was even worse, with a higher than indicated interest rate at over 4.9%, with poorer demand characteristics than the five-year auction. Both auctions should continue the steady stream of warnings to investors that no matter what games are played with official inflation statistics, supply and demand factors will keep rates high, which itself contributes to inflation, and will prevent the Federal Reserve from cutting rates unless it intends to be blatantly political to help Bidementia, which is a possibility. (ZH Post)
And Zero Hedge has noted in a post some of the games the Treasury plays to try to mitigate the impact of all this debt thrown onto the market, including buying some of that debt itself. The Federal Reserve also buys US debt, furthering the attempt to mitigate the uncontrollable growth of the deficit and debt. Nothing will matter, it simply isn’t possible to manipulate interest rates when your debt issuance is as mammoth as ours is. We need an immediate, and painful, end to deficit spending. Cut everything until there is no deficit, starting with all the bullshit renewable energy garbage and ending with eliminating freebies for slackers. Cutting the number of civilian federal employees in half would also help immensely and likely improve functioning. Drastic action will occur sooner or later; later being caused by the market’s eventual refusal to keep buying US debt. (ZH Post)
