Monty Pelerin's World

Economics, Finance and Politics Through The Prism of Classical Liberalism

Martenson on the Fed

Martenson on the Fed

The Fed’s Shell Game Continues… April 07, 2010

Chris Martenson

Executive Summary

  • Record-breaking Treasury auctions continue to go off without a hitch, thanks to massive foreign participation.
  • However, the amounts reported to be bought in the auction results do not match the Custody Account or TIC report amounts.
  • The Fed is allegedly all done buying MBS and Treasury paper. This cuts off an important source of liquidity for the Treasury, commodity, and stock markets.
  • How will these markets respond to a liquidity drought?

April is upon us. I need to take a moment to re-analyze the data to see what might happen now that the stimulus money has worn off, and, more importantly, now that the Federal Reserve’s massive Mortgage Backed Security [MBS] purchase program is over.

This is important for a variety of reasons. The first is that the enormous flood of liquidity that the Federal Reserve injected into the financial system has found its way into the Treasury market, supporting government borrowing and also lowering interest rates for the housing market. How will the Treasury market respond once the liquidity spigot is turned off?

The second is that this flood of liquidity has supported all sorts of other asset markets along the way, including the stock and commodity markets. What will happen to these when the flood stops? Will the base economy have recovered enough that the financial markets can operate on their own? Will stocks falter after an amazing run? Or will the whole thing shudder to a halt for a double-dip recession?

To read rest of analysis click here.

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  3. Martenson’s Forecast for How This Ends (8)
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