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Tuesday, July 23, 2013

An 80% Sham Market, Zombie Armies & Cheating Investors



November 5, 2009 by · Leave a Comment 

By Daniel R. Amerman, GoldSeek

Overview

About 80% of net issuance of total US Treasury and Agency debt has become an artificial market, lacking real investors, and relying on the fiction of Federal Reserve purchases with imaginary money in order to prop up prices and hold down yields.  At the same time, Treasury secretary Geithner claims to be so pleased with this non-existent market that he wants to increase the average term of Treasury borrowings.  The juxtaposition is deeply bizarre, yet passes nearly without comment in the mainstream media.  In this article we will delve beneath the facade being maintained by the government, Wall Street and the media, and will uncover the cheating of small investors in a market where most of the buyers don’t actually exist.  Finally, we will introduce the hidden opportunities within sham markets.

A “Twilight Zone” Treasury Market

When reading the financial pages, do you ever get the feeling that you’re reading the script for an episode from the old television series, “The Twilight Zone”?  Perhaps one where the normal family is inside eating dinner, getting ready to let the kids go outside and play, but what they don’t realize is that all the normal looking people they see walking past their windows are in fact zombies, and the entire town has been taken over?

I usually don’t spend too much time thinking about zombies, but this is the exact kind of feeling that I got when reading about United States Treasury Secretary Geithner’s plan to increase the duration of US treasury borrowings. That is, he wants to take advantage of the “current low level of interest rates” to substantially increase the average term at which the Treasury borrows, so instead of an average due date of 49 months, he intends to move it out to an average of 72 months.

I first read about this in a Bloomberg article, and what brought “The Twilight Zone” to mind was that the entire article was written with a straight face, so to speak.  Reading the article, one would think we actually had a free market for US treasury debt, where demand for the debt and the interest rates on that debt were in fact being determined by investors of their own free will.

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