[quote=bubba99]I think there is an insidious layer to the banks buying and holding treasuries. And that is that without them, the Fed would be forced to buy treasuries directly at an even greater rate. All those assets on the TBTF books are hiding the lack of demand for even more US debt. [/quote]
The only problem being that banks hold SHORT-TERM treasuries (when they hold them at all), while the Fed is buying LONG-TERM treasuries. And as the following graph shows, the amount of treasuries held by U.S. depository institutions is tiny – 1.2% of the total outstanding in 2008 (even if it were to have doubled over the last two years, it would still be di minimis).
[quote=bubba99]
It is another house of cards. The FED lends the money to buy the US debt and pays a hundred plus basis points for the lipstick on the pig. If inflation really starts as Paulson argues, look for an absolute collapse in Treasuries as the banks begin to dump the shrinking assets.[/quote]
It may be a house of cards. And there may one day be a collapse in treasuries. But it will have NOTHING to do with banks “dumping the shrinking assets.” So, you may end up being right, but it will be for the wrong reasons – you clearly don’t have a good understanding of this particular topic.
