The Federal Reserve is buying 91% of 20 and 30 Year US Treasuries.

Read that heading carefully and think about it a moment.  I have been wondering for some time now how US Treasury Auctions were finding enough buyers to take care of all the debt being piled up month after month by the Obama administration.  President Bush, no piker himself, was piling it up at the rate of about $40 billion monthly and when he left office the auctions were being covered by about  1 to 1 meaning there were enough buyers but not a horde of buyers.

 So when the Federal Reserve announced last June they would cease buying US Treasuries on June 30 2011 I figured we were in for some serious times in this country as we had to find enough buyers of US bonds so as to not push rates through the roof.  Lately I have noticed that the Obama deficits that make Bush seem like a frugal guy since they run upwards to $125 billion monthly were be covered 3 to 1 at auctions and I figured where are all these buyers coming from and despite the stupidly of buying bonds at rates such as near zero to 2 % I thanked them for keeping rates low. 

Now comes the news that the Federal Reserve has been buying 91% of all longer term bonds and we now know why rates are not only being kept low, but from where the buying of bonds is originating. Obviously the purpose here is make the only bonds available for investors are short term bonds and to force the rate curve to bend to a point home mortgage and consumer borrowing rates are kept ARTIFICIALLY low. It also serves to force investors to find other options for their cash like stocks and houses.  Note that this artificial rate is only good as long as the Federal Reserve keeps buying and they own about 3 trillion plus of bonds now. 

Now here is the real terror in this situation what happens when the Fed not only stops buying, but when rates go up which they got to do eventually in this scenario. How would you like to be holding an account full of $3 trillion plus of bonds paying 2 % when the real rate for such bonds is not ballooned to say 3%.  Talk about a case of heartburn from the huge losses that the Federal Reserve would be facing and guess just who is on the hook for those losses? 

Sooner of later somewhere some adult has got to stand up and say enough of this madness.