Since late 2016 we have entered the age of disclosures! Fasten your mental safety belt and enjoy the ride! Heretic

Tuesday, November 4, 2008

Can US Treasury Bonds default?


A topic raging lately between us has been the failures to deliver USTreasurys. This extraordinary phenomenon highlights the extreme mountain of toxic bond (in)securities spewed worldwide by the corrupted US financial sector, but it also highlights the questionable legitimacy of USTreasury Bonds. The traded volume of USTBonds had been recorded a few years ago to be over $2 trillion above official issuance in USTBonds. So maybe we are seeing a redux of counterfeit issuance of USTBonds in order to satisfy unprecedented demand. By the way, USTreasury management is done, and accounting is done, handled by only one giant bank.

Could the failures to deliver USTreasurys, as shown in the alarming graphic below, be a precursor to actual default? We will see. Kirby maintains a period of tremendous hyper-inflation is coming. My forecast is for a possible USTreasury default, as conditions grow out of control, and economic disintegration catches the nation by surprise. The collapse of General Motors could trigger a profound change in perception concerning the effective implementation of USGovt and Wall Street bailouts and rescues. Either way, disruptions like never seen before are on the horizon. The settlement failures bring into question the integrity of the USTreasurys as a legitimate market. Their counterfeit from more supply than issuance is well documented, and rings like a loud echo to the naked stock shorting chapter of US financial markets.

P.S. (post-edited 6-Nov-2008)

I thought I had to add this: the reason I believe it's important is because it reminds me of the same pattern of discovery of the massive (though illegal) naked shorting of the small cap and recently the large cap companies, on the US stock market! (see the refs below.) The first sign of the "smoke" was the "failure to deliver" of the stock to Depository Trust & Clearing Corporation (DTCC) within 3 days following a transaction. Apparently, just before the current financial collapse begun earlier this year, the failure to deliver reached a few % of the total volume. If the same now seems to be affecting the bond market, it means massive shortfall of the T-Bonds, that is some institutions were trading "I owe yous" without having the said assets available to cover.

In other words, a fractional reserve banking principle applied to bonds rather than just to the monetary base!

This is a much bigger potential issue in the financial system than the naked shorting of some stocks. About ten times bigger!


The Register article

Patrick Byrne (Deep Capture blog)

(Added 4-Dec-2008)

The Value of Money by J.E.Carrasco


Having been an institutional bond trader, it is absolutely unbelievable to me that the 30-year US bond is trading at a yield of 3.19%. In light of the current liabilities facing the US government (discussed below) and the fact of the coming Baby Boomer cohort's retirement, I can't help but conclude that the final credit bubble to burst is the US long bond. Yields will greatly increase sooner than later as all these liabilities are assumed by the US tax payers."

(Updated 5-Dec-2008)

Jim Grant: Go Ahead, Fools, Keep Buying Treasuries

(Updated 31-Dec-2008)

Bond Dealers, Hedge Funds Will Face Penalty for Failed Trades


With interest rates so low, bond market participants have less incentive to solve settlement problems because they’re forgoing less return than usual on a failed trade.


Fails climbed in the weeks following the Sept. 15 collapse of Lehman Brothers Holdings Inc. as demand for the relative safety of Treasuries increased.
Failures to deliver or receive securities rose to a record $5.311 trillion in the week ended Oct. 22. While the amount fell to $891 billion by Dec. 17, that’s still above the average of $165 billion before credit markets seized up in August of last year, according to Fed data dating to 1990.

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