These states are the world’s four major emerging economies (constituting 15 percent of the world’s $60.7 trillion economy) and they are set to discuss a serious agenda. According to their draft communiqué, the BRICs will not formally discuss the role of the dollar in world finance and trade nor the creation of a supranational currency, despite the numerous discussions by BRIC members on these topics before today’s gathering.

Now, however, there is increasing concern as to how the massive projected budget deficits are to be financed without a steep increase in interest rates and a resulting fall in current bond prices. Indeed, last Monday, in an attempt to quell the negative sentiment, a top IMF official publicly professed that the recent spike in longer-dated U.S. Treasury yields was not a sign of inappropriate monetary policy.

In reality, there is increasing investor concern about potential depreciation of the U.S. dollar, which may require the defensive action of sharply increased interest rates.

The Chinese and Japanese together hold almost $2 trillion of U.S Treasury obligations, or almost one-sixth of the total outstanding Treasury debt. As the largest single holder, the Chinese are particularly concerned. Indeed they have called for “special guarantees.”

The great, unspoken risk is that China may slow or even halt its regular purchases of Treasuries, causing great damage to U.S. interest rates.

Worse still, China may wish to lower its risk exposure both to U.S. inflation and to a forced increase in U.S. interest rates by switching long bonds for short-dated bills. At worst, China could become a net seller of U.S. Treasuries, putting great pressure on the U.S. dollar and American interest rates.

Behind the scenes, we can bet that creditor states are preparing for flight. Though the dollar's slide has been stayed by pronouncements of confidence from Russia, Japan, China, and others, there will come a time when the pain is too great and the outcome too certain. Private investors who haven't already left the collapsing dollar ballroom may be crushed when the big players stampede for the door.

The Fed pretty clearly pre-arranged, either explicitly or by "suggestion", that the Primary Dealers take up the auction with the promise that The Fed would immediately monetize half what the Primary Dealer's took!

Folks, this is beyond bad - it is pernicious and outrageous conduct by The Federal Reserve in conspiracy with the Primary Dealers, both of which are now desperately trying to prop up the US Government Bond Market through subterfuge rather than just buying up the bond issue from Treasury when originally put to the market!

If you think the economy and credit markets are "on the mend" why would The Fed do something like this? It would not be necessary unless The Fed was told (by those very same Primary Dealers) that they were going to be unable or unwilling to take down any more Treasury Debt.

Folks, let me be clear: The United States HAS OFFICIALLY HIT THE TREASURY DEBT WALL and The Fed and Treasury are engaged in subterfuge and conspiracy in an attempt to hide this from the market.

There is no other explanation for what just happened.

None.

The Federal Reserve meets this week with the delicate task of curbing a surge in expectations that it is ready to starting raising interest rates, without snuffing out crucial optimism on the economy.
Policy-makers are also likely to allow a controversial scheme to buy $300 billion of longer-dated Treasuries to end on schedule in September. But they may discuss extending a separate program to support the flow of credit to consumers and business, with an eye on propping up commercial real estate.
With no change to rates expected, the most likely action next week will be an announcement that the Fed will allow its program to buy up to $300 billion of longer dated U.S. government bonds to expire on schedule in September.
The campaign, which is in addition to Fed purchases of $1.45 trillion of mortgage debt by the end of the year, quickly become a lightning rod for concerns about future inflation and criticism that the central bank was helping to finance a record U.S. budget deficit, also called monetizing the debt.
Minutes of the Fed's June meeting show that policy-makers were uncertain about the programs' benefits given these pitfalls. And 14 out of the primary 16 dealers polled by Reuters on Friday did not expect the Fed to increase its Treasury purchase program beyond $300 billion.

What is the policy objective of the Federal Reserve’s program to purchase up to $300 billion of longer-dated Treasury securities?
The goal of the longer-dated Treasury purchase program is to help improve conditions in private credit markets.

What Treasury securities will the Federal Reserve’s Open Market Trading Desk (“the Desk”) purchase?
The Desk will concentrate purchases in the 2- to 10-year sectors of the nominal Treasury curve, although purchases will occur across the nominal Treasury and TIPS yield curves.

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A Grand Unified Theory of Market Manipulation

The POMO Effect

The theory for which we have the greatest supporting evidence of manipulation surrounds the fact that the Federal
Reserve Bank of New York (FRNY) began conducting permanent open market operations (POMO) on March 25,
2009 and has conducted 42 to date. Thanks to Thanassis Stathopoulos and Billy O’Nair for alerting us to the POMO
Effect discovery and the development of associated trading edges. These auctions are conducted from about 10:30
am to 11:00 am on pre-announced days. In such auctions, the FRNY permanently purchases Treasury securities
from selected dealers, with the total purchase amount for a day ranging from about $1.5 B to $7.5 B. These days are
highly correlated with strong paint-the-tape closes, with the theory being that the large institutions that receive the
capital injections are able to leverage this money by 100 to 500 times and then use it to ramp equities.

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