What Gold Says About UST Auctions

The “too many” Treasury argument which ignited early in 2018 never made a whole lot of sense. It first showed up, believe it or not, in 2016. The idea in both cases was fiscal debt; Uncle Sam’s deficit monster displayed a voracious appetite never in danger of slowing down even though – Economists and central bankers claimed – it would’ve been wise to heed looming inflationary pressures to cut back first. Combined, fiscal and monetary policy was, they said, eventually going to let loose on consumer prices.

Hogwash. Here’s what I wrote the first time back in March 2016:

The story has problems on both ends; to start with, why are dealers supposedly buying up UST inventory that they will only get stuck with? That has never been a money dealing function, as if there is ever great imbalance it is for dealers to manage but largely get out of the way and let price action take care of it. In other words, primary dealers would likely have been only buying enough to maintain orderly markets, not so much that they suddenly became bloated warehouse units of unhedged risk. It strains credibility already.

The second part is even worse. These banks are supposed to have had trouble selling UST’s during a period when everyone was buying them?…To suggest these banks have had so much trouble offloading their “duty” of emergency support, to the point of being “forced” into worse and worse funding and hedging prices, does not just strain credibility it is patently absurd.

And yet, despite all the constant market evidence (prices, both auction and secondary markets) the theory made another appearance just a few years later based on the same premise. Only this time, early 2018, even worse given TCJA’s (tax reform) Trumpification of the deficit.

That’s the big problem with conventional Economics; it never allows itself to be falsified no matter how much evidence piles up against its sacred canon. “Too many” Treasuries was supposed to have been a part, and a key part, of the inflation confirmation. Instead of seeing that it wasn’t the case and understanding how this falsified the theory, the goalposts shifted which many times simply means moving everything further out in time (well, there didn’t turn out to be too many for the market to bear this year, but next year the thing will break for sure!)

1 2 3
View single page >> |

Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

more
How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.
Gary Anderson 4 weeks ago Contributor's comment

They scare people with inflation when the economy is quite slow. Just another con.