friday's stage set, page-143

great post JK5!! The fed/treasury have unashamedly declared that they are willing to manipulate credit/debt/fixed income markets - through their various debt purchases (whether that be mortgage bonds, treasuries, commercial paper, interbank lending etc). They have also shown they are happy to attempt to manipulate our opinions of the banks through the stress test process, and they went to extraordinary attemts through AIG unwinds/change of accounting rules to make it look as if the US banks were in fact profitable.

With all that in mind, you would say their is a reasonably high probability that they would also be happy to manipulate equity markets, and i would imagine in cohoots with their friends at goldmans, morgan stanley etc.

Considering the neverending ability for the fed to expand its balance sheet, the levels of potential manipulation are endless.

The important thing to realise is that this does not mean everything will invariably be ok, and that the fed/treasury should attempt to manipulate everything to their hearts content. This is where the events of last week and the speculation over uk/us sovereign credit ratings is so important. Because if the world loses faith in the system and more specifically then USD the all of this manipulation will mean nothing - in actual fact the more the manipulation the more likely a potential loss of faith. This is why the US and the whole western financial system is walking the tightrope, as every decision they make might solve one problem but potentially open up another even bigger one. This is what happens when you attempt to fix a world fat on debt, with more debt.

This is why it is very important to watch developments in the USD, foreign purchases of treasuries and any potential for soverign credit rating downgrades - because if the world completely loses faith with the USD all bets are off!!