breaking news- us treasury/dollar rises!, page-9

Hi Nata,

The reason they don't do it is because treasuries are used as a monetary tool.
Plain a simple, they fund nothing, but it is the way the cost of money is controlled.

The fed has a target cash rate, to control inflation etc.

The fed know's how many reserves are in the system (cash) (because all member bank's have account's at the fed).
It then calculates how many reserves need to be removed to maintain the target rate (otherwhise credit becomes too cheap), and then offers the treasuries for auction.

That's why they never fail, and are most alway's oversubscribed, because they know how much the system need's/want's that will result in their target rate being achieved.

When the fed buy's treasuries? It add's cash to the system, rates go down (supposedly stimulating lending[but we know this isn't occuring]) and that's QE2.

But make no mistake about it, the money has already beeen spent into the economy before China and other's get involved..

China has 3 choices (on a net scale),

-buy the treasuries and earn interest.
-buy US goods and services.
-keep USD as cash.

Nothing sinister or unsustainable, China earnt the USD by selling the US a whole bunch of stuff, now they have a lot of saved up USD and the US has a whole lot of tv's.