Lol Mish Shedlock is hardly mainstream propaganda :)
Lets look a bit closer at the U.S. government bond market. The US (unlike Greece) has monetary sovereignty and a floating exchange rate , the bond market in this situation is really nothing more than a mechanism through which the central bank controls the money supply.
It doesnt actually fund anything as it does in Europe or under a gold standard. . Despite constant warnings of a potential lack of buyers over the years , we continue to see high demand for US debt. The auctions are always oversubscribed. Why is this? Why do the buyers keep coming back for more? The simple answer is because the government puts the buyers there (like everything these days its manipulated) . The auctions are designed not to fail.
The government bond market is merely a monetary tool in that the Fed utilizes to control the cost (or supply) of money by controlling the level of reserves in the system. When the government auctions bonds they are merely targeting reserves that already exist. The Fed is merely draining reserves that the Treasury already spent into existence reserves that were deposited at various banks , with the banks earning 0.25% on their reserves and the government offering anything above that (depending on duration) the trade is a no-brainer for the banks who hold these reserves. The government is basically offering them free money and the Fed keeps control of the money supply in exchange. What is not occurring is some sort of funding mechanism. The Fed could NOT care less if the auctions are 2X, 3X or 4X oversubscribed. They dont get extra money when this occurs. So long as they meet the 1:1 bid to cover the auction is a huge success because they drained their targeted reserves and convinced Congress that they are not going bankrupt.
People forget that during Japans lost decade it took 7 years for the BoJ to turn on the print presses, Bernanke went nuclear with the printing presses from the start, what he had not factored in though was the it wouldnt work, he figured by saving the banks and pumping reserves into them he would cause inflation, the problem though is he was wrong, despite massive inflation you cant inflate an economy where people refuse or are not able to borrow, its like baker baking bread but not having bread trucks to distribute the bread, you cant distribute money in a credit economy without lending. The only way you can do it have the government borrow and spend it, this in theory works well but history tells us the history tells us that political will fails as public debt rises, all Bernanke did was let the bankers escape on the life rafts while fooled the people into thinking this was the best option, eventually the people realise that the ships ablaze and sinking (and the life boats have already left)
The real problem though is that the whole world is financially ablaze, Europe and Japan is already sinking, Uncle Sam will be the last cancer patient in the terminal ward to die, all the while China accepts pieces of paper with dead men printed on it for their goods.
Now everybody lets sing along with SP and BIRD Youmans "I shall not be moved"
