OOPS, they did it again, and again AND... AGAIN!

Today was the last Permanent Open Market Operation (POMO) of the week and just like last week, the data is in and nothing has changed. Over half of the issues monetized from Primary Dealers were bought by Primary Dealers from the Treasury just last week. So once again, the Fed continues to prop up 42 PD's with virtually risk free transactions that go something like this: the Fed holds a Treasury Auction, the Primary Dealers buy about half of the issuance (because foreign bidders aren't there like they used to be) and before there's any risk to the T's they bought, the Fed pays them hundreds of millions in premium pricing at tax payer expense.

You see, the Fed is prohibited from buying directly from the Treasury for all intents and purposes, so they created a little mechanism in which they can achieve the same illegal effect, legally-however shady. The Primary Dealers are in essence making free and risk free money from the agreement and that is how the market has been levitated. This is also why the market is a bit worried about the seemingly diminishing chances of a 3rd operation after this one ends in June. And for all the baby-boomers who were responsible savers their entire lives for retirement, they get a swift kick in the pants for actually doing the right thing and saving for retirement as the Fed debases the value of their savings via dilution or millions of cartridges of ink stamping cotton paper.

Of course we have several problems coming up: inflation, the possibility of a government shutdown, the debt ceiling and possibility of default on our debt and most importantly the question of who buys our debt if not the Fed, especially when the full faith and credit of the US all comes down to how many more times Congress will raise the debt ceiling? This all makes for the probability of higher interest rates-1) to deal with inflation and 2) to entice someone to buy treasuries. Raising rates should do wonders for the economy, unemployment, housing, the stock market, etc.

They call it the Bernanke Put, I call it the Bernanke Chinese Finger Trap and I choose "Chinese" carefully.