The Dollar.

This is where the rubber really starts to hit the road, so to speak, US Treasury in Plans for Record Debt Sale.

“The Fed has to be troubled by the fact that mortgage rates have been rising and the buying of Treasuries by the Fed may come sooner than the market expects,” said William O’Donnell, UBS strategist.

At the end of February, the Treasury will start selling seven-year notes every month for the first time since the issue was discontinued in 1993. Sales of 30-year bonds will double to eight times a year and the Treasury will say in May whether the bond will be sold every month.

The announcement came amid growing fears about US government deficits and sent the yield on the benchmark 10-year Treasury note rising to 2.95 per cent, up from just over 2 per cent at the end of December.

The rise in Treasury yields has been pushing mortgage rates higher, complicating efforts to revive the economy. The US Federal Reserve said last week it was “prepared to” buy Treasuries if that would be a “particularly effective” way of reducing private borrowing costs.

The one question about this that I have been pondering was articulated by James West in Dollars, Gold, and Soon – Intelligent Life.

So let me see if I have this straight. The Fed prints money based on the sales of United States Treasury bills, which the U.S. Treasury sells to investors so it can write checks to the Fed so the Fed can print money. If the Fed is the buyer of T-bills, then isn’t that like kiting a check to yourself from your own account at a different bank? Is this how the debt/money supply thingy works?

If I did that, at some point I would get a visit from a gentleman wearing a uniform who would be determined to stop such behavior by depriving me of my liberty. I think it’s called “fraud”. The trigger for that would be when the bank cashing the check realized that the signature on the back of the check was the same as the one on the front.

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