The Primary Dealer + New York Fed Ponzi Circle Jerk Continues

The ZH team brings us up to speed on the latest government sanctioned tax payer fraud.

Zero Hedge reports:

Exactly one week ago, we commented on what many said was a “strong” 3 Year auction primarily courtesy of a 57.4% primary dealer takedown. We also said:

“Keep an eye on CUSIP QC7: it will be the most monetized 3 year paper by the Fed over the next 2 weeks.”

Today was the first POMO operation since last week’s auction focusing on 3 year paper. We present the results of the $6.678 billion POMO below. They, and the 28% flip of the entire PD take down, speak for themselves. Bottom line – not so covert monetization continues in broad daylight, with Primary Dealers naturally getting their tip value for allowing the ponzi to continue, as everyone else praises the low interest rates on Treasurys, and says just how easy it will be for the Treasury to find Treasury buyers once Qe2 is over.

One thing is certain: had PDs known they would have to hold on to these bonds instead of just collecting a hefty fee for flipping them back to the Fed, they would still have submitted bid…at far higher interest rates.

For those of you who are unfamiliar with how the Ponzi works, the government is engaged in counterfeiting US currency by having the US Treasury issue bonds which are then bought up by “Primary Dealers.” – Which are private banks who are granted the privilege of buying bonds directly from the government.

The PD’s then take the bonds that they purchased from the Treasury and flip them back to the Fed, which allows them to take a nice commission on the sales.

So rather than printing money directly by having the Fed purchase US bonds directly from the Treasury, our system is setup to make sure the mega-private banks get a nice cut of all the bond sales that take place.

This Ponzi is precipitated by the fact that the US government is no longer capable of selling all of its debt on the open market. It has to rely on the Fed to purchase the majority of our newly created debt (with counterfeit money that it created out of thin air) otherwise bond sales would plummet, which would necessitate a massive increase in interest rates.

If interest rates were to rise even mildly, the bankrupt state of the US government would become readily apparent to everyone there by leading to a currency collapse.

Of course, like all good ponzi schemes, eventually they come to a catastrophic end.