Pay no attention to the man behind the curtain!
Hurray! the recent 7-year bond auction was “successful,” keeping confidence high in the markets. Why, it was so
successful, in fact, that gosh, the Federal Reserve decided a week later to quietly buy back about half of it.*
Gee, it couldn’t possibly be that the auction was only half as “successful” as advertised, and that the other half was just a short-term purchase arranged by the Fed and Treasury to make it look like there’s more demand than there really is. No, that would be a sign of desperation.
h/t: Survivalblog.
Note a contrary view here — basically that despite doing this, Bernanke has continued to reduce the size of the Fed’s balance sheet by eliminating other activities, so overall it’s okay. I think that misses the point.
* yes, I know that it’s the Treasury that sold the bonds, and the Fed is separate from the Treasury, so technically it wasn’t buying anything “back.” But come on.