CANs and ELBs

Negative real yields are becoming entrenched in the term structure of Treasury securities. Way back yonder in 2009, we talked about the key ingredient to a government end around on financing. The rouse depends upon successfully perpetrating a deceit on the buyers. Secretary Geithner and Chairman Bernanke are the Penn and Teller of fixed income securities.
The situation is getting frothy and has spread throughout developed market auctions. The US Treasury has moved to adjust the bidding process to allow for negative submissions. We think 2 new securities will also be offered: CANs and ELBs. CANs are capital appreciation notes. Basically a Treasury security that wears like a commodity. ELBs are Embedded Loss Bills. ELBs are short term agreements to receive less than you paid for the instrument at predetermined dates in the future.
The USA is charging its citizens and the kind savers of the globe for the privilege of lending it money. (At least the Swiss do it in the open.) In the meantime, as growth is positive, debt is being extinguished in the process.
We advocated a move toward this faint as the crisis unfolded. Four years later, we feel the consequences could be long term devastating. That so many have queued up for the hallucination has shocked us. You don't have to bid the supply up here. In fact, system participants should collectively move back and demand some real protection. The sad fact is it ain't gonna happen.A small group of us are in the audience, watching the trick and hoping for intermission. The seats are filled and tickets are sold out for the foreseeable future.

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