'Blind' Fed Owns More US Treasuries Than China – Ruining Fixed-Income Policy Gauge

As long as there is confidence in the Fed, the Fed's strategy may pan out, right? Maybe. We don't even question the motives of the Fed. However, we question the Fed's ability to conduct policy when its policy makers are blindfolded. We fear that some of the Fed's most important gauges used to set policy have been taken away, by the Fed itself. – Merk Funds

Dominant Social Theme: If the Fed would only do a better job, thing could get better.

Free-Market Analysis: Merk Funds' Axel Merk just issued a commentary in which he points out, astonishingly, that the Fed "now owns more U.S. government debt than China." The ramifications are immense.

Merk has founded several currency funds during the decade and has been, from time to time, a fairly caustic critic of Western, mainstream monetary policy. This article, "Fed Flying Blind," certainly makes some interesting points. Here's one:

The Fed has engaged in Operation Twist, applying the Fed's firepower to lowering rates further out the yield curve (longer term interest rates). Indeed, the Fed now owns over 30% of all outstanding marketable U.S. Treasuries with maturities of 6-10 years; across the yield curve, from Treasury Bills to 30-year Treasury Bonds, the Fed has accumulated almost 20% of all outstanding securities.

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