I'm just curious what you think of this new development? A scheme to drain liquidity out of the system. Since treasury needs buyers and Fed wants buyers is it possible that Fed will use the money drained to buy Treasury bonds?
Basically US Federal Reserve wants to issue it's own bonds so the banks can buy these thus taking cash out of the system which would also affect how much money the banks have on hand which they could use to lend out to the public. Now US Government Treasury also issues bonds for their expenses which to my understanding they will have about 2 trillion in bonds coming due in 2010 while having another trillion or so of deficit which means they will have about 3-3.5 trillion of new bonds. As these two institutions compete for buyers of their bonds is it possible that while foreigners may not have the appetite for 3 trillion worth of Treasuries the Fed will buy a buyer of these which they will use the money from their own bond sales instead of printing brand new money?