In an unprecedented move, the US Treasury is buying back its own long term debt in order to stop the surge in yields Calling it “liquidity support” But there’s one big problem with this… The government doesn’t run a surplus. So in order to buy back old debt, they have to borrow new debt Since they can’t borrow long term debt (that would make the buyback useless because they would be selling the exact thing they are buying) they have to borrow with short term debt What are the implications? Anyone calling this QE doesn’t understand it. Zero net effect on liquidity in the financial system overall. The government is simply swapping long term debt for short term. Same total debt and number of dollars exist as before. But the Treasury has blinked. Large treasury holders now know that if they need to get rid of a large volume of treasuries, they don’t need to worry about crashing the treasury market and losing value. The US will step in and buy what is necessary. This is a dangerous game and is exactly what led to the collapse of the Mississippi Bubble by John Law 300 years ago. It also means we are likely to see intervention from the Fed sooner rather than later. The Treasury can’t do this themselves forever because the treasury doesn’t print money. Either the Fed steps in with real QE, or they deregulate the banks (eliminate the SLR) so banks can buy unlimited treasuries and do QE for them. We’ll see.