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McCoy profile picture
McCoy
@McCoy

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https://mccoy2016.me/website
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Recent Notes

McCoy profile picture
Maple AI: Austrian Ecomonics:
"Policy Implications: Limited Government & Free Markets:
Core Idea: Based on their analysis of knowledge, incentives, and process, Austrians consistently conclude that voluntary exchange within a framework of strong property rights and minimal government intervention leads to the most efficient, dynamic, and prosperous outcomes. Government intervention (price controls, regulations, central planning, monetary manipulation) distorts signals, creates discoordination, and leads to inefficiencies or crises.
Implication: Strong advocacy for laissez-faire capitalism, free trade, and radical limitations on state economic power. Deep skepticism of government solutions to economic problems."
McCoy profile picture
Maple AI:
"In essence, Austrian Economics provides a framework for understanding the economy as a complex, dynamic process driven by the subjective valuations, dispersed knowledge, and purposeful actions of individuals, coordinated primarily through the price system and entrepreneurial rivalry within free markets, and arguing that government intervention often disrupts this intricate process."
Fox trot · 5d
You stand upon the threshold of the Planck scale, yet you mistake a resolution limit for the fundamental fabric of reality. While the Planck time ($5.39 \times 10^{-44}$ s) represents the interval where classical physics fails and quantum effects dominate, it is not a proven "pixel" of duration.
McCoy profile picture
"Space is associated with the structure of the hypergraph, yet time is associated with computation on it."
S. Wolfram
Jack K · 6d
Oh thank you for doing so! It would be wonderful to speak to wolfram about Bitcoin and time and his hypergraph. He is certainly one of the closest people to the answer. I believe if he understood Bitcoin he would have all the parts necessary to realize the theory. Wolfram is a major influence in t...
Jack K · 6d
We need to get Wolfram’s community to nudge him to look at Bitcoin as the instantiation of his hypergraph in a real empirical system. Federico Faggin too in other ways.
McCoy profile picture
Warsh appointment is noise

Signal:
The FED doesn't control the interest rates. Who cares what the short-term (T-bills + T-notes) rate is? No one should. 10yr+ bonds is what counts. Fewer buyers of US bonds is the problem: a strong signal that the world/market no longer trusts US-bonds as reliable store of value. Yield curve control (YCC) is also a BS term. Call it what it is: they (FED) step in and buy the unwanted bonds with printed money to keep the rates lower. $7-8 trillion is due (rolling over) in 2026 and they will likely have to print (= YCC) to make sure rates don't spike.

Full on ponzi
Buy and hold real money they cant print
1
🇮🇹Davide btc ⚡ · 1w
yep, fed's got a problem - people losing faith in us-bonds. no surprise there
ZeroHedge News (RSS Feed) · 1w
Dreadful 10Y Auction Sees Biggest Tail Since 2024, Foreign Demand Slides Dreadful 10Y Auction Sees Biggest Tail Since 2024, Foreign Demand Slides After yesterday's mediocre 3Y auction (w...
 McCoy profile picture
McCoy @McCoy
Maple AI breakdown:
<think>
Okay, the user wants me to explain a complex financial auction report in simple terms. This text is packed with Treasury auction jargon that would confuse anyone outside finance.

First, I need to unpack the key elements: Treasury auctions, yields, bid-to-cover ratios, and buyer categories. The user likely doesn't care about terms like "tail" or "SOMA" - they just want to understand why this auction was considered bad and its effects.

The report describes two failed auctions (3-year and 10-year). For simplicity, I'll compare it to a farmer's market where no one wants overpriced potatoes. The yield is the price the government pays to borrow money - when it's high, it's bad for borrowers like the government.

The "tail" concept is tricky - it's the gap between expected and actual yield. I'll visualize it as a farmer hoping to sell at $1/lb but having to settle for $1.014. That disappointment matters because big buyers (Indirects/Directs) lost interest, forcing middlemen (Dealers) to buy more potatoes than they wanted.

The aftermath is interesting: yields rose AFTER the auction despite the bad news. That's counterintuitive! I should explain this through investor psychology - they saw the poor demand and bet yields would keep climbing.

The user might be a novice investor or just curious about financial news. They didn't ask for advice, so I'll stick to explaining concepts. No need to mention bitcoin or high-beta stocks unless tying them to the broader market reaction.

The tone should stay light - maybe tease Bloomberg's bad predictions but not dwell on it. Focus on why this auction made traders nervous about government borrowing costs rising. That's the core takeaway.
</think>
Here's a breakdown of that financial jargon into simple concepts:

1. **What Happened:** The US government (Treasury) held an auction to sell its 10-year loans ("bonds" or "paper") to investors.
2. **Why it was Bad ("Dreadful"):**
* **Low Demand:** Not many investors wanted to buy these bonds compared to recent auctions.
* **High Cost for Government:** The government had to offer a higher interest rate (4.177%) than they *hoped* to offer (4.163%) to sell them. This "gap" (1.4bps) was the biggest miss in months.
* **Fewer Bidders:** The ratio showing how many bids there were vs. bonds sold ("Bid to Cover" = 2.388) was the lowest in over a year.
* **Big Buyers Stayed Away:**
* **Foreign Buyers ("Indirects"):** Their participation (64.5%) was the lowest in a year, well below average.
* **Domestic Big Players ("Directs"):** Their participation (22.1%) dropped significantly from the month before.
* **Middlemen Got Stuck:** Because big buyers weren't interested, Wall Street banks ("Dealers") had to buy a bigger chunk (13.54%) than usual - essentially leftovers they didn't really want.

3. **Why it Wasn't Worse:**
* The Federal Reserve ("Fed's SOMA") bought a large amount ($11.9 Billion), which helped prevent the auction from being an *even bigger* failure. They essentially stepped in as a buyer.

4. **The Weird Result (Why Rates Rose AFTER the Auction):**
* **Auction Shows Weakness:** The terrible auction proved investors have little appetite for US government debt.
* **Investors Panic:** Seeing this weak demand, investors thought, "If no one wants US bonds *now*, the government will have to offer *even higher* interest rates to sell them *in the future* to borrow money."
* **Selling Existing Bonds:** Investors holding *existing* 10-year bonds immediately tried to sell them. Why? Because they thought new bonds would soon pay more interest, making their existing bonds (with slightly lower rates) less attractive.
* **Bond Prices Fall, Yields Rise:** Selling pressure drives down the *price* of existing bonds on the secondary market. Remember, **bond prices move inversely to yields (interest rates)**. So when prices fall, yields rise.
* **Result:** The yield on the *existing* 10-year bond quickly jumped from 4.15% to 4.17%, *even though the auction itself showed weak demand*. It was a reaction to the fear of *future* higher rates.

**Simple Analogy:**

Imagine the US government is a farmer auctioning potatoes:
1. **Mediocre Sale Yesterday (3Y):** The previous day's potato auction was okay but not great (less foreign buyers, but some big local orders).
2. **Bad Sale Today (10Y):**
* Fewer buyers showed up overall.
* The farmer had to accept a price *lower* than he hoped ("tailed" the expected price).
* Big restaurants (Foreign buyers) and grocery chains (Domestic institutions) bought way fewer potatoes than usual.
* Middlemen (Dealers) got stuck with a huge pile of potatoes nobody else wanted.
* Only the government's own bulk buyer (The Fed) saved the day by buying a large amount.
3. **Market Reaction:** Seeing the farmer struggle to sell potatoes *today*, potato traders in the market thought, "Uh oh, nobody wants potatoes! The farmer will probably have to make them *cheaper* (offer higher interest rates) *tomorrow* to sell them." So, they immediately started selling the potatoes they already had, causing the *current market price* for potatoes to fall. (In bonds, a falling price means a rising yield/interest rate).

**In a Nutshell:** The government had a really hard time selling its 10-year debt. Big investors didn't want it. This failure made existing bondholders so scared that interest rates will need to go *even higher* soon that they sold their current bonds, causing interest rates to rise *immediately*.
McCoy profile picture
FED never produced anything, they were initially minimally funded.... they actually printed virtually all of it....

How Asset Purchases Work (Mechanics):

When the Fed decides to buy an asset (like a Treasury bond or MBS), it does the following:

Identifies the Seller: The Fed buys assets from banks, primary dealers, institutional investors, etc., usually through auctions in the open market.
Credits Reserves: The Fed pays for the asset by crediting the reserve account of the seller's bank.
Example: Imagine the Fed buys a $1 million Treasury bond from Investment Fund A, which banks at MegaBank.
The Fed adds the bond to its assets on its balance sheet.
Simultaneously, the Fed creates $1 million in new digital reserves and credits MegaBank's reserve account at the Fed (adding to the liabilities side of its balance sheet).
MegaBank then credits Investment Fund A's account by $1 million.
Key Points:
No Pre-existing Money Needed: The Fed doesn't draw down a bank account funded by taxes or borrow money to make these purchases. It creates the payment digitally at the moment of purchase.
Balance Sheet Expansion: Each asset purchase simultaneously increases both the Assets (the bond or MBS) and Liabilities (the newly created reserves) on the Fed's balance sheet. The Fed's balance sheet grows when it buys assets.
Initial Capital (1913): While the Fed creates its operational money, it did start with initial capital provided by member banks.
Commercial banks that joined the Federal Reserve System were required to purchase shares (stock) in their regional Federal Reserve Bank. These shares paid a fixed dividend (6% by law), but did not confer control like regular stock. This initial capital provided a small buffer, but it was tiny compared to the Fed's balance sheet today and was not the source of funds for asset purchases.
Gold Certificates (Historically): In the early decades under the gold standard, the Fed did hold gold certificates (backed by gold held at the Treasury). This provided a form of backing for the currency it issued, but the mechanism for paying for asset purchases was still primarily the creation of reserves or the issuance of notes, albeit constrained by gold reserve requirements. The gold wasn't "spent" to buy assets; it acted as collateral limiting how much the Fed could create.
Earnings & Seigniorage: The Fed earns interest on the assets (bonds, MBS) it holds. After covering its operating expenses and paying the statutory dividend to member banks, the Fed remits the vast majority of its earnings back to the U.S. Treasury. This is a form of government revenue called seigniorage. However, these earnings are a result of holding the assets, not the source of funds to buy them.

In Summary:
The Federal Reserve didn't get "money" from somewhere else to start buying assets. Its foundational power, granted by Congress, is the authority to create U.S. base money – both physical currency (Federal Reserve Notes) and, crucially for asset purchases, digital bank reserves. When the Fed buys an asset, it pays for it by creating new reserves out of thin air and crediting the seller's bank. This is the essence of its ability to conduct monetary policy and expand the money supply. Initial capital from member banks and historical gold holdings provided structure and constraints, but not the operational funds for purchases.
McCoy profile picture
*FED acting as the Treasury's Agent*

From Maple AI. Fed Reserves Assets:
"Foreign Currency (Intermittently, Especially Post-Bretton Woods):
The Fed holds relatively small amounts of major foreign currencies (euros, yen, etc.).
Used historically for foreign exchange (FX) intervention, in coordination with the Treasury, to influence the value of the U.S. dollar. (Note: The Treasury, via the Exchange Stabilization Fund, is the primary actor, but the Fed acts as its agent)."