Was this Crash Engineered by the Fed to Bolster Demand for Treasuries?

Posted by Lorimer Wilson

It was suggested 1.5 years ago that the next stock market crash might be one orchestrated by the Fed to  create interest from historic buyers of US debt. The scenario went like this: you let the stock market collapse (i.e. no interference by the infamous “Plunge Protection Team”) to generate a “flight to safety” environment which would push billions, if not hundreds of billions, of dollars into U.S. Treasuries, soaking up its increasing debt issuance and roll-over with little difficulty thereby flooding the bond market with much needed demand. Were the recent dramatic declines in the U.S. stock markets so engineered by the Fed?

The events of the past 2 months in Washington, where the underlying dire financial insolvency of the nation was blatantly ignored in favor of expedient short-term political posturing, has clearly demonstrated to the entire world the inability of the U.S. government to resolve the problem let alone even deal with it in a serious non-partisan way. It became very clear that holding the debt of a bankrupt country such as the U.S. was hardly a safe haven for assets.

I am not saying the Fed and friends did this but, given that the Fed is coming under increased scrutiny as public outrage rises, letting stocks come unhinged it perhaps the least politically controversial move the Fed could make as opposed to more quantitative easing which would really get the public upset. Letting the stock market crash would accomplish the following 3 things:

1) Create great demand for Treasuries (something the U.S. desperately),

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