"Some people have accused Ben Bernanke of lying when he denied that the Fed will monetize the government's deficit' in testimony. The chairman may actually be relying on a technicality here. As mentioned above, the Fed buys already existing bonds, so technically it is merely buying assets that represent deficits of the past, not current ones."(emphasis mine)
In practice, there is very little effort expended to hide what is going on. Consider that on June 13, the Fed bought nearly $5 billion in 10-year Treasury bonds at 11 AM. Just two hours later, the Treasury auctioned 10-year notes. The very next day, the Fed bought $2 billion in 30-year Treasuries two hours before the Treasury auctioned $13 billion in comparable securities. As ZeroHedge dryly noted at the time, the 10-year auction:
"...priced at terrific terms as there was a $4 billion hole created courtesy of the Fed if only for 2 hours"
In the mean time, the Treasury bubble is growing larger and larger with each passing month. A 'correspondent' quoted by Charles Hugh Smith in the above cited piece notes that
"Fed monetizing makes it so that Treasury borrowing doesn't negatively impact treasury markets and so Treasury rates don't increase."
In other words, the artificial demand created by the Fed is the only thing keeping the Treasury market afloat. If you believe that the Fed will eventually be forced to wind down its balance sheet (i.e. if you believe that the central bank's holdings will not simply pile up to the sky), then you can see how the Fed's actions and balance sheet actually pose the biggest systemic risk of all."
That's what I said. We are going to end the mother of all bond bubbles with quite the crash. Having moved the entire word to the short end ledge we will all fall off once rates start backing up.