With rates about to rise, due to the fact that demand is lackluster for Treasurie bonds, the Fed and its genius leader Ben Bernanke will have to continue along the road of quantitative easing. The Fed, which was forced into a corner long ago by a failed economic, monetary, and fiscal policy, is the lender, and buyer, of last resort. The world over has stated they are not comfortable propping up the US regime, and so the Fed will be forced to continue to do so.
Now that the US is on debt watch negative, the world has called the bluff of the Federal Reserve's monetary and fiscal policy. Monetarily, the Fed is wasting its dollars. Fiscally, the US is a joke. The recent budget did nothing to implement a way to end the ridiculous spending that has characterized the policy. The government has cut the programs that help the poor, elderly, and disabled, and this does nothing to dent the problems. The act of spending hundreds of billions of dollars a month and lending them to banks to facilitate the military industrial complex is the crux of the problem, and the US has shown it will never end this way of doing business. The banks need low rates for this to continue, and the Treasurie and Fed need bonds to sell at a premium to facilitate the program of military expenditures.
If rates rose, the interest on the debt would crush the US taxpayer. Higher rates will end the Keynesian system. So the Fed must print, by entering digits into the monetary base, and lend the said digits out. What will be done with the tens of trillions of dollars lent over the course of the last several years is not up to them, and nor do they care. They are merely in place to perpetuate, or as they say, provide stability, to the financial system.
The indirect bidders on the Treasurie bonds will continue to lesson support, the private dealers will continue to take their place and flip the bonds back to the direct bidders, which happens to be the Federal Reserve, and the Fed will use POMO to monetize the bonds and bills. It is the only way for the system to go on.
In the meantime, the Federal Reserve, which has loaned (ie leveraged) its gold assets to the absolute maximum, will let the precious metal appreciate, as so their loans are still yielding profit for the leases. This way, maybe, the world will not exit treasuries all at once. Maybe, they will only do so slowly, as they have for years now.
The system is now in overdrive, and the slightest butterfly could flap its wings and bring the whole system to an epic washout. However, the Federal Reserve, by proxie or mandate, will try and do everything in its power to continue the system. The lenders like to see budget cuts. The lenders like to continue with their gold leases. Yet the other Nation States of the world have problems of their own, and they only have to use the same solutions. Soon one State will step away from the madness, and a chain reaction will begin that will end the Keynesian policy that dictates economics.