(August 25, 2009)

Executive Summary

* The Federal Reserve and the federal government are attempting to "plug the gap" caused by a slowdown of private credit/debt creation.

* Non-US demand for the dollar must remain high, or the dollar will fall.

* Demand for US assets is in negative territory for 2009

* The TIC report and Federal Reserve Custody Account are reviewed and compared

* The Federal Reserve has effectively been monetizing US government debt by cleverly enabling foreign central banks to swap their Agency debt for Treasury debt.

* The shell game that the Fed is currently playing obscures the fact that money is being printed out of thin air and used to buy US government debt.

The Federal Reserve is monetizing US Treasury debt and is doing so openly, both through its $300 billion commitment to buy Treasuries and by engaging in a sleight of hand maneuver that would make a street hustler from Brooklyn blush.

This report will wade through some technical details in order to illuminate a complicated issue, but you should take the time to learn about this because it is essential to understanding what the future may hold.