Bernanke on The Safe Asset Shortage.

Bernanke at Jackson Hole in 2010 when he hinted about QE2
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Bernanke at Jackson Hole in 2010 when he hinted about QE2

While the politicians seem to worry that at any moment the market might balk at buying Treasurys, the chairman of the Federal Reserve is worried about the opposite: a shortage of government bonds. \( Read more: Bernanke at Jackson Hole: No More Easing, For Now\)

The global demand for safe assets is something we've explored here at NetNet and the folks at FT Alphaville are positively obsessed with it.

But until today I didn't think that central bankers were paying much attention to the issue.

Here's Bernanke himself :

One possible cost of conducting additional LSAPs is that these operations could impair the functioning of securities markets. As I noted, the Federal Reserve is limited by law mainly to the purchase of Treasury and agency securities; the supply of those securities is large but finite, and not all of the supply is actively traded. Conceivably, if the Federal Reserve became too dominant a buyer in certain segments of these markets, trading among private agents could dry up, degrading liquidity and price discovery. As the global financial system depends on deep and liquid markets for U.S. Treasury securities, significant impairment of those markets would be costly, and, in particular, could impede the transmission of monetary policy. For example, market disruptions could lead to higher liquidity premiums on Treasury securities, which would run counter to the policy goal of reducing Treasury yields. However, although market capacity could ultimately become an issue, to this point we have seen few if any problems in the markets for Treasury or agency securities, private-sector holdings of securities remain large, and trading among private market participants remains robust.

( Read more: The Biggest US Debt Holders )

- by senior editor John Carney


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