Key Points:

1) Investors were buying treasuries last October because they believed the financial system was insolvent. How do you think they would react to knowing broker-dealers took their money and never bought treasuries?

2) While Treasury fails have "declined substantially since the sep 2008 peak", the key point is why. They declined because central banks printed 2.5 trillion and handed it over to broker-dealers to settle those fails to deliver. This implies that the expansion in the central banks' balance sheet can never be undone.

3) There is nothing preventing broker-dealers from selling more IOUs if they run into another cash flow problem.

4) Broker-Dealers would not have sold treasury IOUs if they had any other source of funding available. This confirms that they trully are insolvent and have virtually cash on hand at all.

5) The US now owes over 1 trillion in foreign denominated debt, either directly through swap lines set up by the fed or indirectly via US financial institutions. The US can't print its way out of this debt.