Skip to comments.Editorial: The Fed's New 'Operation' Is Twisted
Posted on 09/21/2011 4:50:42 PM PDT by Kaslin
Economy: Fed Chairman Ben Bernanke is reaching back 50 years for a "trick" to get the economy moving, but it won't work. Our problem today isn't monetary policy. It's government meddling.
The idea is simple: The Fed holds $1.7 trillion in Treasury debt. It wants to "rebalance" that by selling short-term debt and replacing it with long-term Treasuries. In theory, that would cut long-term interest rates, boosting investment in both housing and business.
Sounds good, but we've tried it before, in 1961. The strategy dubbed "Operation Twist" was supposed to keep rates low and give the economy a badly needed shot in the arm.
Did it work? When Operation Twist began, the 10-year Treasury traded around 3.7%. By the middle of the next year, it was above 4% and continued rising for most of the rest of the '60s.
Even Bernanke, in a paper written seven years ago, termed Operation Twist a "failure." So why should this time be any different? The answer is, it won't be.
More recently, Japan tried something quite similar over and over after it fell into a protracted slump in 1990. And, just as in the U.S., Japan's government tried repeated stimulus plans. It didn't work.
The Kennedy administration tried something else, however, that did work steep tax cuts. From a slow start, the 1960s turned into a boom decade that was later dubbed the "Go-Go Years."
(Excerpt) Read more at investors.com ...
I don’t see any way this thing isn’t going to auger itself right in to the ground. I just don’t. No manufacturing, What will people do?
~~my favorite blogFeds PlanGranted, it's only $400 billion, but "lend long and borrow short" is the universally acknowledged suicidal tendency for any bank. And the Fed is just a really big Bank.
"The central bank will buy $400 billion of bonds with maturities of six to 30 years through June while selling an equal amount of debt maturing in three years or less."
Surely the Board of Governors knows this. Why, then, do it? We can only surmise that they are buying $400 bn in treasuries from, say, the ECB, so that the ECB can continue to provide dollars to European banks.The ECB and central banks in the US, Japan, the UK and Switzerland announced today that they would offer US-dollar liquidity-providing operations with a maturity of approximately three months covering the end of the year.Yes, so let us see: Fed buys treasuries from ECB, giving ECB dollars. ECB buys the "three month or less" notes from the Fed, using them as collateral for the beleaguered banks? Well, if that's what it was all about, why didn't they just come out and say so?
This is a European bailout, plain and simple. Does this mean things are in a very advanced state of decline?
Are you plump and juicy? :)
If it gets bad enough, that is what people will do.
the real people?...Same thing they have always done...........buckle down and turn into small entrepreneurs.....I'm watching it happen...Some of the normally poor will make it....its an attitude!
Yeah, surrendering in advance to the currency war is “twisted,” alright. We’ll just shut down the remainder of American manufacturing and hand our country to our communist “trading partners.” Have fun with the fake treasuries regime added to the debt regime. Globalism stinks. No sale. We’re not buying. Starve already.
Nah, I’m boney and tough!! LOL!!
I’ll repair small engines, cars, refrigeration equip, swimming pools. Most anything!!
If the BO Justice Dept. keeps suing banks for “redlining” & “discrimination” (a.k.a. prudent lending practices) small business loans and jobs will NEVER start up again...