Posted on 09/29/2011 9:35:55 AM PDT by Free Vulcan
Less than 10 days after the Federal Reserve announced a reprise of the “Operation Twist“ strategy it first used half a century ago, mortgage rates are at all-time lows.
Operation Twist is the Fed’s plan to squeeze the long end of the yield curve by buying long-term Treasurys instead of short-term ones — in other words, increasing demand and lowering the rates for long-term borrowing.
(Excerpt) Read more at marketwatch.com ...
Yeah. It's so unfreakingbelievably incredible, that it affect cap goods orders placed a month before it was announced.
This is all you need to know about "twist," imho:
This is a European bailout, plain and simple.
The Fed has exchanged short-term debt for long-term debt.
Once US creditors have been locked into long-term treasuries, they will be wiped out by inflation.
US treasury issuance has turned into a Venus fly-trap.
Except that there's a market and they will sell into it. That will raise interest rates astronomically. The only answer will be digging the easement and twisting hole deeper or speeding up the inflation to make it impossible to avoid (e.g. overnight devaluation).
It’s working for us. We’re refinancing for the second time in a year. Our 15 year will be under 3.25. Unbelievable.
The European bailout is the Feds promise and actions to provide the ECB with unlimited dollars in exchange for euro-denominated Sovereign debt that could end up being worthless.
I believe that the intent is (once inflation becomes obvious) for the Fed to buy these LT treasuries back: probably by declaring that they will 'preserve the long-term interest rate'.
By setting a target rate which they protect, rather than an amount they will buy, they can effectively use one policy to implement QE for ever: and the whole process is just complex enough a) not to be obvious money printing and b) allow kickbacks to selected partners of the FED.
Oh, I see. So how will the dollars get there, and the euro-denominated sovereign debt get to the Fed, by magic?
Well, if you call electronic banking magic, then yes.
Only diamonds are forever and QE ain’t no diamond.
But I admit I may be misremembering. My head's spinning just trying to keep track of who's paying what to whom with whose money. Who would have thought stealing money from the tax-payers would be so complex?
the Fed moves money by buying and selling securities.
I didn’t expect you to be satisfied with my pithy response - sarcasm begets that from me.
Are you familiar with finance? Do you understand what a swap is, or an LTRO?
So now you can get a historically cheap mortgage that you have almost zero chance of qualifying for. Thanks a bunch!
Naturally not.
A QE process couched as protecting an interest rate has far more political longevity than the previous lump-sum arrangement: but in the end people are going to run, not walk, from the devaluing dollar and it all becomes moot.
The Fed can protect either the dollar or the interest rate. And we know which they will choose.
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