A fall in interest rates cannot grow the economy. All that it can produce is a misallocation of real savings. As a rule, an artificial lowering of interest rates (which is accompanied by the central bank’s monetary pumping — increasing commercial banks’ reserves) boosts the demand for lending; and this, as a rule, causes banks to [...]
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I will not include in this post any trite, cute “twisty” sayings about Operation Twist 2.0. announced by the Fed today; it’s bad enough out there without me adding to the din. The bottom line is that the Fed will extend its program to buy longer term maturity Treasurys to the end of 2012. This [...] Here’s a guess about what the Fed will say Wednesday following the FOMC meeting. There is no justification for another formal QE program, so I would be very surprised if one were announced (rather than hinted about). The two main reasons for this view is that the major crisis is in Europe, and the U.S. Federal [...] In Financial Repression Back to Stay, Carmen Reinhart spells out her thinking tonight on Bloomberg.com. The entire piece is worth reading, along with several graphs. Here are the intro and conclusion: As they have before in the aftermath of financial crises or wars, governments and central banks are increasingly resorting to a form of “taxation” [...] Under its “operation twist” the Fed will shift USD 400 bn of its Treasury portfolio with maturities of 3 years or less into 6 to 30-year maturities. In addition, it will reinvest principal payments from agency debt and agency MBS back into the agency market, to prevent a further spread widening between Treasurys and mortgage [...] For months, even before the end of QE2, analysts and prognosticators have been saying the Fed will have to do another QE and another, endlessly. These folks were surprised when it didn’t come last month, and predicted confidently that it would come this month especially because Bernanke extended the September meeting to two days. I [...] The markets didn’t like the Fed’s announcement today. When the FOMC announcement hit the tape at about 2:21 p.m., the market nose-dived. I think they were expecting more, such as a lower FF rate, or some QE, or reducing interest paid on bank reserves. Alas. Here is a chart of the S&P 500 today. You [...] The Fed announced Operation Twist today: the Committee decided today to extend the average maturity of its holdings of securities. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount [...] Will the Fed adopt “Operation Twist”, that failed policy tried in the 1960s? Goldman Sachs thinks so: Economists at Goldman Sachs said in a note late Monday that they expect the Fed, in increasing the average maturity of its bond holdings to stimulate the economy, to purchase a net $300-$400 billion in 10-year equivalent debt — [...] |
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