Operation Twist

[opebo]

Fed is expected to take new action to lift economy
Fed is expected to announce new action to try to lower long-term rates and boost economy

Most economists expect the Fed to announce a plan Wednesday to shift money in its $1.7 trillion portfolio out of short-term securities and into longer-term holdings.

The plan the Fed is considered most likely to unveil Wednesday has been dubbed "Operation Twist" and dates to the early 1960s. The Fed used a similar program then to "twist" long-term rates lower relative to short-term rates.

Expectations that the Fed will do so again, along with renewed fears of another recession, have led investors to buy up U.S. Treasurys. Treasury yields have dropped in response.

[opebo]

Only two votes?  What is wrong with you people - this is happening right now, and is probably more important than what your worthless Republican government will do economically.

[opebo]

Well, its official, they're doing an operation twist, though my god the scale is terribly small - a mere 400 billion dollars, and they're selling short term to do it.

What I don't understand is why they don't just keep expanding the balance sheet - they should keep the short-term bonds and just create more money to buy the 10 and 30 year notes (and it should be about 3 or 4 times this 400 billion figure).  Selling the shorter term notes is silly - it creates less net liquidity than just creating the funds would do.

Ultimately I also don't know why the fed doesn't just take over the 'private' banking system and start giving out 60 year mortgages at say 0.25% or so, with no down payments required.

[Politico]

Well, its official, they're doing an operation twist, though my god the scale is terribly small - a mere 400 billion dollars, and they're selling short term to do it.

What I don't understand is why they don't just keep expanding the balance sheet - they should keep the short-term bonds and just create more money to buy the 10 and 30 year notes (and it should be about 3 or 4 times this 400 billion figure).  Selling the shorter term notes is silly - it creates less net liquidity than just creating the funds would do.

Ultimately I also don't know why the fed doesn't just take over the 'private' banking system and start giving out 60 year mortgages at say 0.25% or so, with no down payments required.

The Fed is not doing such nonsense because their top priority is still to keep inflation stable and low (i.e., 1-3%). If you ask me, that should be the sole focus of monetary policy. Current and previous inflation hawk Governors are pi$$ed right now, but their heads would burst from a collective aneurysm if the Fed engaged in your shenanigans.

[opebo]

The Fed is not doing such nonsense because their top priority is still to keep inflation stable and low (i.e., 1-3%). If you ask me, that should be the sole focus of monetary policy. Current and previous inflation hawk Governors are pi$$ed right now, but their heads would burst from a collective aneurysm if the Fed engaged in your shenanigans.

What nincompoops in that case.  Inflation is impossible when we have tens of trillions evaporating - replacing 20%-30% of what has disappeared cannot create inflation. Which is evidenced by the fact that we have been in deflation for years now.

[Sam Spade]

Doesn't something like this inevitably screw the banks, as their lending spread goes bye-bye?  Maybe that's what you want, but considering that most of them are, at best, dangerously close to the precipice of insolvency, isn't this a problem?

[opebo]

Doesn't something like this inevitably screw the banks, as their lending spread goes bye-bye?  Maybe that's what you want, but considering that most of them are, at best, dangerously close to the precipice of insolvency, isn't this a problem?

Of course this could be solved by the fed providing them with funds at either 0% or a negative interest rate.

[Politico]

The Fed is not doing such nonsense because their top priority is still to keep inflation stable and low (i.e., 1-3%). If you ask me, that should be the sole focus of monetary policy. Current and previous inflation hawk Governors are pi$$ed right now, but their heads would burst from a collective aneurysm if the Fed engaged in your shenanigans.

What nincompoops in that case.  Inflation is impossible when we have tens of trillions evaporating - replacing 20%-30% of what has disappeared cannot create inflation. Which is evidenced by the fact that we have been in deflation for years now.

Do you even know what deflation is?

[opebo]

Do you even know what deflation is?

Your tone is offensive, and you fail to elucidate any argument, politico, but I will indulge you.  What is the price of a house today compared to five years ago?

What about the wages compared to a decade ago or so ago?

Also, what is the amount of 'slack' in the economy?  The percentage of unemployed labor? The amount of under-utilized capital?