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View Full Version : Economics Will Fed announce QE3 today? Operation Twist?


banyon
09-21-2011, 10:07 AM
Markets Betting On Operation Twist
3 comments | September 20, 2011 | includes: IEF, TENZ


By Paul Quintaro

On Monday morning CNBC reported that in a survey the network had conducted, 70% of respondents predicted that the Federal Reserve would undertake an 'Operation Twist' in the near future.

Further, almost 80% of respondents who predicted Operation Twist believed that the Fed would act this week.

The Federal Open Market Committee (FOMC) is set to meet on Tuesday for the start of a special two-day meeting. If the Fed decides to roll out Operation Twist this week, the FOMC meeting may be the most likely time.

In the 1960s, the Fed conducted the original Operation Twist, and many are assuming that the Fed would follow a similar strategy now as back then.

Under the original Operation Twist, the Fed purchased long-term bonds in an effort to drive down long-term interest rates, rather than drive down shorter-term interest rates.

To drive down longer-term interest rates, the Fed may target a specific security.

Which longer-dated security would the Fed target? One possibility may be the 10-year.

The interest rate on the 10-year is typically used to set rates on various consumer loans, including mortgage rates. A lower 10-year rate may support a recovery in the housing market and help to reduce unemployment in the broader American economy.

Still, interest rates are at a historic low, as the yield on the 10-year remains near 2%. Would lowering the interest rate more make a noticeable difference?

Further, are market participants able to accurately predict the moves of the Fed?

Back in June, Bloomberg conducted a survey of foreign exchange professionals that found that nearly 2/3 of them did not believe the Fed would engage in a third round of quantitative easing (QE3).

Thus far, that prediction has proved accurate, as the Fed has not engaged in a third round after the second round concluded back in June. Still, an Operation Twist would in a way be a modified version of a QE3, as it may amount to the Fed purchasing more treasurys.

Does the Fed even need to act?

Former Fed Chairman Paul Volcker is skeptical of further action.

On Sunday, Volcker published an op-ed in the New York Times entitled, “A Little Inflation Can Be a Dangerous Thing.”

In the piece, Volcker argued that raising inflation in the economy (through further Fed action), even in the current economic state, was a dangerous move.

Volcker—although liberal politically—is a noted inflation hawk who is famed for having orchestrated the successful reduction in the rate of inflation in the early 1980s.

Volcker did not take aim at any specific FOMC members in his piece, but did state that, “at least one member of the Fed’s policy making committee recently departed from the price-stability concept.”

He may have been speaking about Chicago’s Charles Evans, who recently made comments that explicitly called for further action.

Wednesday afternoon may then set the tone for the week. Will the Fed unveil Operation Twist? If so, will we see the inflation Volcker fears going forward?

http://seekingalpha.com/article/294763-markets-betting-on-operation-twist

http://www.simoleonsense.com/wp-content/uploads/2008/12/bernanke-qe-cartoon.png

FD
09-21-2011, 12:24 PM
I sure hope so. The Fed has been basically sitting on its hands with 9% unemployment and below target inflation. Almost any action would be welcome.

Calcountry
09-21-2011, 12:52 PM
I sure hope so. The Fed has been basically sitting on its hands with 9% unemployment and below target inflation. Almost any action would be welcome.10 dollar boxes of corn flakes, can't be very far around the corner.

banyon
09-21-2011, 01:30 PM
$400 billion to "Operation Twist"

cookster50
09-21-2011, 01:34 PM
Come on baby, let's do the twist!

Jaric
09-21-2011, 01:37 PM
Operation Twist? I'm not sure if that's honesty or laziness.

petegz28
09-22-2011, 06:32 AM
Stupid! Every expert I listened too yesterday said how stupids this is.

Saul Good
09-22-2011, 10:11 AM
The market is sure responding well.

Otter
09-22-2011, 10:18 AM
Is Canada accepting applications?

It's ****ing scary trying to figure out how all this is going to end up. The worst part is no one knows so you can't plan.

FD
09-22-2011, 10:22 AM
Stupid! Every expert I listened too yesterday said how stupids this is.

Why do you think its stupid?

Saul Good
09-22-2011, 10:30 AM
Why do you think its stupid?

The Dow has just given us 400 reasons.

FD
09-22-2011, 10:36 AM
The Dow has just given us 400 reasons.

Why do you think the Dow fell after the Fed announced the bond swap?

Donger
09-22-2011, 10:48 AM
Why do you think its stupid?

As I understand it, this is designed to lower interest rates in order to stimulate people requesting loans. But aren't interest rates already at or near historically low levels?

petegz28
09-22-2011, 11:46 AM
Why do you think its stupid?

Because it's stupid. We lowered short term interest rates to record level. Since that didn't work let's lower the rates that we didn't intentionall lower..that'll fix it!

This is like some clown trying to fix a broken engine by changing the tires. What purpose will this serve? Bernanke doesn't seem to get the fact that there is no demand for anything and his measures keep driving up the costs of goods that economists like to ignore but average people depend on daily.

This is not soley on the shoulders of the Fed. This has a lot to do with some bullshit laws and regulations Congress passed as well. I've said this 10000000000000 times, lower interest rates are only good when people are in a position to take advantage of them. Right now, most are not. Meanwhile, while people are worried about their jobs, Bernanke is driving up the cost of food and energy which in turn is taking more money out of the economy where he is directly trying to inject money.

It's fucking simple....it's about JOBS! Not interest rates. I don't give a flying fuck how low rates are, people aren't going to borrow if they aren't secure in their job picture. Businesses are not going to borrow if people aren't walking in their front door.

Shoving $'s to banks isn't any good when A) the rates are so low they don't make any money...B) While the Congress urges them to lend more they also tell them to keep raising their capital levels. It's like trying to tell someone they need to run instead of walk as you chain a cinder block around their ankle.

FD
09-22-2011, 11:55 AM
Because it's stupid. We lowered short term interest rates to record level. Since that didn't work let's lower the rates that we didn't intentionall lower..that'll fix it!

This is like some clown trying to fix a broken engine by changing the tires. What purpose will this serve? Bernanke doesn't seem to get the fact that there is no demand for anything and his measures keep driving up the costs of goods that economists like to ignore but average people depend on daily.

This is not soley on the shoulders of the Fed. This has a lot to do with some bullshit laws and regulations Congress passed as well. I've said this 10000000000000 times, lower interest rates are only good when people are in a position to take advantage of them. Right now, most are not. Meanwhile, while people are worried about their jobs, Bernanke is driving up the cost of food and energy which in turn is taking more money out of the economy where he is directly trying to inject money.

It's ****ing simple....it's about JOBS! Not interest rates. I don't give a flying **** how low rates are, people aren't going to borrow if they aren't secure in their job picture. Businesses are not going to borrow if people aren't walking in their front door.

Shoving $'s to banks isn't any good when A) the rates are so low they don't make any money...B) While the Congress urges them to lend more they also tell them to keep raising their capital levels. It's like trying to tell someone they need to run instead of walk as you chain a cinder block around their ankle.

So you think the bond swap is inflationary, and thats why its stupid? How is it inflationary? Ineffective is not the same thing as bad. Long term rates declining by 10-20 basis points may not be a huge boon to an economy, but is it really worse than nothing?

Amnorix
09-22-2011, 12:04 PM
So you think the bond swap is inflationary, and thats why its stupid? How is it inflationary? Ineffective is not the same thing as bad. Long term rates declining by 10-20 basis points may not be a huge boon to an economy, but is it really worse than nothing?

Pete has this weird idea that higher rates will stimulate growth. He went on and on about it in a previous thread. Let's just say that that is an unusual approach indeed.

Amnorix
09-22-2011, 12:06 PM
Because it's stupid. We lowered short term interest rates to record level. Since that didn't work let's lower the rates that we didn't intentionall lower..that'll fix it!

This is like some clown trying to fix a broken engine by changing the tires. What purpose will this serve? Bernanke doesn't seem to get the fact that there is no demand for anything and his measures keep driving up the costs of goods that economists like to ignore but average people depend on daily.

This is not soley on the shoulders of the Fed. This has a lot to do with some bullshit laws and regulations Congress passed as well. I've said this 10000000000000 times, lower interest rates are only good when people are in a position to take advantage of them. Right now, most are not. Meanwhile, while people are worried about their jobs, Bernanke is driving up the cost of food and energy which in turn is taking more money out of the economy where he is directly trying to inject money.

It's fucking simple....it's about JOBS! Not interest rates. I don't give a flying fuck how low rates are, people aren't going to borrow if they aren't secure in their job picture. Businesses are not going to borrow if people aren't walking in their front door.

Shoving $'s to banks isn't any good when A) the rates are so low they don't make any money...B) While the Congress urges them to lend more they also tell them to keep raising their capital levels. It's like trying to tell someone they need to run instead of walk as you chain a cinder block around their ankle.


Even if all this is true, all the Fed can do is deal with credit / money issues. They don't have any tools at their disposal to try to create jobs. That's on Congress and the President to do something if they want. Lately they're not doing anything.

I do agree, by the way, that the root of the current problem is high unemployment.

FD
09-22-2011, 12:10 PM
Pete has this weird idea that higher rates will stimulate growth. He went on and on about it in a previous thread. Let's just say that that is an unusual approach indeed.

I remember Pete's famous "Interest Rates Rising Soon" thread, where he predicted big jumps in rates, I'm pretty sure rates have fallen about 1.5% since he made that prediction. I bet he'd like to take that one back.

petegz28
09-22-2011, 01:14 PM
I remember Pete's famous "Interest Rates Rising Soon" thread, where he predicted big jumps in rates, I'm pretty sure rates have fallen about 1.5% since he made that prediction. I bet he'd like to take that one back.

Yes, I was wrong. But tha thad more to do with Europe, imo than anything. I also said though I believe back in March that this bull run was coming to an end. So I am 1-2 and I can live with that.

petegz28
09-22-2011, 01:19 PM
Pete has this weird idea that higher rates will stimulate growth. He went on and on about it in a previous thread. Let's just say that that is an unusual approach indeed.

You have to qualify the word "higher". I have done so. I think a stronger $ would benefit this country right now immensely. Retiree's are making dick on their savings. Your average family is making dick on their savings. Thus they are saving more. And the worst part of it is because they can't make 4%-5% on their savings they are being forced into the stock market only to watch their savings go away even faster.

Lower interest rates has been tried now for the last several years and it has brought us dick. Strengthen the $ some, bring down the costs of food and energy and people will suddenly find they have a few more $'s to spend on more luxury type items. Retiree's or people who depend on the interest form their savings would suddenly be in a position to spend more and have to save less. This isn't rocket science. Nothing good is coming out of the low interest rate environment. All we got for it was a baseless run in the market which has now burned to ashes. So what does the Fed do? More of the same just different.

FD
09-22-2011, 01:20 PM
You have to qualify the word "higher". I have done so. I think a stronger $ would benefit this country right now immensely. Retiree's are making dick on their savings. Your average family is making dick on their savings. Thus they are saving more. And the worst part of it is because they can't make 4%-5% on their savings they are being forced into the stock market only to watch their savings go away even faster.

Lower interest rates has been tried now for the last several years and it has brought us dick. Strengthen the $ some, bring down the costs of food and energy and people will suddenly find they have a few more $'s to spend on more luxury type items. Retiree's or people who depend on the interest form their savings would suddenly be in a position to spend more and have to save less. This isn't rocket science. Nothing good is coming out of the low interest rate environment. All we got for it was a baseless run in the market which has now burned to ashes. So what does the Fed do? More of the same just different.

The dollar soared when the Fed announced its bond swap. So remind me again whats so stupid about it?

petegz28
09-22-2011, 01:23 PM
So you think the bond swap is inflationary, and thats why its stupid? How is it inflationary? Ineffective is not the same thing as bad. Long term rates declining by 10-20 basis points may not be a huge boon to an economy, but is it really worse than nothing?

Yes it could very well be worse than nothing. We have seen what lowering interest rates to record levels has done. Nothing. So why do more of the same? Obviously it isn't interest rates that are the problem. If the Fed did nothing it puts more pressure on Congress who is the more guilty of the two parties to actually do something of benefit. Everytime Bernanke pulls shit like this it gives them cover. Nevermind the fact I don't think Bernanke has been right about anything, ever, since this whole thing started.


Why is it so hard, for those who seem to champion the "little guy" when it comes to taxes, to champion lower costs of fuel and food? Do you think they don't get hurt just as bad if not worse if they have to pay more for food and gas than they wouldif they had to pay higher taxes?

FD
09-22-2011, 01:25 PM
Yes it could very well be worse than nothing. We have seen what lowering interest rates to record levels has done. Nothing. So why do more of the same? Obviously it isn't interest rates that are the problem. If the Fed did nothing it puts more pressure on Congress who is the more guilty of the two parties to actually do something of benefit. Everytime Bernanke pulls shit like this it gives them cover. Nevermind the fact I don't think Bernanke has been right about anything, ever, since this whole thing started.


Why is it so hard, for those who seem to champion the "little guy" when it comes to taxes, to champion lower costs of fuel and food? Do you think they don't get hurt just as bad if not worse if they have to pay more for food and gas than they wouldif they had to pay higher taxes?

You might have a point if there was anything inflationary about a bond swap. There isn't. The price of oil fell on the Fed's announcement.

petegz28
09-22-2011, 01:25 PM
The dollar soared when the Fed announced its bond swap. So remind me again whats so stupid about it?

The $ soared out of a flight to safety and nothing more. But I will throw you a bone and say that there is a possibility that with the official take that the Fed will now focus on long term rates as opposed to shorter term you may see a small rise on the short end giving the $ a boost.

The dollar was also a beneficiary of a massive fear trade that sent U.S. stocks sharply lower, on the heels of steep sell-offs in equities markets around the globe.

http://www.cnbc.com/id/44626413

petegz28
09-22-2011, 01:26 PM
You might have a point if there was anything inflationary about a bond swap. There isn't. The price of oil fell on the Fed's announcement.

Everything fell because people were scrambling for the $. Again, I don't believe it had anything to do with QE Twist as much as overall global panic.

Saul Good
09-22-2011, 01:28 PM
Is there really anyone at this point saying, "I'd love to pull the trigger on this large purchase\investment\whatever, but the interest rates are just too high"?

petegz28
09-22-2011, 01:29 PM
"The activity on the part of the Fed is really going to make it difficult for banks to make money unless they start lending. That's what the Fed hopes will happen. Their rationale for doing this is to promote risk taking," he said.

Banks can't lend when people don't apply for loans. See how this works. The Fed wants to give someone a flu shot to help fix a knife wound.