Wednesday, June 20, 2012

The Fed Gets Even More Twisted

So the Fed has decided to extend "Operation twist" where it sells short-term U.S. government securities and buys longer termed securities. This will likely have little or no effect on short term yields while lowering long term yields, and will therefore lower overall borrowing costs for the U.S. government.

This is clearly good for the U.S. government who will benefit at the expense of the suckers who are stupid enough to buy its "securities". But considering how low yields are at the moment, the effect on the real economy will be very small. And even that effect will come entirely or almost entirely in the form of higher than otherwise inflation. So, this new "twisted" move will not reinvigorate the U.S. economy.