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Could It Turn Out to Be the Fed's 'Operation Twist of Fate'?


Oddly, given the convergence of many significant factors, it's quite possible -- completely contrary to prevailing viewpoints -- that the Fed's actions may have been too restrictive.

MINYANVILLE ORIGINAL With notable exceptions including David Einhorn and John Paulson, most people learned the hard way that you can't take it for granted that real estate just goes up every year without interruption, although for a very long time that seemed to be a reliable idea. What followed the mortgage meltdown of 2007-2008 was the biggest intervention of government-any government, anywhere, in history-into the financial markets and banking system, and this especially includes the three-phased "quantitative easing" QE1-QE2-QE3 monetary expansion conducted by the Federal Reserve Board, with the most recent phase now including purchases of mortgage backed securities and derivatives. In the phase just prior to that, the Fed conducted something called "Operation Twist," the simultaneous purchase of long-term treasurys against sales of short-term treasurys in the attempt to push down long rates at the expense of short term rates; i.e., "twist" the yield curve into making long-term borrowing more attractive to borrowers, believing this would stimulate real estate investment and the general economy.

These nuances aside, a whole lot of money has been introduced into the economy in the hope that the lending freeze that began with tumbling-and then completely frozen and illiquid-mortgage backed securities and their derivatives could be thawed, and ever since then, Austrian School monetarists have been crying foul and warning of the inflation dangers.

Others such as David Stockman, formerly President Reagan's Director of the Office of Management and Budget, have accused the Fed of destroying the commercial lending business by guaranteeing large banks a return on the so-called "carry trade": transactions by the "privileged few" among these institutions able to borrow fiat money at essentially no cost in order to purchase government bonds and thus pocket a 150- to 200-basis-point spread. The result, Stockman says, is completely removing the incentive to loan to commercial borrowers-that is to say, businesses and employers.

Here is an example of one of the more restrained things that have been said about Ben Bernanke and quantitative easing:

"…there is a downside to flooding the economy with new money: inflation. If you have more dollars and credit chasing roughly the same amount of goods and services in the economy prices will go up. And although it can take a while to see that inflation emerge in the economy, it often shows up immediately in commodities, which investors often turn to as a hedge against inflation. Hence the meteoric rise in the price of gold, which has stabilized somewhat lately, and, of course, oil."

-- Merrill Matthews, Contributor, Forbes, March 22, 2012

Indeed, for some people, words are simply inadequate for what they feel they need to express, as with this $20 shirt available at

That's got to say something right there, doesn't it? A T-SHIRT scorning the Chairman of The Federal Reserve Board, a figure who has over the Fed's 100-year history traditionally been obscure but today is not infrequently referred to as "public enemy number-one," the "savior of the economy" or even "more powerful than the president of the United States."
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