It's like they say in a business deal, if you look around the table and can't find the sucker, it's you.
So who's the sucker? China is unoading Treasury paper it bought paying 3-4% and the Fed is buying it when it pays 1-2%. When yields go up, the value of bonds goes down. Who's getting the best deal here?
Re: Much too short term in focus
tokyogai
3/9/2012 9:38:05 AM
It makes me wonder how smart iot is to hold our own debt. At least with China heavily involved, it provides some incentive not to kill our economy.
Scary chart du jour: The Fed will eagerly buy your Treasury paper... but then what?
If they ended Operation Twist, I'd hate to see the volatility in the bond yields! In fact given recent economic news they could easily shoot up 1% in no time.
Recent data indicates that China has been reducing the Treasury holdings as the Fed buys. The U.S. now owns more than 50% of its own debt. I guess we are making it easier for China to dump our debt by being the buyer of last resort.
@ValueHiker -- agreed, monetary easing is here to stay. And the markets appear to agree!
Re: Much too short term in focus
TelecomFreq
3/8/2012 1:03:24 PM
@tokyogai, I think you are right, it seems like all bets are off in an election year.
Re: Much too short term in focus
Value Hiker
3/8/2012 12:15:14 PM
Until Fed is sure about all these big banks at Wall Street like Goldman Saches really are strong enough, the monetary easing will not end. Don't forget that top 70% high level Fed's officers are closely related to the Wall Street firms. Saving Wall Street is the highest priority task, even the Fed tried to sell the public another story.
Re: Much too short term in focus
tokyogai
3/8/2012 11:28:56 AM
I'll bet your right. This is an election year after all.
All the smart non-government economists keep saying how much they'd like to see the Fed let Operation Twist end as scheduled and then resist the urge to meddle by doing any additional easing.
But don't you get the nagging feeling it won't play out that way? Who wants to bet Operation Twist will be extended through the second half of the year if bond yields start moving higher?
Much too short term in focus
tokyogai
3/8/2012 10:07:03 AM
I think the actiosn the Fed has undertaken in the last couple of years have all been focused on the short term. Some were needed to stabilize markets, but Operation Twist and several of the other programs you mention really have serious long term implications. Some amount of rise in money supply was needed to help ease the consequences of de-leveraging. But I think wehave moved to the arena of spurring uncontrollable inflation in the future. The economy just can not absorb these huge increases. Many foreigners have figured this out as the dollar continues to drop. I think we need a more realistic polcy going forward.
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