Comments 1 - 4 of 4 Search these comments
No idea. What ammo do they have left?
Reserve Requirements are low.
Interest Rates are rock bottom.
Doing something with long term interest rates?
Doing something with long term interest rates?
Which is what's Operation Twist. Maturing Short Term investments are taken and then Long Term investments are added to the Fed's portfolio. This has an effect of lowering the interest rate on the 7y, 10y and 30y T-notes. They're going to call it 'duration extension' of their portfolio. Which they hope will stimulate and help the economy.
I think this and excess reserve interest rate cuts (the Fed is paying 0.25% to the banks for depositing the money with the Fed) are the only two actionable options. Banks will be forced to lend the money if they cut interest rates on excess reserves, which I think will be very inflationary. We'll see.
Remember how Hank Paulson strong armed the banks back in 2008 to take the raw deal at that emergency meeting or else... I think Timothy Geithner has a great opportunity to get that tradition going given equally serious crisis today. Some how compel the banks to lend money to small business, make taking mortgages easier (banks take more risk), take principal hair cuts, etc, all this with verifiable time-bound targets...OR ELSE... Sorry, I am also not quite happy with this approach, but nothing else comes to mind that will make a dent.
http://www.calculatedriskblog.com/2011/09/wsj-fed-prepares-to-act.html
Option 1: Operation Twist.
Option 2: Cut interest rate on excess reserves, forcing banks to take lending risks with their reserves (hint...more inflation).
Option 3: Word magic and don't really do anything lol.
Option 1 is the most likely I think...any thoughts?