Twist Paves the Way for QE III

“Earlier this week the Federal Reserve ignited a firestorm in the global markets by admitting that the U.S. economy is facing downside risks. Although it continues to sugar coat the unpleasant reality, never has such a stunningly obvious statement resulted in so much turmoil.

Once again we are seeing the knee-jerk market reaction to seek refuge in the perceived safety of the U.S. dollar and U.S. Treasuries. However I expect investors will soon discover that such assets are firmly in the eye of the storm. As the tempest moves on, those enjoying the dollar’s current stability may soon find themselves battered by a category five monster.

Market disappointment was compounded when the Fed failed to follow up its dire outlook with a new round of quantitative easing (QE). Instead, through a policy entitled “Operation Twist” the Fed promised to sell $400 billion of short-term Treasuries and use the proceeds to buy an equivalent amount of long-term Treasuries. The markets evidently perceived this “balance sheet neutral” policy as too timid.”

Via Schiff Radio

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  1. September 23, 2011 at 7:35 pm | #1

    “The Four Money Questions” tell me that the Fed just sidestepped the issue, robbing the future to cover the present. The time to raise and call, or fold, is coming, sooner than they think.

    http://georgesblogforum.wordpress.com/2011/09/16/the-four-money-questions-update-09-162011/

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