{"id":5763,"date":"2011-09-21T16:33:57","date_gmt":"2011-09-21T23:33:57","guid":{"rendered":"http:\/\/www.stiftungleostrauss.com\/bunker\/?p=5763"},"modified":"2014-01-09T10:16:30","modified_gmt":"2014-01-09T17:16:30","slug":"the-fed-throws-a-spit-ball","status":"publish","type":"post","link":"http:\/\/www.stiftungleostrauss.com\/bunker\/the-fed-throws-a-spit-ball\/","title":{"rendered":"The Fed Throws A Spit Ball"},"content":{"rendered":"<p><b>A<\/b>s the American Lost Decade(s) unfold, the Federal Reserve&#8217;s options to influence economic output dwindle.   Today, the Fed confirmed the economic horizon will remain bleak.  It also announced it would sell $400 billion of its near dated Treasuries and buy longer maturity ones.  In a nut shell, Bernanke is trying to keep today&#8217;s free money and &#8216;bend&#8217; the long term interest rates lower.  The move (like earlier QE2) will have little impact in real economic output. <a href=\"http:\/\/www.bloomberg.com\/news\/2011-09-21\/most-asian-stocks-oil-fall-as-yen-climbs-on-fed-meeting-growth-outlook.html\"> The markets understandably aren&#8217;t impressed and fell on the grim forecast<\/a>: <\/p>\n<blockquote><p> The Fed will replace some shorter-term debt in its portfolio with longer-term Treasuries in an effort to further reduce borrowing costs and keep the economy from relapsing into a recession, confirming market speculation that policy makers were planning an \u201cOperation Twist\u201d similar to a program in 1961.<\/p>\n<p>\u201cMarkets took note of the Fed\u2019s downward revision of the economic outlook and upgrading of downside financial risks,\u201d Mohamed A. El-Erian, chief executive officer at Pacific Investment Management Co. in Newport Beach, California, wrote in an e-mail. Pimco is the world\u2019s largest bond-fund manager. \u201cWhile Fed purchases can influence Treasury and mortgage valuations, it is limited in its ability to deliver economic outcomesz&#8221; . . . <\/p>\n<p>The Fed also said today it will reinvest maturing housing debt into mortgage-backed securities instead of Treasuries. \u201cThe mortgage story is the most important part,\u201d said William Larkin, a fixed-income money manager who helps oversee $500 million at Cabot Money Management Inc. in Salem, Massachusetts. \u201cThis goes right to the source. This will create a wave of refinancings on the mortgage side.\u201d<\/p><\/blockquote>\n<p><b>I<\/b>n short, the Fed&#8217;s move will not impact the real economy but might have some impact on artificial economic activity like re-financing, although that market segment is not infinitely elastic &#8212; i.e., many have already re-financed and now weigh the costs (aggravation as well as real) versus marginal benefit.  <a href=\"http:\/\/www.nakedcapitalism.com\/2011\/09\/the-fed-twists-in-the-breeze.html\">Naked Capitalism also notes the flattening long term rate will undercut the basic business model of the banking system as a whole.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>As the American Lost Decade(s) unfold, the Federal Reserve&#8217;s options to influence economic output dwindle. Today, the Fed confirmed the economic horizon will remain bleak. It also announced it would sell $400 billion of its near dated Treasuries and buy longer maturity ones. In a nut shell, Bernanke is trying to keep today&#8217;s free money [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","two_page_speed":[],"footnotes":""},"categories":[15],"tags":[27,173],"class_list":{"0":"post-5763","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-economic-meltdown","7":"tag-economic-reform","8":"tag-federal-reserve","9":"entry"},"aioseo_notices":[],"_links":{"self":[{"href":"http:\/\/www.stiftungleostrauss.com\/bunker\/wp-json\/wp\/v2\/posts\/5763","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/www.stiftungleostrauss.com\/bunker\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.stiftungleostrauss.com\/bunker\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.stiftungleostrauss.com\/bunker\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.stiftungleostrauss.com\/bunker\/wp-json\/wp\/v2\/comments?post=5763"}],"version-history":[{"count":0,"href":"http:\/\/www.stiftungleostrauss.com\/bunker\/wp-json\/wp\/v2\/posts\/5763\/revisions"}],"wp:attachment":[{"href":"http:\/\/www.stiftungleostrauss.com\/bunker\/wp-json\/wp\/v2\/media?parent=5763"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.stiftungleostrauss.com\/bunker\/wp-json\/wp\/v2\/categories?post=5763"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.stiftungleostrauss.com\/bunker\/wp-json\/wp\/v2\/tags?post=5763"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}