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Sunday, September 4, 2011

What is "Operation Twist"?

Imagine you're the Fed Chair, and you are Determined to give Wall St as much free money as humanly possible to bailout the banking and finance industry.  But you can't call what you do 'bailouts' because that's such a hugely unpopular term based on all the sectors and industries Congress bailed out in 2008-09.  Even worse, even the most common person knows what the word 'bailout' means.

So if you're the Fed Chair, you come up with clever terminology out of the blue (or out of your ass) to rephrase & publicly repackage your continued bailouts.  You call it 'Quantitative Easing', and it is so successful in that few people have a clue what it means, that you can do two rounds of it and give Wall St. a combined $1.75Trillion to boost stock prices.

But now people, even the simplest simps know what Quantitative Easing means, and they don't like it.  So what is a Fed Chair to do??

Well if its you, and you are doggedly determined to bolster Wall St at the expense of the bottom 98%, you simply rephrase and repackage the bailout.   And instead of calling it QE3, you call it.. ~drumroll please....

"Operation Twist"


This is real by the way.. not something made up satirically by yours truly.   "Operation Twist" is basically like QE; a process of buying and selling Treasury Securities.  In technical terms, The Fed would liquidate some of their shorter term Treasuries, maybe out to three years in maturity, and then buy in the longer end, hoping to bring long-term rates down. The move wouldn't put more money in the system, making it an easier sell for Bernanke to those in favor of no more stimulus.

Now "Operation Twist" would result in zero job creation (which really could be said for QE 1 & 2) and make Wall St very happy which means the bottom 98% should be moaning and groaning at the thought of it.

Here's how the NY Times describes it: "The last time the Fed purchased long-term Treasuries was back in the 1960s during the Kennedy administration. The project, started in 1961, was called “Operation Twist.” It was intended to lower long-term interest rates (to stimulate investment) while propping up short-term interest rates (to attract capital from abroad and support the dollar). Economists generally seem to think the experiment flopped."

Call it "Twist" or "any other cutesy term, but the way Bernanke plans to implement it, becomes QE3 and that will make Wall St very happy. There is much abuzz that this will become a policy certainty by mid-September and unfortunately they're probably right.  Remember, Investors Always get their way.. they are our 'Royalty'.

The stock market should just be allowed to collapse on itself; to fall and fall until it reaches a true bottom point.  There will always be people investing and seeking good deals so it is not as if the market would stay at the bottom for long, but at least you purge the market of the toxins and poisonous elements infesting the financial system, like vomiting or an enema for a sick person.  Only then, can the stock market begin representing the true economy and allow the "patient" to begin to truly recover.

One of these days, Bernanke or some other Fed Chair will be brazen enough to entitle their monetary policy as "Operation: Middle-finger America".  Until then, we get "Operation Twist"