The TSLF — $200 billion worth of swaps from the Fed to primary dealers and banks — is the first time since the 1960s that the Federal Reserve has tried this scheme. In the 1960s, the Fed conducted “Operation Twist” – a very similar operation. According to research published by the Fed itself, Operation Twist did not work.
According to the same Fed research, it won’t work now. Excerpt from Fed’s research paper: “From this episode [Operation Twist], many policymakers and analysts should have recognized, according to Benjamin H. Beckhart, that “long-term interest rates cannot be substantially reduced by money market gimmicks.” It is doubtful, therefore, that the Fed would be more successful today than it was 30 years ago in attempting to twist the yield curve. <snip> ‘A lasting decline will be achieved only if people gain confidence in the long-term purchasing power of the dollar.’” Read the research→ operationtwist.pdf
Categories: Fed · Operation Twist · federal reserve · primary dealers · swap
“The risk of losses on U.S. Treasury notes exceeded German bunds for the first time ever amid investor concern the subprime mortgage crisis is sapping government reserves, credit-default swaps prices show. <snip> The U.S. government is not immune from the consequences of the credit crisis,” said Fabrizio Capanna, BNP’s head of high-grade corporate trading in London. “Support for troubled financial institutions in the U.S. will be perceived as a weakening of U.S. sovereign credit.”’ http://www.bloomberg.com/apps/news?pid=20601087&sid=aVl4JGYmkX0M&refer=home
Ben what are you doing?
hat tip for photo to fintag.com
Categories: Bernanke · German bund · Treasuries · sovereign credit
The Federal Reserve has certain assets — about $800 Billion in Treasuries. Once it lends away the additional $200 Billion announced today, and counting the TAFs (Term Auction Facilities), about one-half of the Fed’s reserve of Treasuries will be gone. This chart shows the Fed’s reserves before this additional $200 billion is given out, so you’ll have to continue that line downwards to imagine what it’ll look like by the end of March:
Categories: Ben Bernanke · Bernanke · Fed · bank insolvency · bank nationalization · bank reserves · banking system · federal reserve
