“I will also argue that constraints continue to bind policy, with a focus on the balance sheet and efforts to significantly reduce it from its current elevated level.” (Esther George)
What do you think about Yellen's recent idea of buying 20yr UST and selling the short-term? Treasury trying to usurp the Fed? I have no idea how this would get funded.
I call it Sterilized Twisting. Yellen has not lost any of her genius and resourcefulness. I say that with all sincerity. At least she is doing something, even if it is very dangerous. Doing nothing invites another financial crisis. The Fed's hands are tied, by high inflation, yet there is a shortage of Dollars in capital markets. This is one of way of easing liquidity conditions whilst pretending to neutralize/sterilize the easing so that it looks non-inflationary. Buying the long-end, also, in theory, controls the yield curve, just in case Mr Market decides that this "operation twist" is hyperinflationary. Where it breaks down, for me, is that the Federal Government is going to be borrowing, in the Trillions, very soon, so if Yellen is buying the long-end she is printing 2year IOUs that must find a home. For home, I assume the Fed's balance sheet. I think her targeted SDR issue plan was better for averting contagion from Emerging Markets. The developed markets are just going to have to fess up and admit that they can't beat inflation, in the short term, especially if they create a depression whilst trying to beat it. Esther George's idea of a long-term incremental fight against inflation is the adult solution. Unfortunately, this does not fit the "constraints" of the US Presidential Cycle, which requires the appearance of quick wins.
What do you think about Yellen's recent idea of buying 20yr UST and selling the short-term? Treasury trying to usurp the Fed? I have no idea how this would get funded.
I call it Sterilized Twisting. Yellen has not lost any of her genius and resourcefulness. I say that with all sincerity. At least she is doing something, even if it is very dangerous. Doing nothing invites another financial crisis. The Fed's hands are tied, by high inflation, yet there is a shortage of Dollars in capital markets. This is one of way of easing liquidity conditions whilst pretending to neutralize/sterilize the easing so that it looks non-inflationary. Buying the long-end, also, in theory, controls the yield curve, just in case Mr Market decides that this "operation twist" is hyperinflationary. Where it breaks down, for me, is that the Federal Government is going to be borrowing, in the Trillions, very soon, so if Yellen is buying the long-end she is printing 2year IOUs that must find a home. For home, I assume the Fed's balance sheet. I think her targeted SDR issue plan was better for averting contagion from Emerging Markets. The developed markets are just going to have to fess up and admit that they can't beat inflation, in the short term, especially if they create a depression whilst trying to beat it. Esther George's idea of a long-term incremental fight against inflation is the adult solution. Unfortunately, this does not fit the "constraints" of the US Presidential Cycle, which requires the appearance of quick wins.