Monday, March 19, 2012

Bernanke's Operation Twist Turns Into a Game of Twister

Fed Chairman Ben Bernanke has launched something called "Operation Twist", which is supposed to drive yields down on longer term Treasury securities. Bernanke actually wrote a paper in 2004 saying that an attempt to use operation twist during the Kennedy Administration was a failure.

So why he launched a program THAT HE WROTE WAS A FAILURE is a great mystery. However, it is failing again. Ed Yardeni has the details:
The nominal yield rose to 2.31% on Friday despite the Fed’s commitment to continue its Maturity Extension Program (MEP), a.k.a. “Operation Twist.” Since MEP was introduced on September 21, 2011, the bond yield has traded mostly below 2.0%. Perversely, yields might be starting to untwist because inflationary expectations are rising.
Bernanke's monetary policy is convoluted and looks like a game of Twister, before it comes tumbling down, rather than Operation Twist. What will come tumbling down is bond prices and up in the air will be huge price inflation.

1 comment:

  1. Here's a chart I posted shortly after OT2 was announced:

    Anyone surprised? Congrats, Ben.