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Fed Continues Same Failed Policies

Posted by Steve Markowitz on June 21, 2012

The Federal Reserve announced a relatively small increase in what has been called “Operation Twist“.  Through this program the Fed will buy an additional $270 billion long-term Treasury securities.

The theory behind Operation Twist is that it helps bring down long-term borrowing costs including as mortgages.  Economists estimate that previous purchases under Operation Twist have reduce these rates by a trivial 0.15 to 0.20%.  Given this meager drop it is easy to understand why the program has had such little positive effect on the economy.

Since the economic meltdown of 2008, Fed and governmental policies have been stimulative to the max.  This includes keeping short-term interest rates near zero and promising to maintain the low rate until at least 2014.  The Fed has also purchased more than $2.5 trillion in Treasuries and other government securities.  None of these efforts have even caused a dent in the overall problem, excess debt.

After making the announcement, Chairman Bernanke said that the Fed is “prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”  This statement guarantees further Fed action given its history of failed policies.  Sooner or later these knuckleheads will succeed in creating inflation. However, once that genie is out of the bottle, their ability to control it will be limited.

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