Pipe Dreams

New York

8/22/11 @715 hrs

Since 3am I've been watching and trading these SP Futures and they 

consistently keep making new lows. I covered my overnight shorts, 

with some good profits and then tried to get on a long trade, gave up 

my overnight short profits, and am now flat. This market seems very 

weak, and its likely that financial stocks will crater in a few hours.

 

Some of you wrote and asked me what the Fed did yesterday with their 

operation "Twist". I am not a trained economist and don't really understand 

the nitty-gritty of modern monetary workings (many trained economists 

don't and people in DC certainly don't!), but I observe the following :

* "Twist" the yield curve means, "Sell short term treasuries and Buy 

long term treasuries." The Fed wants to boost consumer and corporate 

borrowing and spending. They want to ease longer-term debt constraints 

for themselves and municipalities, so they "twist" the yield curve selling 

short-term debt (Treasuries) to buy longer term debt. This action raises 

the cost of borrowing in the short term and reduced the cost of borrowing 

for the long term.

* What does this whole "twisting thing" do?? Short term consumer credit 

will take a hit. Operating capital for businesses will be harder to come by 

(but its less of a factor as rates are very low) as it will be more expensive. 

How can this help businesses? I've not a clue.

 

The problem here is that (once again!!) all these measures will fail to do 

anything for the economy. The problem in the US is one with excessive 

debt. From my readings and limited understanding of Modern Monetary 

Theory, I can tell you that all the experts say that the Fed is not doing 

anything novel. They need to attack the problem which is the overhang 

of debt.

How about a tax cut? Yes, a tax cut!! It'll help the middle/upper-middle 

class in this country. There will be money to service mortgage payments, 

and the like.

How about many other things? Smaller government, campaign finance 

reform, getting banks and politicians to hold themselves to the same standards 

as they hold the public, dessert for everybody….I'm getting carried away….