Operation Twist??

[saltwater]

Can some one explain what is this in simple terms.

[lexbarker]

Keiser on Operation Twist:

.

[skl]

Adapted from various sources:

The Federal Reserve has at its disposal one key tool: interest rates. So when Fed officials are worried about unemployment, they try to drive down interest rates, in an effort to encourage people and businesses to borrow and spend.And with unemployment over 9 percent (and core inflation at 2 percent), the Fed is likely to keep hammering away, trying to push down interest rates.

What is Operation Twist? Basically the Fed can’t reduce short-term interest rates any further—they’re already at zero. So they want to reduce long-term interest rates instead. They do this by buying long-term bonds. When you buy more of something, you raise the price. And when you raise the price of a bond, you lower the interest rate. So what the Fed is doing, is lowering long-term interest rates.

How does the Fed pay for these bonds? they are selling short-term bonds, and using the proceeds to buy the long-term bonds. Now selling a bunch of short-term bonds will—usually—lower their price, raising short-term interest rates.

That’s why people call this “Operation Twist”—it should “twist” the yield curve—lowering long-term interest rates (which is what matters when you buy a house, or when a firm borrows to buy new machinery), but it also raises short-term interest rates.

fortunately, this time, the effect on short-term interest rates will be small. Why? The Fed has already committed to keeping short-term interest rates near zero for the next couple of years. And so given this commitment, the 2-year bond will also be close to zero.

[edyle]

Can some one explain what is this in simple terms.

Simple terms?
I'm thinking...

they stab you in the chest with a big rambo knife
then while they got this big smirk on the face looking you right in the eyes while they tell you they're going to FIX the problem
they hold the handle of the knife.... and....
TWIST

[saltwater]

Simple terms?
I'm thinking...

they stab you in the chest with a big rambo knife
then while they got this big smirk on the face looking you right in the eyes while they tell you they're going to FIX the problem
they hold the handle of the knife.... and....
TWIST

[saltwater]

Adapted from various sources:

The Federal Reserve has at its disposal one key tool: interest rates. So when Fed officials are worried about unemployment, they try to drive down interest rates, in an effort to encourage people and businesses to borrow and spend.And with unemployment over 9 percent (and core inflation at 2 percent), the Fed is likely to keep hammering away, trying to push down interest rates.

What is Operation Twist? Basically the Fed can’t reduce short-term interest rates any further—they’re already at zero. So they want to reduce long-term interest rates instead. They do this by buying long-term bonds. When you buy more of something, you raise the price. And when you raise the price of a bond, you lower the interest rate. So what the Fed is doing, is lowering long-term interest rates.

How does the Fed pay for these bonds? they are selling short-term bonds, and using the proceeds to buy the long-term bonds. Now selling a bunch of short-term bonds will—usually—lower their price, raising short-term interest rates.

That’s why people call this “Operation Twist”—it should “twist” the yield curve—lowering long-term interest rates (which is what matters when you buy a house, or when a firm borrows to buy new machinery), but it also raises short-term interest rates.

fortunately, this time, the effect on short-term interest rates will be small. Why? The Fed has already committed to keeping short-term interest rates near zero for the next couple of years. And so given this commitment, the 2-year bond will also be close to zero.

Thks Sly.

[lexbarker]

Adapted from various sources:



That’s why people call this “Operation Twist”—it should “twist” the yield curve—lowering long-term interest rates (which is what matters when you buy a house, or when a firm borrows to buy new machinery), but it also raises short-term interest rates.

.

I thought it was like the "twist" in poker, replacing one card with another.