September 24, 2011 – Another Crackpot Plan by the U.S. Government: The Feds are calling it Operation Twist. The Federal Reserve (The FED) will buy $400 billion of long-dated Treasuries, financed by selling bonds with three years to go or less. The idea is to try to drive long- term rates lower, which the Fed thinks will help the mortgage market.
The Government Dumbo’s unveiled their crackpot scheme on Wednesday and the market quickly registered a firm opinion, as you see in the chart of the S&P500 above, in dropped big time.
Housing is in the dumps. Unemployment grows bigger by the day. Economic growth is slowing down. Over 45 million Americans are on food stamps, 50 million on Medicaid or Medicare, 10 million on unemployment insurance and 5 million on welfare. The U.S. debt is about equal to GDP at just under $15 Trillion. The country is bankrupt, with expenses far in excess of income.
However, back to the latest crackpot scheme; it won’t work. It will make things worse. So far, we’ve had 33 months of near zero short-term interest rates. The Fed has purchased $2.3 trillion worth of debt in two rounds of quantitative easing. And what is the result? The economy, by the Fed’s own admission, is in poor shape. So, as if possessed with a kind of insanity, the Fed decided to do more of the same; another $400 billion down the tubes. The economy is headed toward a depression. You cannot stop the economic cycle.
Five years into the housing meltdown and 28% of US mortgages are underwater. That is, the amount owed is more than the home is worth. About, 7% are delinquent and 10% have been foreclosed on. That’s 45% of the country’s mortgages in some state of trouble.
Low interest rates are not going to help the mortgages that are underwater. Those people can’t refinance. They need to put more money in their homes, or they need to walk away and let the bank deal with the problem.
The latest crackpot idea will impact the savers and old people. Yeah, let’s stiff grandma. She’s trying to live off her life’s savings by putting her money in bank CDs and earning next to nothing. Let’s make it tougher on her. What were these government clowns thinking, with this idiotic plan?
Operation Twist is just another gift for the banks. This is a move to help recapitalize banks under the guise of supporting the housing market. This is all about the bank’s income statements. The Fed will buy long- duration Treasury paper from the Banks, handing them nice gains on those securities. As rates fall, the value of the paper goes up, so banks have big gains in long-duration Treasuries. Banks get a boost in profits.
People need to save more money, pay down debts and spend less. The nation needs to get its financial house in order. The mistakes of the prior boom need to be liquidated. You can’t cure a debt problem with more debt.
If the government would get out-of-the-way, we’d have a quick recession and get on with life. Instead, here we are: nearly five years after the bubble popped, 33 months of zero short-term interest rates and trillions of dollars of wasted government “stimulus” spending and we are still suffering from high unemployment and little economic growth.
We are in an economic and credit contraction period, moving quickly toward Great Depression II, and there is nothing the government can do about it!
The Master of Disaster