“Rate cuts are like martinis. The first one really feels good. The next few are sort of ho-hum. By the time one comes to the tenth, everyone is numb”
This week, the U.S. Federal reserve announced Operation Twist would be extended through all of 2012. The initial rounds of Quantitative easing were met with cries of horror and panic over the potential for hyperinflation.
But not this time. It appears the extension of Operation Twist is like that 10th martini, because there was very little or any clamor around the web about the imminent “Zibabwefication” of the U.S dollar. Even zerohedge couldn’t muster up much more than a grumble.
And how about those bond vigilantes? Where are the warnings of yields on U.S. Treasuries skyrocketing to 8-9%?
So this makes me think of the great Art Cashin’s comparison of rate cuts and martinis. Art made this excellent comparison after the fed had cut rates again and again in 2001 in an attempt to stimulate the economy.
Now, Operation Twist isn’t exactly a cut in the fed funds rate, but I like to think Art Cashin would approve of comparing this extension of operation twist to the 10th martini of the night.
“Operation Twist isn’t exactly a cut in the fed funds rate,”
Desperate attempt to activate the housing channel through inducing even lower mortgage rates by flattening the yield curve more.
Even the Austrians can see that twisting doesn’t expand the size of the Fed’s balance sheet, and there is largely irrelevant other than to flatten the yield curve a bit more. This won’t provide the boost to stocks and commodities that the QEs did.