Let’s twist again, like we did last summer,
Yeah, let’s twist again, like we did last year.
~ Chubby Checker
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In a clear sign of what’s old is new, the Fed voted to extend Operation Twist through to the end of the year. Showing a lack of new thought, they left rates unchanged and expanded its existing program to replace short-term bonds with longer-term debt by $267 billion through the end of 2012. They hope that continued lower rates will reduce unemployment and protect the expansion of the economy. Extending Operation Twist is probably the least controversial path the Fed could take, but arguably the least effective option they could take.
To some extent the U.S. recovery is hobbled by an economic divide that separates Americans not by income or wealth but by their access to credit.
The housing bust left behind millions of people with credit records damaged by plunging home prices, lost jobs, past overspending or bad luck. Many are now walled off from the low interest rates engineered by the Federal Reserve to spur the economy.
Millions with good credit, meanwhile, are taking advantage of the easy money, a windfall in many cases for people who don't especially need it.
Shrunken access among credit have-nots is triggering more than personal plight. It has weakened the influence of the Fed—one of the best hopes for spurring stronger economic growth—and raised doubts within the central bank about whether it is doing much to reduce unemployment.
So we are going to twist again like we did last summer. The results of this program so far have been mixed. Why will we get different results this time???
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Insanity: doing the same thing over and over again and expecting different results.
~ Albert Einstein
John Broussard
Assistant State Treasurer
Chief Investment Officer
State of Louisiana
Department of the Treasury
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