Twist and Pout: Markets Not Convinced by Helicopter Ben
By September 21, 2011– Published in on
A Federal Open Markets Committee (FOMC) decision to go with a clone of 1961's Operation Twist left Wall Street pouting Wednesday. Gold and silver galloped and slithered further south as well. Twist II as pronounced by the Fed means the central bank will pitch $400 million worth of short-term, low-interest U.S. debt and replace same with $400 million worth of long-term (up to 30 years') debt.
The Fed's claimed intent is to assure markets of a continued long-term low-interest scenario, which in Helicopter Ben's mind might boost the housing and industrial sectors by lending some predictability to interest rates.
Predictability is sorely lacking throughout the entire U.S. Economy, but this has less to do with markets or Fed policy than it does with the ever-compounding regulatory regime. Carbon taxes: yes or no? The Alberta pipeline: yes or no? Markets tend to behave in a rational way over the long haul, but who can tell which way a politician's or a regulator's wind will next blow?
Twist II's short-term stink will probably nauseate less than would have been the case with another instalment of quantitative easing, but the effect on the U$Dollar won't be any more salutary in the long haul. The dollar's value will continue to wind down as the Fed and Treasury inflate their way out of America's debt. That's good for silver and gold; not so good for someone needing milk, corn, eggs or a new refrigerator.
To make sense of this all, best head down to the Spokane Silver Summit October 20-21, 2011.