What is Operation Twist? A US economy insight

Ben Bernanke, chairman of the US Federal Reserve, is likely to take action to boost the struggling US economy later this month after the meeting of the US Federal Reserve's rate-setting committee.

In a move nick-named 'Operation Twist' the Fed would buy long-term Treasuries and sell short-term Treasuries, in so doing they would twist the yield curve. In essence 'Operation Twist' is quantitative easing 3.

In this tutorial Tim Bennett, deputy editor of MoneyWeek magazine explains the details of 'Operation Twist' in an introductory manner, ideal for beginners or investors wishing to brush up on their knowledge of the subject.

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[MoneyWeekVideos]

For anyone who likes this one I have also done one (a while back) called "what is quantitative easing all about" and "how do governments go bust". Both are introductory but may also be helpful. Tim.

[MoneyWeekVideos]

Mogtrader - I am considering a follow on although I usually intend these videos as beginners guides/overviews rather than anything too indepth. Yes, the Fed will be buying bonds at the medium/long end. That will tend to push prices up and yields down (indeed just the expectation of Fed action already did that some days ago). The mechanism for that feeding into lower mortgage rates is the I/R swaps market which I cover at basic level in another video.

[MoneyWeekVideos]

MogTrader - no, the Fed is following the script as far as i can see. They plan to sell, or not renew, short term debt in favour of longer term bonds. The exact details have yet to be released but the principles I mention still look to be right.

[MoneyWeekVideos]

vik589 - thanks and yes I have already made plenty more. You can find them on this channel and also moneycontent. Tim.

[MogTrader]

Can you please talk about mortgage rates and treasury relationship.

[Norwegian733]

@dinamo4889 Well, the chinese has made big time money on it and it has been good for them. But this makes it very difficult for them to replace the USD as the reserve currency.

At one point the Yuan need to appreciate against USD, and their big growth will have to slow down to a minimum. Maybe even a deflation as Japan. If you live in the US, it is absolutely in your interest to see that happen.

[dinamo4889]

@Norwegian733 What a brilliant scam. This is a great way to minimize the trade deficit with China. I am not going to panic just yet. I am a Russian Immigrant living in America and I have seen this in Russia during the 90's. This is only temporary and eventually things will return to normal. Westerners are by far better liers than Asians. People in the West have something called intellectual diversity Asians are not as creative as Europeans.

[dividave1]

The video is really helpful.

It makes studies easy and interesting.

Thanks a tonne.

[Norwegian733]

@dinamo4889 No it wont please China. But China is in the dollar trap and they know it. They dont have any other choice. If they want to continue to be competitive, they will have to keep pegging their Yuan to the USD. How?

Buying US debt. A debt they know will fall in value over time. Its impossible for the chinese to get all of their money back because if they were to sell of their debt, the USD will fall and the Yuan will rise. That means trouble for export and US rigged for export.

[WarzSchoolchild]

The average lifespan of any "Fiat" currency is 27 years, Fiat currency is only 'pretend' money, factually only worth what we pretend it is worth. Operation Twist is simply yet another attempt to kick the can down the road. The patient is dead! and now stinking out the morgue! the stench smells worse than bull manure! Think Zimbabwe dollars, a trillion of those would buy you a rotten egg. The US Dollar has broken all records, since Nixon went off the gold standard. R.I.P. The US Dollar is dead!

[onepiecefan74]

@MrBigEnchilada um they just had a huge fall.