Would anyone mind explaining operation twist in its most basic terms for me?
I understand that the fed will sell short term securities and buy short term securities with the money from those sales. But how does this actually affect the economy? Why is it that the USD strengthens because of this? I’m looking for a fundamental economic understanding of it.
Also, where is the fed buying these securities from? Are these securities stocks or debts? if they are debts, are they, for example, a company basically asking for a loan and the fed gives them this loan with an agreed upon interest rate (yield)? Or is it government debt?
Any help would be greatly appreciated!
Thanks.
Fed is buying bonds, bonds are quite stable and a fixed source of income.
Regards.
I too would appreciate some help with the understanding of Operation Twist. If someone could also explain the impact on consumer lending that would be great. Thanks for the help everyone!
In short, the fed is selling short term bonds, and buying long term bonds.
The result is hopefully lower consumer interest rates.
Short of a typing up a long winded explanation, this should explain it a little better for you
Lets say you have a bank account and you pay 15+ percent interest if you use the credit line. Then after a while you go to your bank and ask for a long term credit and they tell you interest would be 5 percent. So you go for the credit and you pay all the debt back in you bank account. Sounds familiar? That’s if a debitor is already in misery and want’s to shift the issues into the future.
The message is crystal ball clear: More debt and more lasting debt, but not enough play anymore to print it like qe3.
Thanks for the explanation