Operation Twist
Assignment 5
MBA 6400
Operation Twist “Operation Twist” is supposed to stimulate long term lending to increase home purchases by the consumers and long term assets (property, plants and equipment) purchases from the corporations. The FED’s hope was that this program will help boost the real estate market as more and more consumers buy 30 year mortgages with lower interest rates. On the macro economic front, the corporations with long term low interest rates are expected to expand their business with low interest on long term bonds (that they can issue). The official end of this program is June 30th, 2012. At that point, the FED will decide whether or not to extend this program. More importantly, at the end of Operation Twist the economist and the financial world will come out with their opinions on the effectiveness and the implications of this FED manipulation. There are varying reports, opinions and factual statistics on both sides of the argument that are equally valuable. Although, more people than not have concluded that all in all Operation Twist did not achieve all it was set out to do. This does not nullify the success of this operation on some front, although the idea of this activity to be a catalyst in boosting the economy and bringing us as a country out of the economic downturn has not been realized. One side of the argument is that even though the long term interest rates have reduced greatly, the market perception of the economy still remains that of being weak. Another side of that argument tells you that this procedure by the FED to provide money (m1) to the public for nearly free has saved our economy from falling off the danger end. In my opinion, as in many others the real effectiveness of Operation Twist cannot be gauged so early. I think, this FED operation has made money cheap and the economy has recently picked up pace but at the same time the expectations from the economy are still low. Many financial institutions have not really
MBA 6400
Operation Twist “Operation Twist” is supposed to stimulate long term lending to increase home purchases by the consumers and long term assets (property, plants and equipment) purchases from the corporations. The FED’s hope was that this program will help boost the real estate market as more and more consumers buy 30 year mortgages with lower interest rates. On the macro economic front, the corporations with long term low interest rates are expected to expand their business with low interest on long term bonds (that they can issue). The official end of this program is June 30th, 2012. At that point, the FED will decide whether or not to extend this program. More importantly, at the end of Operation Twist the economist and the financial world will come out with their opinions on the effectiveness and the implications of this FED manipulation. There are varying reports, opinions and factual statistics on both sides of the argument that are equally valuable. Although, more people than not have concluded that all in all Operation Twist did not achieve all it was set out to do. This does not nullify the success of this operation on some front, although the idea of this activity to be a catalyst in boosting the economy and bringing us as a country out of the economic downturn has not been realized. One side of the argument is that even though the long term interest rates have reduced greatly, the market perception of the economy still remains that of being weak. Another side of that argument tells you that this procedure by the FED to provide money (m1) to the public for nearly free has saved our economy from falling off the danger end. In my opinion, as in many others the real effectiveness of Operation Twist cannot be gauged so early. I think, this FED operation has made money cheap and the economy has recently picked up pace but at the same time the expectations from the economy are still low. Many financial institutions have not really