Robert Murphys thoughts on Operation Twist

by Sam Selikoff November 29, 2011

Some clear, common-sense economics on the Fed’s latest gimmick:

Here’s my favorite part:

So for my non-Austrian economics colleagues, I have to ask, Don’t you think the term spread on interest rates does something? In normal times, if one economy has a spread of 5 percentage points between 1-year and 30-year bonds, while another economy has a spread of 8 points, do you think that difference is meaningless?

If not, then how can you support Operation Twist? Won’t the Fed be screwing up whatever role you think the term spread serves in a market economy? For example, if you think the term spread relates to people’s “liquidity preference” and their aversion to being stuck with long-term bonds should interest rates move up, then does the Fed’s mere creation of dollars really address that underlying preference?


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