Fed says economy needs $600B bond-purchase program...haha

Discussion in 'Economics' started by S2007S, Jan 26, 2011.

  1. da-net

    da-net

    #51     Jan 27, 2011
  2. Iz complicated, this... Do you really want to know?
     
    #52     Jan 27, 2011
  3. sure, an analysis from the expert would be nice. i hope i can grasp the gist of it.
     
    #53     Jan 27, 2011
  4. Well, I wouldn't call myself an expert and I can offer an opinion of sorts, rather than proper analysis.

    Essentially, the tradeoff is between being able to affect the long end of the curve, which can help the housing mkt, vs taking on an excessive amount of duration. Lots of duration in your portfolio implies things that some people on the FRB don't like. Firstly, it means that you have a lot of sensitivity to mkt interest rates. Secondly, it REALLY complicates your exit strategy (which is what every hawkish CBanker is really worried about). If most of your holdings are shorter-dated, you can just sit on them long enough that they simply mature.

    So, given a) the Fed had already done a lot for the housing mkt in the first round of QE; b) there are some people on the Board that would likely rebel at the idea of QE2 going into the long end of the curve, the specific implementation of QE2 was a compromise. There's a lot more you can say about the subject, generally, but this is my Z$2c.
     
    #54     Jan 27, 2011