Rosenberg also sees Operation Twist QE3

I showed you the Jan Hatzius clip just a few minutes ago where Hatzius says he expects operation twist at the Fed due to a stalled US economy.

David Rosenberg was also on Bloomberg and sees operation twist too. But he also says he doesn’t see how the Fed could prevent a US recession. His view is that the recession is already baked in. He goes further and says that Ben Bernanke is ‘always aggressive but never early’ meaning Bernanke will get the fed to do something – but it will be small beer until the economy collapses.

This is my view as well. The Fed has already begun its third easing campaign but they are not making asset purchases. But they will do in due course.

the Fed is already feeling political heat from its previous policy actions, so it will allow the economy to slip before it embarks on the next round of asset purchases. Therefore, if and when the next recession hits, debt deflation will take hold. The calls for stimulus will be deafening. And because the Fed will have resisted more aggressive prior action, the Fed will then be forced to be extremely aggressive in its policy response. That is when expanding the balance sheet will be a go and the Fed won’t just buy Treasuries, but a lot of other assets too.

Roubini: No QE3 announcement at Jackson Hole but QE3 will happen

Video clip of Rosenberg below

  1. haris07 says


    I am still not able to understand what any of these twists and torques will accomplish? Everyone is talking twist, increasing duration, blah blah but no one seems to question the efficacy? I understand that Bernanke has to “do something”, but I still fail to see any of what he does working w/o a deleveraging event which allows whatever he does to transmit to the real economy.

    So, 10 year goes from 2.05% to 1.5% or whatever. 10 Year JGB is at 1.1% and has done nothing there, so why is there such a feverish expectation and anticipation and analysis by Rosenbergs and Nouriels and even you about these steps?

    See this excerpt from the King report at the Big Picture,

    I am not sure that any othe QE step is going to work…and at some point I think there is likely to be a loss of confidence in central bankers, the US $ and US Treasuries. If and when this happens, it is truly game over.

    I see a Japan as the best case outcome for us and since Bernanke and Obama can’t tolerate that, my base case is that we are headed towards worse.

    1. Edward Harrison says

      I hear you. My view is rates should be positive in real terms and the Fed should provide liquidity as needed for liquidity constraints because low rates are more about solvency than liquidity. Bagehot said the CB should liquidity at a penalty rate and that would separate the illiquid from the insolvent. We’re not doing that. We are doing everything possible to create zombie banks and zombie consumers. QE will do nothing to address the jobs problem, the consumer debt overhang or the need for bank capital.

      Of course, the Fed COULD start buying up mortgage assets and renting homes out to former mortgage debtors. When the next recession hits the Fed probably will do something extreme as they had done in Japan. My view is that until the credit writedowns are all taken and behind us (hence the name of the site), this crisis will drag on – and possibly get worse.

  2. haris07 says

    Right, some writedowns need to happen (perhaps a “lot”). The problem I see is that any level of significant writedown will kill the banks (at least the equity, maybe the bonds too) and that ain’t happening. Therefore, this will end badly.

    Re: Bagehot – lend at “high rates” against “good collateral” – Bubble Bernanke has done neither!

    That’s why I am amazed at every economic prognosticator and strategist spend hours analyzign to death the next 25 to 50 bps move in the 10 Year – that sounds like a great thing to do if you are a rates investor (with a tone of leverage using Repo!), but the economic consequences seem to be immaterial or certainly very minor and to use Ben’s words – transitory!

    I agree – sometime soon, the Fed is going to do extreme things (these twists etc won’t work)….the key to watch is the $. I am being disciplined in that I will wait patiently for the $ to show me signs that he has pushed the envelope too far and then short the markets massively! That could be 12 to 24 months away and there is a small chance that it won’t get to that, but I am increasingly thinking that this is all going to end up causing a loss of faith in the US $ (and the US Treasuries) – Bernanke won’t stop till it gets there.

    Meanwhile, the mostly irrelevant debate is Fed QE3 duration extension/Twist….it will buy a few more months time (lesser in magnitude and less in duration than QE2).

  3. fresno dan says

    I agree with everyone – man, credit writedowns has one smart bunch of people! ;)
    I know that Ben Bernanke is smarter than me – but what I can’t understand is how he could believe that (most) people with not much income, and often indebted, will get the economy going by borrowing money that they can’t pay back…of course, I just did comment that a man with a hammer can only hammer….

  4. Frank says

    Can the Fed force low long rates into *existing* consumer loans (e.g., mortgages, education loans)? For example, what if the Fed coordinated a refinancing of mortgages to 2%? Rough math suggests ~$0.5T/yr of consumer spending stimulus (freed by lower payments). Talk about certainty in the real economy!

    Thinking this through with my non-PhD-econ brain, it would seem that:
    (a) existing note holders might first object, but…
    (b) refinanced consumers drive up demand, investment – virtuous circle
    (c) meanwhile, existing note holders invest proceeds into equities (i.e., not lower-yielding notes) to benefit from foreseeable effects of (b)
    (d) but Fed ultimately needs to unload its balance sheet at a loss into a (hopefully) restarted economy, thus inflation. That’s good/bad depending on who you are.

    What are the chances of this? Seems that the refi closing costs hurdle could be surmounted if the Fed simply transcribed the data of the existing note onto new notes, at least for consumers current on their mortgages.

    And if nothing like this, what endo/exo forces might force natural rates to rise again?

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