Courtesy of Lee Adler of the Wall Street Examiner
The Fed made minor changes to Operation Twist that were not announced in the FOMC statement, but instead showed up quietly on the NY Fed website. These changes will pump a little extra cash into Primary Dealer accounts, but at the same time will slightly shrink the Fed’s balance sheet in what looks like a minor sterilization. The changes should have little overall impact.
More importantly the extension of the MBS purchase program through the end of the year will continue to act as market support. It will continue to pump at least $25 billion per month through the trading accounts of the Primary Dealers. That number could increase modestly later this summer as a result of the latest mortgage refi mini boom driven by record low mortgage rates. Bank buying of Treasuries zoomed upward in recent weeks in another plus, but that’s unlikely to be sustained. All other inputs are little better than that, but the Fed buying along with renewed bank buying keep the liquidity trend in the US part of the system positive. That will enable the US Treasury Ponzi scheme to continue for a while longer, making the US economy look good in comparison to the rest of the world.
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