The following is from Savannahboy on what he hears QE3 will look like,
investorvillage.com
However, this time I'm hearing that there will be a "twist" instead of QE III. Under the twist approach (which has been tried before by the Fed), the Fed would sell short term Treasuries and use the money to buy 10 year Treasuries. Unlike QE II, the Fed wouldn't be pumping money into the financial markets. Rather, the Fed would be lengthening the maturity of its Treasury portfolio, but keeping the amount of the portfolio roughly the same. Presumably, the twist would simultaneously raise short-term interest rates, helping money market funds make a little spread, and drive down long-term interest rates to 2.0-2.5%, helping the real estate market. Indeed, dropping long-term interst rates by another 50-100 bips would incentivize all businesses to make long-range capital improvements. Of course, the banks would have to deal with a less steep yield curve, but an increase in short-term interest rates might compensate for that since they have so much money locked up as interest-bearing reserves. |
