Bernanke buying bonds?

The news article is here: Bloomberg

And there is an interesting translation of this here: Market Ticker

I’m in no way an expert, but this sounds really bad. Thought I’d share to see if some more educated minds could see through this as a good or bad decision. I think I might move to Canada. I hear they have a good health care system.

Since you’re in Ohio already, it’s not even that far!

Right! And my brother is a Canadian citizen and I have some Canadian coins that I can bribe the customs agents with.

Seriously though, the way this sounds, the entire market could collapse and our money won’t be worth anything. I don’t know which is worse, the fact that he might have to buy the bonds or the results of not doing it. I wonder if I should just cash out my 401k while there is still something in it.

i’m torn. karl denninger is a vile, usurious, free-market kook, but this time, he’s kinda making sense. any less insane sources demonstrably concerned with bernanke’s t-bill shenanigans, here?

The Denniger dude is overreacting a tad.

But, uh, I did come to a similar, if less apocalyptic, conclusion. It seems like Bernanke wants to get a better deal for tbills for the stimulus in the future by artificially jumping their price and depressing their yield in the present. That shouldn’t work because Bernanke doesn’t have enough money to offset the future tbill sales, the effect of which have already been priced into current market rates by investors.

If Bernanke were actually to move the price to a significant degree – and let’s be honest, he can if he’s got the stones to print enough money – it’d set off the apocalypse described by Denniger. Investors would dump tbills to get a good deal “now” before the reality of the stimulus related tbill sales takes effect and depresses prices (and raises yields). It’d prompt a sell off by sovereign wealth funds unwilling to sit by and watch as the value of their assets is eroded. Bam, moneyocalpyse, the value of tbills collapse just like the CDOs did.

So, overall, I don’t think this is an idea worth pursuing. I doubt Bernanke would pursue the extreme case because he’s well aware of the result. And I doubt he wants to waste time with the weak case, because it should have no effect – any money he puts out will be hoovered up come mid '09 when the stimulus tbills are being sold.

The appropriate time to pull off a buyback is post-stimulus, when it will add to the effect (by pooping out even more money, lowering yields and raising prices on tbills) rather than being consumed by it. I’d expect to see that in late '09 or early '10.

Buy buying longer term gov bonds(or threatening to), the fed is hoping to indirectly keep rates on consumer debt like mortgages and some corporate loans lower as mortgages track the longer term bonds. It probably won’t have a huge impact and given the tenous link between treasuries and mortage rates it’s not guranteed to work at all, the best it could do is improve the borrowing conditions for people that are already credit worthy, also it could help people refi out of ARMs and shitty loans, but again the only people really getting any credit today are people who are credit worthy.

Customs agents roll over when tempted with a fistfull of shiny loonies. It’s a well known fact.