Forget Operation Twist, We Need Operation Debt Jubilee

by royalarse13

In a recent blog post  @bondtrader83 makes the following commentary on  Operation Twist (emphasis added):

Of the 400bil in purchases [by the Fed], 29% is in the 20-30yr range, much higher than expected.  The 30yr, as expected, rallied hard on the news and as of ~3pm was trading around 3.04% up over three points. As far as MBS goes, the Fed will begin re-investing MBS runoff into new current coupon MBS – presumably they will focus on 30yr current coupons.

It prompted me to post the following in the comments:

Ratio skewed to the long end is a big let down, it stifles the recapitalization effort and hurts traditional banking operations by flattening the curve, no? @FrankSIII views flattening at the long end of the curve as ineffective in stimulating the meager demand for a refi, as most of the eligible borrows have already taken advantage of ZIRP. A marginal reduction in mortgage interest costs won’t provide any tangible benefits to the real economy this go around.

There is no inflation because of the dearth of income growth in Developed Markets. There will continue to be deflation so long as debt servicing plunders the lions share of total income: whether household or government.  Given that markets panicked in full deflation mode at various points this week, we know that QE is BS and its not going to cure the lack of confidence in markets, or the economy in general.

Easier money vis a vis lower rates doesn’t stand a chance at reversing this vital lifeblood of modern capitalism: confidence.  Growth in AMPLE quantities is the only cure for the insolvent Euro banks and as @M_McDonough astutely points out the European PMIs (growth metrics) look like dog shit:

European PMIs: on Twitpic

So its jubilee or bust.  We must look at reasonable ways to exercise a GLOBAL debt jubilee. That is the how the Jigsaw Will Fall Into Place.