Last night the Federal Reserve announced Operation Twist, a plan to convert short term holdings of treasury debt into long term ones in an attempt to lower the long term interest rates and stimulate the economy.
US government 10 year bonds yield under 2%. Is another 0.5% off really going to suddenly make people spend and invest? Or if the ECB lowers its rates to 1%, will people start buying Italian government bonds?
The market’s reaction to this round of Fed easing was to drop 3%+. In other words, they’ve finally realised monetary policy can not help to get the global economy working again.
We need a large dose of pain and some intelligent, pro-growth policies from governments around the world before the world’s economy can start growing again.