The US Federal Reserve has taken quite a few bold steps over the last few years to restore balance to the country's economy. In keeping with this trend, its latest well-intentioned endeavor has become the subject of some debate, mostly about whether the move is justified or whether it's simply too little, too late. Under the engaging title of Operation Twist, which was originally trotted out in the 60s with modest results, the Fed has committed to selling off $400 billion worth of short-term Treasury debt. The proceeds from this transaction are then to be used to purchase long-term bonds by June of next year. The intention here is to drastically lower the cost of mortgages and loans to encourage consumer spending and borrowing, leading to a much-needed boost to the economy. Skeptics, however, remain critical of Operation Twist's ability to do better in the present than it has done in the past.
The second anticipated boost is to employment numbers, but here again, critics are unconvinced that job growth will speed up with this new maneuver. In fact, earlier this week, Fed chairman, Ben S. Bernanke, was contacted by Republican congressional leaders, asking him not to pursue stimulus activities any further. The letter explains, "?"We have serious concerns that further intervention by the Federal Reserve could exacerbate current problems or further harm the U.S. economy."
The LA Times reports that economists view the underlying problem as "?weak demand" since mortgage rates are said to be at record lows already and borrowing rates are still what could be considered cheap. The paper suggests that corporations are hesitant about making large investments given the current economic and political instability as well as weakened sales. Small businesses are also still limited in getting credit from lenders who are still recovering from the hard lessons of the last few years.
Be that as it may, the Fed appears to be dissatisfied with the idea of doing nothing while unemployment stagnates at 9%, and Congress has pretty much closed the door on further fiscal stimulus packages. Even if the results are small, perhaps this proactive attitude is exactly what the country needs and what the powers that be as well as the man on the street need to emulate: to collectively take that extra step and go the extra mile, to do what's necessary to get the job done and get things back on track.