In a recent post, I took issue with the claim by Paul Krugman, Dean Baker, and others that low yields on U.S. Treasury and other bonds can be seen as validation of Washington’s aggressive policy of spending and borrowing to “rescue” the crisis-torn U.S. economy.
Aside from questioning the alleged wisdom of the (trading) crowd, I argued that credit markets are being distorted by a variety of temporary and artificial influences, including massive intervention by the Federal Reserve.
As it happens, Brian Sack, who runs the markets group of the New York Fed, helped bolster that argument in a speech he gave last night to the Money Marketeers of New York University (from a recap< by Real Time Economics):
Mr. Sack’s group estimates that the Fed’s purchases of $300 billion in long-term Treasury securities earlier this year helped to push yields on 10-year Treasury notes down by about half a percentage point. Some critics have argued that the Treasury purchases didn’t have the intended impact of pushing rates down. But Mr. Sack – a long-time proponent of such purchases – said his estimate is supported by regression analyses by the Fed. Purchases of mortgage backed securities, he says, pushed those rates down by a full percentage point.
Don't forget about how much the MBS buying program is helping as well.
http://economicdisconnect.blogspot.com/2009/12/how-much-is-fed-suppressing-mortgage.html
Posted by: GYSC | December 05, 2009 at 05:39 PM