The Federal Reserve’s $267 billion expansion of Operation Twist, an effort to boost economic growth, is unlikely to be effective and should be suspended, Heritage Foundation economist J.D. Foster explains.

Operation Twist, he explains, is “the Federal Reserve’s latest effort to compensate, through monetary policy, for the failure of the Obama Administration’s fiscal and regulatory policies to stimulate the economy.”

With the U.S. economy languishing, the global economy struggling, and no help on the horizon from the President or Congress, Chairman Ben Bernanke understandably seeks to do something, indeed anything, to help. If nothing else, the Fed’s actions should put to rest any doubt President Barack Obama’s economic policies have failed. The Fed would not be driven to desperate measures if the President had pursued effective measures instead of a political agenda to grow the federal government and federal debt to European proportions.

But however well intentioned, the plan will likely be ineffective because it will add even more confusion and uncertainty to markets, Foster writes. Current long-term interest rates are already at or near record lows, and if these low rates cannot boost the economy, Operation Twist will not have a significant economic effect.

Furthermore, if the economy does recover, the Fed will likely find it difficult to sell its large supply of long-term securities without increasing long-term rates, which will weaken the impact of recovery. What’s more, the Fed plans to sell certain securities, which could actually boost short-term interest rates, complicating recovery.

Foster urges the Fed to abandon Operation Twist and recognize that monetary policy cannot solve today’s economic problems. The Fed, he says, should remind markets that “in the event of another financial crisis, the Fed is ready, willing, and able to respond in its role as lender of last resort to provide liquidity where and when it is needed.”

But for now, it’s up to the President and Congress to formulate a successful economic recovery plan.

Click here to read more about Operation Twist

Do you think Operation Twist is going to help the economy?

Comments (14)

Herbert Rowe - July 20, 2012

Another of the president’s Left Wing buddies ideas to subjagate the USA and make us a Europen Socialist Third World country.

Overton Gunnels, Jr. - July 20, 2012

As long as Obama is president,nothing can help the economy. He will not let anything good for this country happen. He has done everything he can to mess it up.

James A. Glasscock - July 20, 2012

The stimulus, of which Twist is another version, does not work. The Fed can “manufacture money” via the printing presses but the only act that will start the economy is freedom and freedom to choose.
Hayak and Friedman are correct. There is no free lunch in monetary policy. Bernake is a Princeton economist who thinks about hypotheses and the real world things in practical terms.

Jerry Harmon - July 20, 2012

History confirms that in every society where the printing press is used to create the illusion of wealth the result is the eradication of the middle class. Obama’s policies have been designed to drive this country to Communism. They have, sadly, succeeded beyond imagination. Bernancke is just another “tool” being used by the Administration. Unless we turn the ship by throwing this abomination out of office, then we’ll be just like the South American countries of the fifties and sixties. Complete government control of everything will look like the only salvation, so the populace will acquiesce to the Proletariat. Hello Cuba.

kevin - July 20, 2012

END THE FED and reduce the federal gov back to it’s constitutional level’s’

W. Colborne Mullen - July 20, 2012

It makes no sense. It has not worked. It will not survive the numerous regulations this administration brokers, and it will accomplish no more than spitting, into the wind. We cannot continue, to devalue the dollar. We must first reduce the size, and scope, of Government. Lets stop the insane collection, of taxes, for the purpose, of paying said taxes, for all Government employees. All those taxes should have already been collected prior, to issuing paychecks. Reduce the salaries, of every level, of Government employee, to equal their current take home pay. They are the Government, and as such do not pay their own taxes. Their entire income is derived, from taxes paid, by those, of us, not employed, in Government. Would this not be a real stimulus? Can anyone refute my plan?
Imagine: every tax payer could spend the increased take
home pay far more equally, and spread it throughout the economy. I have repeated this plan numerous time, and no one has responded. Someone had better grow a backbone, or proffer a better idea.

Patti - July 20, 2012

This is just another ploy to disable the original United States of America.

Todd Lester - July 20, 2012

Of course not… 98% of what the federal government does HURTS the economy. If they truly want to help it, they need to cut taxes, cut regulations, cut the size of the federal government, and then just get the hell out of the way.

Henry Garcia - July 21, 2012

This version 3 will fail just like versions 1 and 2. Insanity is defined as performing the same action over and over and expecting a different result. Stupidity can be defined as voting for your personal destruction – FIRE OBAMA in November

A Critic - July 21, 2012

The Fed needs to be audited. A year ago I didn’t “get it” but now I think it is an urgent matter. There are so many foxes in the hen house. It follows, for me, that both Obama and Bernanke are in cahoots (but, of course) and the independent status of the Fed is total hogwash. When it comes to the Fed the biggest, shadiest, most sinister aspects of it are Obama and Bernanke. Both are premier sneaks. If both were voted out (one by association) in November the country would have a chance to catch its breath from our idiotic financial policies, only being made worse by the existence of these two shady characters being anywhere near power.

Michael Lysek - July 21, 2012

There are no programs run by the government now that are intended to bring us back to the public sector business growth of past years. This government is intent on people being dependent on government instead of self acheivement.

ERNEST CRADY - July 21, 2012

No, I don’t think it will work. Obama has proven his way doesn’t work. This is the first time I can ever remember our government giving out stimulus like this and failed miserably. Our president is no economist. He just wants government to control us, i.e. Obamacare.

Steven Rankens - July 23, 2012

The Fed cannot simply print more money and throw it into the economy to try and boost recovery. It is of the failed policies of this current administration that has contributed to the fiscal mess we are in. Obama has proven he has the utmost disdain for capitalism, private business, and people who actually create jobs. It’s one thing to be ignorant, but it’s another thing to open your mouth and prove it, known as the “Roanoke Incident”. Remember, the new taxes that are planned will not be used to pay down the debt, but make the government obese and bloated. Operation TWIST, is what we should do to this administration’s throat, to choke this overweight, reckless, out of control beast they call the democratic party.

Jeff Yetter - July 24, 2012

I suspended my normal skepticism the other day long enough to watch Helicopter Ben get grilled by Ron Paul. Great fun! Along with the entertainment came an insight about this “Director of our Economy”. As Bernanke was explaining the inexplicable to Dr. Paul, it became quite evident to me that, revealed by his hemming, hawing, stuttering, and stammering, is an utter lack of conviction about the direction that his “leadership” is taking monetary policy in this country. On the other hand, anything remotely resembling criticism of his personal credentials, or abilities, was met with an almost fiery clarity of thought and delivery. The conclusion I reached was that this individual, so much like the alleged Chief Executive, is lost in his office and is , hence, a fraud.

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