By now, you have heard about the Fed’s announcement that it would begin reverse repo operations. http://www.ny.frb.org/markets/opolicy/operating_policy_091130.html It’s odd for several reasons.
First it’s a follow up to last month’s announcement of practice reverse repos with play money. Evidently, this one will be with real money, but in such small amounts as to have no effect on monetary policy. In other words, we’re going to practice tightening, but we’re going to stay loose. According to the Fed, they need to “practice” in order to be prepared when the time comes to do this for real. Can you believe it? They need to practice temporary open market operations, their only policy tool for eons until 2007.
They need to practice.
That is not what this is about.
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