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James Moore, Scott A. Mather
This article was originally published September 30 by Dow Jones Newswires.
In the Fed's zeal to try to stimulate the market through a retread of the so-called Operation Twist, this nation's central bankers seem to have stepped into a realm where No Good Deed Goes Unpunished. In addition to the long bond dropping in yield 40 basis points in the wake of the announcement that the central bank will buy long-term Treasuries, broad equity markets have dropped some 6%. Some sectors, notably financials, have fallen even further.
That the patient has responded violently to the medicine of Dr. Bernanke and team reflects the realization that the cure may be worse than the disease. As we near the zero bound for interest rates, the usual rules do not apply--the second order side effects now dominate and cause more harm to the patient than good.
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