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Many years ago I stayed at the Hotel Pan America in San Jose, Costa Rica. My room was on the second floor. The hotel was the first built in San Jose, at the turn of last century. Termites had eaten the floorboards and they were spongy. Worse, bugs had been working on the support beams, made of a tropical hard wood that's irresistible to termites. When I walked across the room the floor bowed like a giant trampoline. Being young, I found this amusing. The dresser danced, the mirror swayed, and the stand alone clothes cabinet banged against the wall. I jumped up and down. The guest in the next room cursed in Spanish.
Fed Keeps Rate Near Zero, Is Ready to Buy Treasuries
Jan. 28 (Bloomberg) -- The Federal Reserve left the benchmark interest rate as low as zero, said it’s prepared to purchase Treasury securities to resuscitate lending and warned inflation may recede too quickly.
The Fed is ready to buy “longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets,” the Federal Open Market Committee said in a statement today in Washington. Any purchases before the FOMC’s next meeting in March would still need a vote to authorize the action.
The Fed termites do what they do, they eat and eat, starting with the short end -- the floor boards of the financial system -- and, unable to resist the structure, they move on to the long end -- the support beams of the system -- as they are destined to by their programming, their own internal logic, and their natural aversion -- to a deflation spiral. The Fed has for years said that if necessary it stood read in to buy "across the yield curve." Today the future is fast arriving. The termites are getting ready to start in on the very structure of the financial system. Unlike termites, they think they are helping. Like termites, they are destroying the very structure on which they depend. Jan. 28 (Bloomberg) -- The Federal Reserve left the benchmark interest rate as low as zero, said it’s prepared to purchase Treasury securities to resuscitate lending and warned inflation may recede too quickly.
The Fed is ready to buy “longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets,” the Federal Open Market Committee said in a statement today in Washington. Any purchases before the FOMC’s next meeting in March would still need a vote to authorize the action.
Years later I heard that the Pan America collapsed. Too bad. It was a great old place.
(Hat tip to Sharky for catching the long awaited Fed buying long bonds story.)
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