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Saturday, December 10, 2022

Columns

‘Operation Twist’ will put nation and students in an economic twist


Investors on Wall Street and all over the world panicked Thursday thanks to the Federal Reserve’s newest “tool” to fix the economy.

Market investors took their money out of the big three — oil, gold and silver — and put it into long-term treasuries.

The price of oil has since dropped to $80 a barrel, gold has plunged to $1,600 an ounce, and silver has fallen to $30 an ounce. Normally, these three commodities are safe investments.

What caused everyone to flee like rats from a sinking ship? We know the people who threw together the Sept. 17 Wall Street protest most likely were not involved.

Many students may ignore the situation, and many students may not feel the direct impact and think that it will be possible to coast by in school, hidden within the confines of their campus until this whole thing blows over. Many students are wrong.”

The culprit is the Fed, that announced Thursday that it would implement a new plan to help the markets — not Quantitative Easing three, but Operation Twist.

Juvenile as it may sound, Operation Twist involves the central bank buying long-term debt in an attempt to lower interest rates in the market. The Fed assumes that lower interest rates will increase spending and do everything that buying bonds (QE 1 and 2) couldn’t do.

However, investors didn’t take to the idea, which is why the markets had a spasm.

Had the Fed announced something like Operation Twist in 2008, investors would have probably been shocked at such a move – but not deep into 2011.

The central bank went from flooding the market with cash — twice — to this attempt at allowing others to invest with better interest rates. It wasn’t a good trick to follow up on.

This is relevant information for investors, stock brokers and everyone who has a career in the global markets, but more students will undoubtedly be talking about the UH football team and their Saturday victory over Georgia State. And, that’s fine for students who plan to live off in the woods somewhere after graduation.

The problem is that the major market movements can lead to a second recession. By then it will be too late to pay attention.

Many students may ignore the situation, and many may not feel the direct impact and think that it will be possible to coast by in school, hidden within the confines of their campus until this whole thing blows over.

Many students are wrong.

The 2008 recession can easily recur in 2011 or 2012. Crossed fingers and forlorn hope will not change this.

The Fed may have caused Thursday’s market reactions, but the investors were really just looking for an excuse.

To blame the central bank for the markets after the fact — that they’re only trying to fix what’s already broken — ignores the underlying problems.

Everyone thinks the rules are the same. Everyone thinks that this is some sort of bump in the road and that the markets and global economy will eventually get back on track and we can all start buying gasoline at $1.30 a gallon again. Unfortunately, a double-dip recession is not a pothole or a speed bump.

Remember the 1990’s? Remember growing up in a booming economy? Remember older siblings going off to college and entering into careers? Remember consumer spending without fear?

That’s all in the past now, and if it ever returns it won’t be in this decade.

It would take more than a half-page article to prepare a future college graduate for what may or may not happen in a double-dip recession. The only short and sweet advice is to do what college students do best: research.

Staying in the dark instead of up to date, just because it’s more depressing than a football game, is not a wise alternative.

David Haydon is a political science senior and may be reached at [email protected]

 

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