JFK and quantitative easing Twisted thinking Government debt-managers may be undermining quantitative easing Mar 31st 2011 | Washington, dc | from the print edition * * QE in Camelot QUANTITATIVE easing (QE) is an ugly name for a simple idea. Central banks buy long-term government bonds with newly printed money. This raises the bonds' prices, lowers their yields and provides a helpful boost to growth when central banks' main tool, the short-term interest rate, is close to zero. There is plenty of dispute over whether QE works, but not over who should be doing it: the central bank, obviously. Yet is it so clear-cut? A new paper has found that a finance ministry can accomplish the same outcome simply by altering the maturity structure of its debt. America tried precisely that in 1961. To lower long-term rates the administration of John Kennedy persuaded the Federal Reserve to co-operate with the Treasury in selling (shorter-term) bills and using the proceeds to purchase (longer-term) bonds. By altering the supply of different types of debt, the idea was to "twist" the yield curve. This came to be known as Operation Twist after the early 1960s dance craze sparked by Chubby Checker, a singer whose views on QE are not known.
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