For now, there is plenty of money in the system, but if the quarterly growth rate turns negative, expect the Fed to leap into action on QE3
Operation Twist hasn't been a boost to Money Supply (or Credit) growth. The big boost to Money Supply has come from the Federal Reserve's outright money printing from QE1 and QE2. As big banks continue to come under pressure to delever, expect Ben Bernanke to rev up the helicopters again this fall and print money in a QE3 operation.
Watching how Money Supply & Credit Growth behaves over the next 2-3 months is crucial to calling the exact meeting where Bernanke will be able to convince the FOMC to undertake QE3. QE1 and QE2 were undertaken in response to money growth rates close to zero. If quarterly money growth rates continue to drop over the next quarter, expect the FOMC to leap into action.
This does not mean that I think QE3 is necessary or good for the economy. In my quest to understand Ben Bernanke's outlook on the world, I have come to believe he would rather ignite an inflationary episode like the 1970's rather than repeat the mistakes of the 1930's. Unfortunately, I think the Fed's medicine is counterproductive and is allowing a massive leveraging up of the Federal Government that will ultimately have to be unwound. There is an increasing probability that the unwinding of the Federal Government's fiscal situation will be accompanied by a debt crisis that will make the current European Debt Crisis pale in comparison.