This QE is not for bank lending, and it has nothing to do with job creation, the Fed is going to be buying $40B a month of Mortgage Backed Securities directly from Fannie Mae/ Freddie Mac/ FHA (they account for 96% of all mortgage lending right now). They are buying this paper because no one else will(and it circumvents the treasury form having to give money directly to the GSEs to keep them propped up), these loans are 3% down and credit scores in the 600’s they are the same garbage paper that caused the real estate bubble. This is their last ditch effort at propping up the real estate market, they are already holding millions of homes that have been foreclosed upon off the market to control the supply because it is exponentially greater than the current demand.
I’m a real estate broker, I pull the foreclosure actions every month for my county here in Florida (Broward), we are seeing 700-1000 unique foreclosure actions a month right now and it takes 2-3.5 years for the foreclosure to finalize. The supply of distressed/foreclosure properties is not slowing down. I am friends with REO(bank owned foreclosed homes) brokers and they are having to lay off employees and downsize their brokerages because Fannie Mae & HUD(FHA) are releasing roughly 10% of the foreclosures that they were a year or two ago. This lack of Foreclosure listings is not because of a lack of supply but a lack of demand for the supply. If the true supply of properties was released to market tomorrow the price of real estate would plummet and would cause more homeowners to consider strategic default on their homes.
In closing, the Fed and Democrat Congress caused the housing bubble in the first place and are doing everything they can to sustain prices and appearances of the real estate market and to kick the can down the road. They are telling you prices are rising, that’s because there is no inventory out there (on purpose) and any quality inventory gets snatched up.
?I think there is a huge misconception and fallacy that money printing can actually improve the rate of employment because the money flows down into the system. It goes first into the banking system and into financial institutions, into the pockets of well-to-do people. If you drop money into my pockets and you have at the same time increased government involvement in the economy and we have the government growing with its regulation and legislation that stifles economic development. I don’t want to build a new business. But what I may do is look around the world, where are the distressed assets. So I will go and buy existing assets, takeovers. But takeovers don’t add to employment. They destroy employment. Secondly, I would just like to mention one thing. This money printing business, they have been saying that for the last 15 years that bailing out LTCM were necessary. Then they say the NASDAQ collapsed after March of 2000. We need to create another bubble, print money. They created a gigantic credit bubble and the misery that we have today.?
I don’t think it helps confidence, and already poor confidence coupled with the threat of a Romney win in November pretty much assures stagnation in wages and private employer hiring.
So in short, this helps people’s portfolio and Obama’s re-election bid more than America, as the “bump” in economic headlines will be good press.
So no one (except perhaps novaeer) is a fan of market monetarism?
Edit: I’m uncertain that NGDP targeting is really the answer, but economists much smarter and more knowledgeable than myself are coming around to the idea that we need to balance any losses in GDP with inflation. People will of course be pissed off that their money is worth less than it was before, but they’d be even more pissed to take a wage cut. I think we have to do something to reflect our loss of wealth, and if it means reducing the value of our dollars, then perhaps that is what we should do.
Perhaps I am too pessimistic, but I also think part of our problem may be a reflection of something more sinister than business cycles a la Tyler Cowen and Robert Gordon, and therefore we may be expecting too much, but I think increasing the dollar supply is likely going to be helpful regardless.
There is a multitude of reasons as to why QE is a good thing right now…
lowering long term yields helps lower mortgage interest rates and helps people refinance their homes.
When the fed buys treasury bonds, they make them expensive…this makes people seek yield and move out of treasuries to things like equities and corporate bonds which lowers the cost of financing for business
When the stock market rises, it creates a wealth effect where people spend more money due to increased perceptions of wealthiness.
Keeping interest rates low on treasuries give our government more leeway to finance spending instead of making cuts or increasing taxes…
Our exports become cheaper and this increases our competitiveness against other countries in the world…
Now…Some say that monetary policy is causing inflation, but I don’t see it? Where is it?
The only price increases that are occurring are food and oil…Food prices are rising because of drought and the changing demographics in the world…Oil prices are rising because of speculation of what is to occur in the middle east…Both have nothing to do with monetary policy…
They are supply side issues. If we were on the gold standard, food and oil prices would still increase.
As far as the over supply of homes, banks will just keep them off the market and slowly sell them. Why would they flood the market with supply?
These people are professionals at gaming the system. I know how they operate. They only do things that are in their interests. It is not in their interests to lose money in the short term and make themselves look bad. They rather kick the can down the road as long as they can…
I’m long homebuilders…I made an enormous return on Lennar(LEN)…
And, If democrats take the house, things will be on the up…
[quote]D Public wrote:
Now…Some say that monetary policy is causing inflation, but I don’t see it? Where is it?
[/quote]Hah - have some patience
In due time it’ll hit the streets and you’ll be flooded waste deep in it
I think for now it’s in the stock market, but nothing lasts forever
[quote]D Public wrote:
When the stock market rises, it creates a wealth effect where people spend more money due to increased perceptions of wealthiness.
[/quote]And this is exactly what I was talking about earlier.
Tricking people into spending money that they shouldn’t. That’s not a good thing - it never will be.
You call that a “wealth effect”. I would sooner call it a “poverty effect”. You don’t get rich by buying a pile of junk. Others can get rich by tricking you into it. Tricking other people isn’t the only way to wealth, but it unfortunately is one.
…Also - I’m gonna take it even further
[quote]D Public wrote:
Now…Some say that monetary policy is causing inflation, but I don’t see it? Where is it?
[/quote]Don’t try playing this game where “you” print up a bunch of money and then act like I’m some dumb little kid.
Hiding the money behind your back and go with the little kiddie voice “Huuuuuuh - where’d it go?”
And then I’m supposed to run all the way around as you simultaneously swoop it to the front of your body.
And that childish game can go on for a pretty long while sometimes - but not forever.
So when that game ends is when you’ll be flooded with the inflation.
But I have to say, I didn’t realize they did something different with QE3 this time, in terms of “propping up the housing market”.
I mean, the inflationary effects are still going to be similar as I described, but obviously the attempted economic jump start I described won’t be anything like that, since it’s a different mechanism.
The problem with holding houses off the market for so long is that they don’t have electricity in them and may or may not have running water so you have houses that are degrading at a rapid rate. With 99.9% of foreclosures down here in Florida you have mold issues because there has been no air conditioning for years. The vacant houses have their appliances and air conditioning units stolen. I just had a client close on a house that had $175,000 in city “lawn cut” fines that we had to negotiate down in front of a magistrate.
This QE is a direct conduit for Fannie / Freddie / FHA to sell off garbage paper they are currently writing that No One will buy. With the 3% down programs that they are running you are already seeing foreclosures from people who took advantage of the $7,500 tax credit, have lost 10%+ in value, and didn’t have realistic expectations of what the cost of home ownership are (Taxes, Insurance, Repairs, Up keep, Twice a weekend home depot trips).
This is false market support, here on the ground the biggest issue is quality supply of listings. Most foreclosures that have been held can’t be purchased with financing because of the condition of the property. Quality properties are being snatched up in days to weeks.
There can only be two options either we are in a depression or we are not. If you think there is inflation due to monetary policy, then we can’t be in a depression because inflation occurs due to spending money. You know…Too much money chasing too few goods…
That being said…I’m fairly certain that we are in a depressed economic state where there is a strong lack of spending by businesses and households.
We need low interest rates…That is what the market wants in such a state…
If we went on the gold standard, it would cause all interest payments to rise. This would cause people to start hoarding money to avoid bankruptcy. Their hoarding in aggregate would cause a severe downward spiral that would disrupt all economic activity in the country.
The gold standard is pure manipulation of the market. You are pegging the currency to a false standard that is out of tune with economic reality. The FED attempts to adjust their rates to move with economic reality…Interest rates should be low when people don’t want to borrow money, and they should be high when they do want to borrow money…it’s supply and demand…When you use gold or a fixed regime then you are not setting interest rates in tune with the market anymore…it is an arbitrary rate based on the supply of gold…
If they bulldoze then there is almost ZERO value, 1) lot financing is almost impossible, 2) construction financing for single family homes is impossible, 3) It costs more to build than to buy a comparable property. Bulldozing homes that are just in need of rehab is like killing a person because they broke their leg. We are not talking about abandoned homes in Detroit that look like downtown Baghdad, we are talking nice homes in nice neighborhoods that have had no electricity for 2 years so all the drywall has to be ripped out.
Just wanted to add that I’m far too pragmatic to propose any sort of return to the gold standard.
I keep some of my money in precious metals, and some of it I don’t. I simply try to play the changes between the two. Gold seems to be slightly more stable relative to real-world-good prices (more stable than the dollar at least), but in all honesty, everything is always in flux, and “market prices” rarely reflect actual prices.
The dollar index is another useful metric, for just general insight.
But I don’t overrely on anything. Even our best theories are still just that… theories.
Our system relies on growing debt, a debt which has now passed the point where increasing debt promotes growth. All it can do now is destroy.
The only thing to do now is to close every government department not in the original founding documents, fire all the workers, eliminate all regulations and income taxes.
Make only gold to be money, with the dollar 100% backed and fully exchangeable. Make that a constitutional amendment along with a balanced budget amendment.
I don’t think it helps confidence, and already poor confidence coupled with the threat of a Romney win in November pretty much assures stagnation in wages and private employer hiring.
So in short, this helps people’s portfolio and Obama’s re-election bid more than America, as the “bump” in economic headlines will be good press.