Posted on 11/10/2009 4:59:58 PM PST by An Old Man
This stuff isn't my area of expertise, but it is my bond-trading officemate's. He thinks the Fed's actions have backed them into a rat hole, and are hurting the housing market and all forms of credit. His arguments seem very logical to me. Far more so than Najarian saying on CNBC this morning that the Fed is keeping rates low to help credit card customers?! Huh? When the likes of Citi (C) are raising card rates to 25% on their best, high credit score decade + customers??
Ponder this:
The Fed continues to say it will leave rates near zero for a LONG time. Hence big buyers are scooping up huge amounts ($44B per month) of 2-year notes at absurdly low yields and a very tiny spread to the already pinned Funds rate. If the Fed were to suddenly change its tune, the owners of these (big banks, sovereign funds, etc) would get crushed. So the Fed is trapped - it can't publicly signal rates are going up without first secretly telling these big note holders that they are going to do so, so these guys can start unwinding. If they even signal this publicly, it'll be too late. Not to mention what would happen to the massive Fx carry trade bubble when the dollar strengthens.
Furthermore, by keeping the rates low, the Fed hurts the housing market. Banks do not need to, and are not, going out on the risk curve to make money. They can gather deposits for nearly nothing and make a big fat spread in treasuries. The long end of the yield curve is staying high (curve is very steep) because the bond vigilantes are afraid of inflation due to the Fed's easy money policy. Who needs to make mortgage (or small business etc.) loans when there is a "risk free" 3-400 bp spread ripe for the picking? Risk free, that is, until the Fed raises rates. Which they can't. But they have to at some point. Hence they have to give a "wink wink nudge nudge" to all the big players. Which they can't - that wouldn't be ethical and would hurt those not in the know.
Trapped indeed...
The fed got themselves in this mess. Let em find their own way out. Kind of reminds me of Oliver Hardy saying “Well here’s another fine mess you’ve gotten me into.” But instead the fed should be looking in a mirror when it’s saying this.
In April the Obama administration passed two things allowing financial institutions to be running their accounting like Enron did.
Instead of actual value, these institutions can make believe they are solvent or even profitable with a phony financial accounting trick called “Future Value”/
Then you have Fannie Mae and others buying tens of thousands of foreclosures for government social purposes.
The RE and Stock market are being as manipulated by the government in massive ways.
When the whole house of cards really fall, we are going to have a disaster IMO.
When the whole house of cards really fall, we are going to have a disaster IMO.
As this administration planned, never let a crisis go
to waste. If you don’t have a crisis, make one.
Pay off your debts; but after that there will be no reason to stay in cash. Many will buy gold and silver to hedge against inflation.
You know that the phrase, “May you live in interesting times” is a curse and not blessing, don’t you? ;)
“Who needs to make mortgage (or small business etc.) loans “
Mortgage loans are being made at record volumes. Just ask my companies underwriters and processing staff, who have been working overtime for almost a year now.
Why???????
I'm debt free, and saving, NOT spending savings, I'm not going to the stock market. What the hell are you talking about?????????????NO ONE is going to force me to spend savings, ?????????????I have an AK, you can't force me to spend crap!!!
Fannie and Freddie are already asking the govt for more bailout money. (major barf alert)
The problem with the housing market at this point has nothing whatsoever to do with lending rates.
The true market value of real estate is directly indexed to the population density, and the actual single earner median income.
Home and construction material prices had been inflated to a ludicrous degree for quite a while, and this has now been coupled to a huge drop in single earner median income.
I’m debt free as well, but CD rates are at near 1.5%.
F*** the banks. They have been complicit in creating and prolonging the mess we are in. Don't pay them. What are they going to do? Ding your credit rating? So what? How is that going to hurt you along with 100 million other people? Don't pay the banks and don't pay your taxes. Stand up and quit being a chump. Flame suit on. I don't care any more. I'm sick of this s***.
I have a question: Why would those that own the gold now be willing to exchange their gold for dollars?
Is it because they can get more dollars from the purchaser than they paid for it? You know buy low sell high.
You type good for somebody's who's lost it. ;^)
LOL. Had to go for a run. Thought my head was going to explode. Haven’t changed my thinking too much though.
Well, but if they think those dollars are going down in value while their gold is going up, why do it?
If you have a stack of old dollar bills I would be happy to sell some gold to you for them. How about $1,500/Oz.
If you take me up on that I will simply go out and purchase more gold than you bought.
That's how it works.
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