11-04-2010, 11:01 AM
Vanraw Wrote:$600 Billion and the market just yawned.
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Perhaps you or Breand can explain this to me. As I understand it, Mortgage interest rates are based on Long term bonds. So Buying long term bonds will / should lower the 15 and 30 year mortgages. But I just landed a interest rate at 4%, which is historically extremely low.
How does the government buying Bonds help the economy?
Its not going to motivate banks to lend. I'm reading the banks are sitting on trillions of dollars?
Its not going to boost home building. I mean 4% 30 year and 3.75 15 year is pretty sweet.
So how does this help?
2nd Question. Does this add to the deficit, or reduce it? This is the question I really have that I don't understand. Aren't they in effect printing money to buy back debt? If so will the deficit go down? or is it going to increase by 600 more billion?
The 600 billion was priced in already, altho today is showing that the 600 bill and the election has the markets going further. One could argue that the market is pricing in inflation today now that the 600 billion is official. (which is why gold/silver is skyrocketing and the USD is plummeting today as well.)
The 4% you got was also priced into the expected decision by the Fed. However it should go even lower, which is why I'm waiting to refi.
The government thinks buying bonds will help the economy (it won't in the long run) because by pushing interest rates extremely low they think it will force people to spend their money and take out new loans since there is no reason to save when interest rates aren't keeping pace with inflation. They basically want to get the economy going by putting people further into debt, which again will never work in the long run.
It won't add to the deficit. Basically the Fed decided to print more money instead of going further into debt with other countries. They are creating inflation to reduce their indebtedness. They are snapping their fingers and making money, then using that money to buy U.S. Treasury debt. Which BTW, as of today Bernanke just PERJURED himself in front of Congress when he said he wouldn't monetize the debt:
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What WILL happen is we will be forced to increase our interest rates as everyone refuses to continue buying our shitty Treasuries as the Fed just proved today that they are willing to monetize it. This is why we had 17% mortgage rates in the early 80s.