Markets rally on hope of Fed Mortgage Backed Securities buying program

It is the never ending bubble. Federal Reserve official, Daniel Tarullo, stated in a speech late last week that the Federal Reserve should begin to purchase long term mortgage backed securities as a way of driving down the interest rates, which are already at historic lows, even further. He said that it would have the added benefit of putting cash in the pockets of people who were able to refinance. I am skeptical that there are enough home owners out there that would be eligible for another refinancing in the next year or two. So this program will likely have a minimal effect on the price of mortgages and the refi market, but it will help those who already own mortgage backed securities. You know, just your average Joe Sixpack and his closet full of mortgage backed securities…uh wait. Rather than liquidating the bad investment and increasing interest rates in order to encourage saving the Fed is pumping money into the big banks via the taxpayer.

This latest potential program shows that the talk by hopelessly naive/manipulated pundits saying, “the Fed is out of bullets and there is only so much they can do,” is basically bs. It may be true if they would say, “The Fed is out of bullets that help anyone but the country’s investment elite.” So called experts have been saying “the Fed is out of bullets” since interest rates approached zero. The Federal Reserve, however, is demonstrating that they are willing to dig much deeper into the playbook than expected. Where do the purchasing programs end is the real question, actual homes, student loans, maybe car loans. “The Federal Reserve has entered the car loan market today, now struggling Americans will be able to take out lines of credit on their KIA.”

The point is that the Federal Reserve can get away with “stimulating” the US economy(the big funds/banks on Wall Street) with these buying programs as long as the reserve note that they have the power to print is the reserve currency of the world. But nothing great lasts forever and that includes the $ as world reserve currency. And the higher this country is in the sky off of the Fed’s dope the harsher the crash is going to be when the $ is sold off around the world and crashes.

As much as the Jim Cramers of the world love to whine and cry about the PIGGS and their negative impact on the US markets, ultimately the eurozone may be providing cover for Fed action that would otherwise be coming under intense scrutiny for the inflation that it will likely continue to cause.

The real dirty little secret is that while the MBS buying program, if it is indeed rolled out, will put a few thousand in the average American home owner’s pocket and maybe allow a few on the fringes to purchase a home when they could otherwise not afford the payments, it will further diminish the purchasing power of the $ and become a harsh tax on the poor. But the people who will get rich off of this is the smart money, the big funds, and they are the only ones likely to know when it is time to get out.

Additional Reading and Research:

End the Fed by Ron Paul

The Case Against the Fed by Murray Rothbard

The Monetary Policy of the Federal Reserve: A History (Studies in Macroeconomic History)

Filed Under: EconomicsFeatured

About the Author: Shaun Booth is editor of MilwaukeeStory.com.

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  1. Steph says:

    I think this is exactly why we need somebody like Ron Paul, because otherwise the Fed will likely continue to run wild.

  2. Dan says:

    Hey Shaun,

    The Fed is doing what it needs to do to stabalize the mess in the markets. If they don’t do it we are going to be in more trouble than you think.

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