Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19
Gold and Silver - The Two Horsemen - 11th Nov 19
Towards a Diverging BRIC Future - 11th Nov 19
Welcome to the Zombie-land Of Stock Market Investing - 11th Nov 19
Illiquidity & Gold And Silver In The End Game - 11th Nov 19
Key Things You Need to Know When Starting a Business - 11th Nov 19
Stock Market Cycles Peaking - 11th Nov 19
Avoid Emotional Investing in Cryptocurrency - 11th Nov 19
Australian Lithium Mines NOT Viable at Current Prices - 10th Nov 19
The 10 Highest Paying Jobs In Oil & Gas - 10th Nov 19
World's Major Gold Miners Target Copper Porphyries - 10th Nov 19
AMAZON NOVEMBER 2019 BARGAIN PRICES - WD My Book 8TB External Drive for £126 - 10th Nov 19
Gold & Silver to Head Dramatically Higher, Mirroring Palladium - 9th Nov 19
How Do YOU Know the Direction of a Market's Larger Trend? - 9th Nov 19
BEST Amazon SMART Scale To Aid Weight Loss for Christmas 2019 - 9th Nov 19
Why Every Investor Should Invest in Water - 8th Nov 19
Wait… Was That a Bullish Silver Reversal? - 8th Nov 19
Gold, Silver and Copper The 3 Metallic Amigos and the Macro Message - 8th Nov 19
Is China locking up Indonesian Nickel? - 8th Nov 19
Where is the Top for Natural Gas? - 7th Nov 19
Why Fractional Shares Don’t Make Sense - 7th Nov 19
The Fed Is Chasing Its Own Tail; It Doesn’t Care What You Think - 7th Nov 19
China’s path from World’s Factory to World Market - 7th Nov 19
Where Is That Confounded Recession? - 7th Nov 19
FREE eBook - The Investment Strategy that could change your future - 7th Nov 19
Is There a Stock Market Breakout Ahead? - 6th Nov 19
These Indicators Aren’t Putting to an Economic Resurgence - 6th Nov 19
Understanding the Different Types of Travel Insurance - 6th Nov 19
The Biggest Gold Story Of 2020 - 6th Nov 19
Best Money Saving FREE Bonfire Night Fire Works Show Sheffield 2019 - 5th Nov 19
Is the Run on the US Dollar Due to Panic or Greed? - 5th Nov 19
Reasons Why Madrid Attracts Young Professionals - 5th Nov 19
Larger Bullish Move in USD/JPY May Just Be Getting Started - 5th Nov 19
Constructive Action in Gold & Silver Stocks - 5th Nov 19
The Boring Industry That Hands +500% Gains - 5th Nov 19
Stock Market Chartology vs Fundamentals - 4th Nov 19
The Fed’s Policy Is Like Swatting Flies with Nuclear Weapons - 4th Nov 19
Stock Market Warning: US Credit Delinquencies To Skyrocket In Q4 - 4th Nov 19
Stock Market Intermediate Topping Process Continues - 4th Nov 19
Stock Market $SPY Expanded Flat, Déjà Vu All Over Again - 4th Nov 19
How To Buy Gold For $3 An Ounce - 4th Nov 19

Market Oracle FREE Newsletter

How To Buy Gold For $3 An Ounce

Fed Policy: Underwrite Mortgages to Underwrite the Treasury

Interest-Rates / US Debt Mar 23, 2011 - 04:26 AM GMT

By: Dr_Jeff_Lewis

Interest-Rates

In a little known program to which few have been paying attention, the US Treasury is attempting to unwind positions it inherited from a very expensive bailout of government-sponsored entities Fannie Mae and Freddie Mac. 


The Treasury department has as much as $143 billion in securities to sell to investors, with the first sale starting at $10 billion in the month of March.  These asset sales, though not for immediate digestion by the Federal Reserve, must be purchased with investment dollars from private investors.   The Fed, after all, is still focused primarily on Treasury yields themselves and will remain steadfast in purchasing Treasuries before presumably beginning new talks about QE3.

For the Fed, inflation is almost a necessity.  As most investors have realized, the bulk of the portfolio of loans owned by both Fannie and Freddie are toxic, and due to the regulatory environment that permitted Fannie and Freddie to buy most anything with exposure to the risk of loss, the US Treasury sits on copious amounts of underperforming assets at a time when millions of people, still out of work, have to make the decision between paying their mortgage or putting food on the table.

However, for the millions of others who are employed, the decision to hold onto their house is a noble one.  Many buyers, now underwater, see some 15-30 years of repayments in which they will not only pay nearly double the cost of the home in interest, but in which they will also have paid more in principle than the current market value of their home.

The Fed’s Double Task

The Federal Reserve, knowing full well that inflation exists in items excluded from the core CPI—food and oil—wants to see inflation in real estate prices.  In doing so, it must continue to bid down the cost of money and ensure at the same time that homeowners feel confident to buy their own home.

Without activity in the retail space for single-family homes, the Treasury will accumulate even more losses, which again must be afforded by the Federal Reserve.  An unlimited credit line from the US Treasury means that while Fannie and Freddie may have long gone bankrupt, the printing presses of the American central bank can keep their dying models alive enough to extract what little is left - all at the cost of the US dollar.

The total cost for bailout, which now stands at just over one-quarter of a trillion dollars, is not at all absolute.  In fact, the eventual sale of all assets purchased in 2009 will require not only an improving job market, but an improving real estate market, as well as a decline in borrowing from the US Treasury.  With all these elements of a normally free market intertwined, there is only one solution: the Fed has to keep the dollar down.

Gold and silver are in a unique position to continue their rallies as these assets hit the market.  MBS debt and US Treasury debt, though not the same institutionally, still pull from the same amount of risk capital that circulates throughout the economy.  Unless this capital is made up by private investors, the Fed will absolutely have to continue indirect monetization of the two failed GSEs.  This comes at a time when the Fed’s firepower leftover from QE2 is being rapidly exhausted, and a QE3 program would be necessitated in order to liquidate Treasury assets without draining the fixed-income market.

If the Treasury continues on its fundraising campaign, QE3 is not only anticipated, but assured.

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

    Copyright © 2011 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

B.
23 Mar 11, 13:09
How Weaker Dollar and Inflation Improve the Repayment Prospects?

It doesn't make any sense to me , yet folks like you repeat the myth as a mantra. Why don't you show how a falling dollar and price basket inflation (Iassuem that's the inflation to which you refer) will make repayments of GSE backed conforming mortgages more of a sure this - especially when those that owe the money on those mortgages are not seeing their incomes go up in nominal terms. The floor is yours.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules