Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
CHIA Getting Started SSD Crypto Mining by Plotting and Farming on Your Hard Drives Guide - 9th May 21
Yaheetech Mesh Best Cheap Computer /. Gaming Chairs on Amazon Review - 9th May 21
Breaking US Trade Embargo with Cuba - Build 7 Computers in 14 Hours Before Ship Sales Challenge - 9th May 21
Dripcoin Applies New Technology That Provides Faster Order Execution - 9th May 21
Capital Gains Tax Hike News: Was It REALLY to Blame for Sell-off? - 7th May 21
Stock Market Transportation Index Continues To Grind Higher - 7th May 21
SPX Stock Market Correction Arriving or Not? - 7th May 21
How to Invest in an Online Casino? - 7th May 21
Gold & Silver Begin New Advancing Cycle Phase - 6th May 21
Vaccine Economic Boom and Bust - 6th May 21
USDX, Gold Miners: The Lion and the Jackals - 6th May 21
What If You Turn Off Your PC During Windows Update? Stuck on Automatic Repair Nightmare! - 6th May 21
4 Insurance Policies You Should Consider Buying - 6th May 21
Fed Taper Smoke and Mirrors - 5th May 21
Global Economic Recovery 2021 and the Dark Legacies of Smoot-Hawley - 5th May 21
Utility Stocks Continue To Rally – Sending A Warning Signal Yet? - 5th May 21
ROIMAX Trading Platform Review - 5th May 21
Gas and Electricity Price Trends so far in 2021 for the United Kingdom - 5th May 21
Crypto Bubble Mania Free Money GPU Mining With NiceHash Continues... - 4th May 21
Stock Market SPX Short-term Correction - 4th May 21
Gold & Silver Wait Their Turn to Ride the Inflationary Wave - 4th May 21
Gold Can’t Wait to Fall – Even Without USDX’s Help - 4th May 21
Stock Market Investor Psychology: Here are 2 Rare Traits Now on Display - 4th May 21
Sheffield Peoples Referendum May 6th Local Elections 2021 - Vote for Committee Decision's or Dictatorship - 4th May 21
AlphaLive Brings Out Latest Trading App for Android - 4th May 21
India Covid-19 Apocalypse Heralds Catastrophe for Pakistan & Bangladesh, Covid in Italy August 2019! - 3rd May 21
Why Ryzen PBO Overclock is Better than ALL Core Under Volting - 5950x, 5900x, 5800x, 5600x Despite Benchmarks - 3rd May 21
MMT: Medieval Monetary Theory - 3rd May 21
Magical Flowering Budgies Bird of Paradise Indoor Grape Vine Flying Fun in VR 3D 180 UK - 3rd May 21
Last Chance to GET FREE Money Crypto Mining with Your Desktop PC - 2nd May 21
Will Powell Lull Gold Bulls to Sweet Sleep? - 2nd May 21
Stock Market Enough Consolidation Already! - 2nd May 21
Inflation or Deflation? (Not a silly question…) - 2nd May 21
What Are The Requirements For Applying For A Payday Loan Online? - 2nd May 21
How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part1 - 1st May 21
Are Technicals Pointing to New Gold Price Rally? - 1st May 21
US Dollar Index: Subtle Changes, Remarkable Outcomes - 1st May 21
Stock Market Correction Time Window - 30th Apr 21
Stock Market "Fastest Jump Since 2007": How Leveraged Investors are Courting "Doom" - 30th Apr 21
Three Reasons Why Waiting for "Cheaper Silver" Doesn't Make Cents - 30th Apr 21
Want To Invest In US Real Estate Market But Don’t Have The Down Payment? - 30th Apr 21
King Zuckerberg Tech Companies to Set up their own Governments! - 29th Apr 21
Silver Price Enters Acceleration Phase - 29th Apr 21
Financial Stocks Sector Appears Ready To Run Higher - 29th Apr 21
Stock Market Leverage Reaches New All-Time Highs As The Excess Phase Rally Continues - 29th Apr 21
Get Ready for the Fourth U.S. Central Bank - 29th Apr 21
Gold Mining Stock: Were Upswings Just an Exhausting Sprint? - 29th Apr 21
AI Tech Stocks Lead the Bull Market Charge - 28th Apr 21
AMD Ryzen Overclocking Guide - 5900x, 5950x, 5600x PPT, TDC, EDC, How to Best Settings Beyond PBO - 28th Apr 21
Stocks Bear Market / Crash Indicator - 28th Apr 21
No Upsetting the Apple Cart in Stocks or Gold - 28th Apr 21
Is The Covaids Insanity Actually Getting Worse? - 28th Apr 21
Dogecoin to the Moon! The Signs are Everywhere, but few will Heed them - 28th Apr 21
SPX Indicators Flashing Stock Market Caution - 28th Apr 21
Gold Prices – Don’t Get Too Excited - 28th Apr 21
6 Challenges Contract Managers Face When Handling Contractual Agreements - 28th Apr 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The U.S. Fed Needs Your Help

Interest-Rates / US Federal Reserve Bank May 05, 2015 - 02:59 PM GMT

By: Harry_Dent


Rodney Johnson writes: The Fed needs your help. This stately body of academics has worked for years to rejuvenate the U.S. economy, but to no avail. 

You can’t say they’ve been lazy in their efforts. When their first quantitative easing (QE) program failed to create a bounce back in housing, they started up another one, QE2. When that failed they brought in QELite, followed by Operation Twist. 

After all of those failures, the Fed kicked the numbering system to the curb and introduced QE-Eternity, which allowed them to print money and buy bonds for as long as they wanted. Still, the housing market, that engine of middle class employment, has remained in a funk. 

But have no fear! Across the land we can hear what Ronald Reagan considered the scariest words in the English language: “I’m from the government, and I’m here to help!”
In late 2013, Congress directed the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, to increase the fees charged on mortgages. The idea was to better safeguard taxpayer dollars and to encourage private lending.

The agency’s new director, Melvin Watt, ignored this and left most rates the same. He actually lowered rates for the riskiest borrowers! 

In the meantime, Fannie Mae and Freddie Mac have significantly lowered the size of the down payment required to qualify for a mortgage. It’s not the traditional 20%, or even 10%, but a mere 3%. 

With real estate brokerage fees running at 6%, homebuyers are immediately underwater when they buy a home with 3% down. If they turned around and sold it for the same price, commissions would eat up twice their down payment! Brilliant! Isn’t this the sort of thing that got us into trouble last time?

But it doesn’t stop there. The Fed received another assist, this time from the private sector. 

Credit rating firm Fair Isaac Company (FICO) recently announced the creation of an alternative credit scoring system. The point of the alternative approach is to give more consumers a high enough rating to qualify for credit. 

Fair Isaac estimates that the new system will affect 15 million consumers, including those who rarely used debt in the past or who even have negative credit events on their history, like foreclosures. FICO expects a full one-third of these consumers to be rated at least 620, which is the minimum for many credit decisions. 

Apparently the new approach is in response to lenders who have been looking for ways to increase the number of people that qualify for credit. 

Something about this doesn’t seem quite right. Maybe it’s because under the old system of credit scoring we still went through the worst economic crisis since the Depression, and now the main credit rating company is looking for ways to increase the number of people that can take on debt. 

But it doesn’t matter what we think. The Fed has determined that the way to solve America’s problems is to increase spending through credit.  Lowering down payments and increasing the number of people who qualify for credit are two great examples of how the government and private companies are “just trying to help.”

What if these efforts do more harm than good? What if, instead of a fairy tale ending where all asset prices only march higher, some of the borrowers under these new programs default? What if reality invades and, just like last time, borrowers with low credit scores or those who put down very little when buying homes can’t make their payments?   

With the U.S. economy stuck in low gear while Europe suffers inflation and China slows down, the chances of a downturn here at home loom larger every day. When the next recession happens, many of these newly-minted (or recently reinvented) borrowers could fail. 

That’s where you and I would enter the picture. 

We might think lending 97% to home buyers is a bad idea and could lead to losses, but as we proved in 2008, the American taxpayer is the one left holding the bag when Fannie Mae and Freddie Mac make bad decisions.

As for private lenders, we backstopped them during the last recession as well, no matter how many questionable borrowers were approved for credit. 

When the economy eventually turns south and stories of borrowers defaulting on loans once again fill the papers, there will be a knock on our door. Whether we want to or not, we’ll once again be forced to help.

Rodney Johnson, Senior Editor of Economy & Markets

Follow me on Twitter @HarryDentjr

Harry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.

Copyright © 2015 Harry Dent- 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.

Harry Dent Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

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