Go back a week to an article in the NY Times (Link). The guts of this story is that the Administration is working on a plan to Re-Fi residential mortgages on a massive scale.
Bruce Krasting, More Hints Of A Giant Housing Cure Backed By Obama And The Fed
This could be big if true. It's long overdue, and it should have been done when so many people were asking why Wall Street got loans and not Main Street. Until the housing market clears out, the recovery won't get legs.
(h/t to Andrew P commenting at Pragmatic Capitalism for this link)
2 comments:
If such a plan does happen and improves the economy and the Fed replaces the trillon dollars with Treasuries, what do you think that will mean for the yeilds on the 30 year Treasury bond?
Tom,
This is the best reporting I've ever seen from Krasting... very interesting and sounds feasible.
GLH,
Just my quick opinion, I have to think on this some more... imo when the Fed did large scale Treasury purchases under the QE2, it facilitated a rise in the rates and a sell-off in the bonds.
But, that (QE2) was using newly established reserve balances. This program looks like effectively the Fed would not be using new (net)RBs but would be replacing currently held MBS with Treasuries, as the MBS the Fed holds were redeeemed due to refinancings, they would buy treasuries to keep the Fed BS at the same levels. So it is a bit different. Will continue to think about it. (Prelim: Could just act to stall a longer term bond price uptrend.)
FD: My long term view is on board with Warren's "Japan" parallel if govt/politics stay the same as they are now. Seems like we are going the same way as Japan, including the real estate crash and now the credit downgrade that Mike predicted years ago. So else equal at this point, like Japan, I eventually see our 10 year rate down nearer 1% and our 30yr down nearer 2%.
Resp,
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