The Federal Reserve attempts to stimulate the economy by making it cheaper for consumers and businesses to borrow and spend issued $40 billion a month to buy mortgage bonds to make home buying more affordable. The Feds had to act right now because of the anxiety of the economy, to reduce high unemploymentgreater than the 8.1 percent the Labor Department reports.
The Fed’s bond purchase is aimed as an incentive for consumer lending. The bonds and mortgage backed securities give little help because rates are near lows and more bond purchases raise the risk of higher inflation and more rising unemployment later. The Feds stated the need to expand purchases for mortgage bonds being done in the absence of economic and labor market improvement could allude toinflation.
The $40 billion offered to buy mortgage bonds indicates that the banks are insolvent. The Feds is making an attempt to stave off any future collapse by stealing more money from the middle class through inflation and trading new money for mortgage loans.
The Feds wish to remove enough mortgage debt from the balance sheets of exposed banks to keep the system appearing financially sound. These banks have overcooked their reserves to cover losses resulting from exposure to the 2007 mortgage crisis and have borrowed as much as possible from each other.
The $40 billion dollar bond to homeowners is nothing more than the Federal Reserve pushing liar loans as buying mortgage bonds. These debts still retain bond rating, so the Feds appear willing to keep up bybuying mortgage bonds to make home buying more affordable.
So the banks will be able to move $40 billion worth of debt from their balance sheets in exchange for new loans from the Federal Reserve in the form of mortgage bonds which will prop up their dwindling reserves and make them appear solvent.
The Feds action in my opinion is to fool the middle class who has an outstanding mortgage balance. Those homeowners experienced mortgage meltdown the failed housing crises of 2007 and financial crisis of 2008 are aware that it’s nothing more than speculation.
The Federal Reserve mortgage bonds will be giving bank loans to homeowners as their previous loans fail spectacularly. This will cause inflation pushing up costs for consumer goods and services. The goals for homeowners make their mortgage payments preventing the banks from evicting owners out onto the streets.
The $40 billion a month mortgage bonds will not provide mortgage assistance to troubled homeowners. Critics warn that bond purchases raise the risk of growing inflation. Economic growth and recovery from a strong robust economy without inflation will keep up mortgage payments provide food on the table and spending, not bond purchasing. “Skeptics caution that further bond buying might provide little benefit” because there’s no real job growth.
As the economy remains the top issue in an election year; as expected the Obama administration offer another stimulus effort showing job growth interest before the November 6 presidential election. President Obama will use this as a measure to gain votes. The Fed was under pressure to make a move because the economy is still shrinking with high unemployment. The fear buying mortgage bonds could “ignite inflation.”
And if there were the distinct possibility of inflation if Obama gets elected for a second term, I believe he won’t. The $40 trillion a month in mortgage bonds add trillions more to the national deficit if the bond buying lasts three years according to The Times Picayune; add $1.4 trillion to the deficit.
The values of these homes continue to fall, more houses remain on the market, the middle will continue to lose their homes and bear the costs of bailing out the banks. Remember the $40 billion a month has to be paid back to the Federal Reserve.
The opinion expressed in this commentary
Article is solely those of Michael Coker