by Jerome a Paris
Mon Feb 9th, 2009 at 10:00:14 AM EST
US plan to curb mortgage rates falters
The US Federal Reserve's efforts to drive mortgage rates lower by purchasing home loans have faltered and rates have risen over the past month.
The rise in rates is a disappointment to government officials, who had hoped that a steep fall in house prices and low financing costs would lure new buyers into the nation's depressed housing market.
Since January 13 the rate on standard long-term mortgages charged by lenders to prospective home owners has jumped from 5.04 per cent to reach 5.51 per cent on Friday, according to mortgage market analysts HSH Associates. The jump represents an almost 10 per cent rise in borrowing costs.
In a sense, this is not unexpected: variable mortgage rates are linked to long term Treasury rates, rather than to short term Fed rates, and Treasury rates went down to unusually low levels late last year as a massive flight to safety made investors wary of any financial assets not backed by the full credit of the US government. Now that things are stabilising somewhat in asset markets, and that people start looking at US debt on a standalone basis, and not just as a safe haven, prices are moving back to "normal."
But "normal means that:
Plans by the Treasury to raise $2,000bn in new debt over the 2009 financial year are driving yields on government bonds higher and complicating the Fed's efforts to push mortgage rates lower.
In spite of a poor employment report last Friday, which typically would send long-term yields on Treasury bonds lower, they rose.
The rise was sparked by fears about the growing budget deficit and the continued appetite of foreign investors for US government debt.
"Normal" means worrying about the ocean of debt being issued by the US government to try to clean up the mess created by the Bush/Greenspan Bubble.
"Normal" is that we are suddenly entering a period where the talking heads are free to pontificate about the burden of public debt, and the need for balanced budgets (whatever happened to such virtues in the past 8 years? - oh right, there was a war and it was unpatriotic to do so, then).
But, pontificating aside, the reality is that we had a large scale grand robbery of the past few years. To make it simple: the Fed printed money, gave it for free to rich people, who lent it to poor people at at nice profit instead of paying them wages; reimbursement was possible only if house prices went up, and that lasted for a while. The rich made out like bandits on their assets, financial or otherwise, and the poor thought they were more or less keeping up with the Joneses (the reality was a large-scale transfer of wealth from one group to the other, no bonus points for guessing which was which). Now that it's no longer the case, the poor lose their house, stop paying their debt at some point, put the banks in a pickles, and the economy unravels. Except that the banks are being bailed out, which means, fundamentally, saving the owners of financial assets (bank bondholders specifically, and bond holders in general) at the expense of taxpayers, thus having the goverment validate and consolidate the past transfer of wealth.
Government debt is meant to try to delay the reckoning (but that can't last - as the headline story shows, the underlying problem is too much debt, and you can't force more debt on an economy that is already choking over - or rather, under - too much leverage); but more than anything, it is meant, as set up today, to validate all the counterfeit money that was given to the rich and loaned to the poor without changing the terms of that global transaction.
Instead, the debtors are going to be made to pay until they're bankrupt - and made to pay a second time as taxpayers (or, more importantly, as beneficiaries of government services or public services that are being cut for lack of money) for whatever they could not afford as borrowers.
Current policies are failing as expected, but the transfer of wealth continues unabated - and Obama will get the blame for it, eventually, unless he radically changes things, via massive tax hikes or explicitly confiscatory policies.
Because as parasites keep on gorging, the body underneath keeps on getting weaker and the economy will keep on crashing.