Archive for the ‘mortgages’ tag
MBS Mop Up
The Fed plans to soak up a half trillion dollars of mortgage-backed securities (MBS) in the first six months of 2009. The aim is to drive down mortgage rates and lower the cost of home financing. Making mortgages cheaper should stabilize house prices. But the price of anything is a relative measure. So, if the price of housing is still “too high” relative to other assets in the economy, one solution is to raise the price of the other assets. The MBS mop up will be doing just that. By suddenly injecting $500 billion dollars into the economy, the Fed is essentially raising the price of everything.
Procerity’s Prognosis: Expect inflation to halt the drop in house prices.