The White House had Ben Bernanke move the mirrors into a different corner yesterday, and change the color of the smoke to green, whereas the Fed chairman announced that the Fed would purchase $40 billion of mortgages a month continually until the economy shows signs of life.
Now naturally, this latest tactic got lot’s of press, being touted as a “bold move” and a huge step in the right direction. However, I don’t really see much being done here due to a considerable number of other factors.
First and foremost, Fed rates right now are just about zero and have been for quite a while, which means home mortgage rates are the lowest they’ve ever been before. So, the problem isn’t the cost of funds, it’s the fact that banks are afraid to lend.
Lending issues stem from the fact that folks aren’t able to find jobs, ergo they can’t make the mortgage payments. While still others are stuck with homes they can’t sell because there’s no market and their incomes have either been clipped or disappeared altogether.
Add to that the basic fact that while the Feds are printing more money to spend on housing, oil prices are on their way through the roof once more and inflation's raising the cost of food and necessities. Nonetheless the administration steadfastly refuses to permit oil drilling here, or to open the Canadian pipeline, while the EPA and other governmental agencies work determinedly to stifle business growth at every turn continually.
Then there’s the issue of the new health care tax, which adds so much cost that businesses try every method there is to avoid hiring because what’s the sense of making more money if it’s simply going to get taken away in additional overhead via regulations?
What’s more, beyond the gross misunderstanding of basic economics, is the more than trillion dollars sitting offshore because businesses won’t spend it here under current tax law which will cost them dearly. But, since the government can’t see the practical forest for the trees, they'd rather threaten, wheedle and cajole instead of really trying to fix the problem intelligently and simply work out a fair deal to get that trillion bucks back here and providing some real stimulation.
So, when all's said and done, the only one’s who’ll make out from yesterday's political ploy will likely be the block traders, major funds and institutional investors in stocks and bonds, while the little guys like us hang on to the roller-coaster. And what’s most important is that we’re able to figure out when to get off before the whole damn thing really goes down the chute and doesn’t come back up again at all.
That’s it for today folks.
Adios
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