BOOM Goes the Fed Dynamite
Ben Bernanke & Co. delivered QE3 yesterday by announcing a plan to purchase mortgage backed securities (mortgages) for at least the next two months at roughly $40 billion per month. And the markets were delighted! The best analogy I can offer is that the markets are like crack addicts now and need their steady and regular fix of stimulus. As time goes on, a drug addict usually needs more and more drugs and that’s exactly how the markets are behaving.
I listened to Ben’s press conference and was really bothered that the Fed’s hope is that by buying mortgages, they will force mortgage rates even lower than the all time lows they are now, as if the problem with the economy is a 3.625% 30 year mortgage rate. And in the Fed’s mind, housing prices will increase and people will believe they have more money, which will in turn, make them spend more.
Am I missing something?
If the average consumer is strapped for cash and can’t get even get a low rate mortgage, how will they spend what they don’t even have?