Another Trillion Dollars Printed and the Real Estate Market
Posted by JimOK, let me say right away I am not concerned about the Fed deciding to flood the market with freshly printed dollar bills. I have been writing since late last year that the Fed always had in reserve the financial version of the doomsday weapon, the nuclear bomb of finance, the printing press. I know it sounds like something a third-rate dictator would use when proping up some sorry economy in the Third World. I know all of the past stories of runaway inflation and social distabilization when the presses are cranked up and in many cases the rapid inflation of the supply of money can create social havoc.
But this is America and here we have been trained to accept huge quantities of personal and governmental debt. Whether the money is enlarged by borrowing from foreigners or printing it, we are inured to its’ potential toxicity. Ronald Reagan grew the debt from 1 trillion in 1981 to 5 trillion by 1989. No one seemed to mind. After the brief experiment in debt reduction under the Clinton Administration, George Bush moved the debt from 5 trillion up to 10 trillion.
But is this latest printing lark mean more debt? No, some of the trillion dollars is going to buy back government bonds and bills which in turn reduces the national debt. The rest should find its way into Freddie Mac and Fannie Mae bonds which is really a debt shift from the government a new pool of mortgagees.
So it seems like a no-brainer except for all of the anticipated and unanticipated side effects. The uptick in commodity prices and the drop in dollar for starters. But the Fed is determined to force bankers to loan money and buying back debt is the stick they will are going use. As long as banks had a convenient and reliable stash (government securities) for their bailout funds, why loan money and take all of the potential deflation and default risk? Those borrowers are are a pesky and unreliable lot!
Soon banks will have no options other than building a money vault like Scrooge McDuck. I can just picture the suits rowing around in a sea of coins in their boats. The rest of us will be borrowing from a new Federal Bank that will be created if these guys do not unfreeze credit. Without credit jobs will continue to disappear and the already troubled housing market will follow.
