Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: bentway who wrote (15347)	12/7/2003 2:44:05 AM
From: Elroy Jetson	Read Replies (1) \| Respond to of 306849

If the demand for CMO notes issued by Fannie Mae and friends becomes less than the supply the result is quite simple - interest rates on home loans rise. At some higher interest rate they will attract buyers. If the rate were 12% I myself might bring my money back home from Australia and buy some CMOs. When interest rates rise, home prices will fall. There are too many people who have purchased new homes with no money down using adjustable rate loans. This is what happened earlier this year. The Fed controls short-term interest rates by creating money out of nothing. But long-term rates are controlled by the marketplace. Earlier this year the market suddenly decided inflation was a greater risk than deflation primarily because the Fed is keeping short-term interest rates too low. As a result the interest rates on 30 year bonds increased 37% adding 1.5% to the rate. The only way the Fed can control long term rates is by buying bonds with Fed created money, or by themselves issuing home loans with Fed created money. Japan does this with the Home Lending Corporation. The government agency HLC makes fixed rate home loans as low as 2% with "newly printed money" while the lowest fixed rate mortgage available at a Japanese bank is 3.5%. Japan's schemes to avoid the inevitable pain have successfully maintained their economy in a depression for more than a decade. How very clever. If our Fed were to actually buy long-term bonds or directly make long-term fixed loans I'm sure the dollar would collapse relative to other currencies as well as hard assets such as pencils, gold, oil, food, etc.