The Feds Biggest Fear

By Greg Hunter’s USAWatchdog.com

Last week’s decision by the Fed to start another round of Quantitative Easing was met with only one dissenting vote by the Federal Open Market Committee.  That does not mean everybody in the rest of the world thinks this is a good idea.  Any country holding dollars is faced with a decrease in buying power.  Some of the most powerful members of the G-20 are highly critical of the Fed’s money printing.  Germany, Brazil and China all made negative comments about the Fed’s latest round of QE in a Bloomberg article over the weekend.  It reported, It’s our problem as well if the U.S. is no longer certain that the old recipes don’t work anymore,” German Finance Minister Wolfgang Schaeuble said yesterday in Berlin. The Fed’s injection of $600 billion was “clueless” and won’t revive growth, he said.  Brazil’s central bank president, Henrique Meirelles, said “excess liquidity” in the U.S. economy is creating “risks for everyone.” In China, Vice Foreign Minister Cui Tiankai said “many countries are worried about the impact of the policy on their economies.” He also said the U.S. “owes us some explanation on their decision on quantitative easing.”  (Click here for the complete Bloomberg article.)

Still, Fed Chief Bernanke is unwavering in the decision to print money to revive the economy.  The same Bloomberg article quoted Mr. Bernanke, “Our first objective, the first goal that we have, is to meet our mandate to get price stability and maximum employment in the United States . . . A strong U.S. economy, a recovering economy, is critical not just for Americans but it’s also critical for the global recovery.”  The rest of the world is clearly not buying the idea that the Fed is saving the world economy.  So what would make the Fed so defiant in the face of such global criticism?  I think the Fed is really worried about mortgage interest rates and declining home prices.  I bring out my favorite updated chart of mortgage resets for adjustable rate mortgages.   The chart below shows a tsunami of resets that will not crescendo until late 2012.   Study it for yourself:

Look at what happened just a day after the Fed announced $75 billion a month of money printing to buy up Treasuries that, in turn, pushed down interest rates.  Frank Nothaft, vice president and chief economist at Freddie Mac, said last week, “With little sign of inflation to push up long-term interest rates, fixed mortgage rates held relatively steady this week, while ARM rates hit new all-time record lows.”   (Click here for the complete statement from Freddie Mac.)

Again, “ARM rates hit new all-time record lows!”  That is precisely what the Fed wants.    Lower rates are what anyone with an adjustable rate mortgage needs.  Lower rates mean lower monthly payments, and that will hopefully keep people in their homes.  And, if homeowners continue paying their mortgages, that will keep trillions of dollars of mortgage-backed securities from becoming even more devalued.  So, the Fed has chosen to support housing prices and let the dollar be damned by printing money.   

John Williams at Shadowstats.com says the Fed’s policies are not helping the economy get better.  The 151,000 jobs that were created in October largely were the result of seasonal-adjustment gimmicks,” according to Williams’ latest report (published last Friday).  If unemployment was computed the way Bureau of Labor Statistics did it before 1994, it would actually be a stunning 22.5% (also, according to shadowstats.com).    

The economy is not getting better–just the opposite, according to Williams, “As the double-dip recession and the federal deficit and related Treasury funding horrors get worse — irrespective of today’s (November 5th) happy report on payroll employment — the Fed’s monetization of Treasury debt will be increased out of necessity, as part of an ongoing effort at systemic salvation.

The Fed wants to support housing prices and, thus, support mortgage bonds.  If those two legs of the housing market are knocked out, the whole economy could come crashing down.  In my mind, that is clearly the Fed’s biggest fear.

Comments
  1. Robert

    Why arent they re-negotitating all those ARM loans rather than the route theyve chosen?

    hat a deep hole the FED is digging not to mention giving lots evidence of wrongdoing and allowing RICO charges to be pursued at the state levels.. Is this why there was such a strong effort to influence state elections this past election? To be sure they have as many political whores in place at that level as they do at the federal level to ensure state Attorney Generals don’t get too aggressive?

    Apparently there’s a movement to get rid of Ben starting…

    http://www.youtube.com/watch?v=XK4dxacv7jY&feature=player_embedded

    • Greg

      Robert,
      Thank you for the info and the link!!
      Greg

  2. Alyce

    Which is worse: real estate collapse and millions more foreclosures, or printing money and hyperinflation? What would happen if we had massive housing collapse? Would homeless people rioting be just as bad?

    • Greg

      Alyce,
      Hyperinflation is much worse. Real estate needs to re-price to get to actual value. The government is supplying 95% of mortgages right now. That is insane.
      Thank you for your question and comment.
      Greg

  3. slingshot

    Do you still think we are going to be able to go back to our OLD way of Living? I think not. In fact you ain’t seen nothing yet! Combine this with commerical mortgages and were are like lead sinkers.
    I’m kidding? Take a look at the strip malls with vacant store fronts and in those malls , the amount of unused commercial footage and that tells part of the story. I have watched as new businesses move in only to fail within the year. Low sales with higher rents? Anchor restuarants closing doors, figure everybody has to eat.
    How is your neighborhood doing? Those house flippers got caught and now have renters that fail to up keep the property. I see it in my neighborhood. One almost destroyed the inside of the home and just packed up and left. Yes, I now have gun shots in the night.
    As the article says this is a global problem and the home town symptoms are indications of what is to come.

    • Greg

      Sloingshot,
      Good stuff man. Thank you for putting things in focus.
      Greg

  4. Andrew Baumgardt

    I think the Fed’s biggest fear is that they will be found out to be nothing but hapless men and women pulling on a single lever from behind the curtain much as what happened to the Wizard of Oz.

    They have committed or assisted in banking fraud and are desperate to cover it up by printing money and praying it works.

    • Greg

      Andrew Baumgardt,
      Short Powerful comment. Love it!! Come back.
      Greg

  5. Dennis Johnson

    It is now truly apparent that the FED does not have a plan that will get us out of this mess they have created. Someday soon, the whole financial system of debt-based currency is going to hit the wall. One can only hope to protect ones self and family by holding silver, gold, and commodities. However, government is not rational. The U.S. and Governments of other contries in the past have used confiscation and other means to steal from its citizens in times like this. Can you think of just one way a person can protect himself no matter what the government decides to do in the future? Is there really a sure-fire hedge?

    • Greg

      Dennis,
      Get out of debt, pay off your house and vehicles, and buy physical gold and silver. I also like farm ground. I hope this helps.
      Greg

  6. 1 Smart Mother

    What I would like to know is this: what happens to the Fed if the dollar becomes worthless? Do they go bankrupt? How do we rid ourselves of this monstrosity?
    Just a little wishful thinking.

    • Greg

      1 Smart Mother,
      As the Federal Reserve Note goes, so goes the Fed. Peace and thank you.
      Greg

  7. Pat

    Great article Greg. I agree completely. It’s really just as simple as you’ve put it. Housing prices are the Rosetta Stone. The banks can’t write down those assets or they fail,and there is no political will for more stimulus to be given to the banks. The funny thing is where here even with all the accounting tricks FASB is allowing the banks to use again(mark to market etc). And the really big shell games like currency and gold swaps with other central banks.
    Last option for the global banking cartel….monetize the debt and inflate the currency to put a floor under all assets and to hell with all the upper middle class and below, who spend a higher percentage of their income on all commodities(food & energy). We’re going to see the business cycle shortened, if you can call this kind of policy a business cycle anymore. Bubble to bubble to bubble…until those we borrow from end the dollar as the world reserve currency. It could be a few months, years or (I doubt it) but decades. But it will happen.

    • Greg

      Pat,
      By the end of 2012 we will have a very clear picture of what the future will actually look like. Thank you for your comment.
      Greg

  8. Derek

    Great article. It is my understanding that this engineered monetary crisis is being implemented by design, to push the U.S. (and all U.N. members) toward a new global currency, as the cornerstone of a new “world government” that has been under development for many, many years. Since 2001 this would appear to be the workings of such a plan. Things are right on track it would seem, oh how the elite class must be smiling. The term “We ain’t seen nothing yet” would definitely apply here, if this is in fact, what I think it is.

    “So long as the rulers are comfortable, what reason have they to improve the lot of their serfs?” – Bertrand Russell, 1952

    • Greg

      Derek,
      Great comment and quote!!!
      Greg

  9. SULLY

    If I read your graph correctly, Greg, it looks like Nov 11 to Jan 12 will be the worst of it. Is this an accurate accessment? I’m looking to buy a second home and was wondering when the best time would be to do that and how I can correlate it with your graph. Thanks.

    • Greg

      Sully,
      You can only buy a home if the seller has clear titlle and deed. You cannot buy if it is wrapped up in MERS. I would stay out of the housing market for awhile. What do think is going to happen when the government stops supplying 95% of ALL mortgages? Interest rates should be 9%-10% right now. They are being surpressed by the Fed.
      Greg

  10. M SMITH

    As always Greg, the posters are coming to life. From the Ukguy,he left a link about the French Revolution, you should post it as a direct link to the best piece of History I have had the pleaser’s to read 6 times now & have pass along to my family,I hope they will also read it. If folks mist it,all they do is go back to your last article & posts! Again, if they can’t find it, I will put the link on your site as long as the UkGuy does not care!Great work,Greg thanks again !

    • Greg

      Thank you M Smith.
      Greg

  11. Mitch Bupp

    HI Greg, If the FEd buys up all of the mortgage backed securties what will it cost? I have trouble figuring out how much we are actually paying for money invented through fractional banking and hard monet lent by the FED to banks. Is there any rule that might prevent the FED from buying back/payoff a larger amount of money for the mortgage backed securties than the bank/instutition has credit limit for? Is the FED acting as a government administrator of the economy interfering with the interstate commerce related to mortgage backed securties? They are effectively trying to re-inflate the bubble that just burst in an effort to protect profits and tax revenue! Could a person sue the FED for interfering with interstate commerace and price-fixing?

    • Greg

      Mitch Bupp,
      I think the Derivative mess is in the hundreds of trillions of dollars. I think the Fed is “all-in” at this point and is strugling for its very survival. The Fed will print trillions more before it is finished. Who knows what that will look like but you can count on big inflation at the very least! Thank you for your comment.
      Greg

  12. Bryan

    When creditors demand payments and individuals, companies or corporations cannot maintain cash flows they can file for bankruptcy. Since nations cannot file “bankruptcy” apparently the only option is to devalue the currency by printing money. Does this not indicate that quantitative easing is another method of filing “bankruptcy”?

    • Greg

      Bryan,
      That is another way to look at it. Good point.
      Greg

  13. Tim

    Greg,
    As gold has now gone through the roof and is headed for the moon, I would love to hear your thoughts on if the Government will try to confiscate precious metals again.
    Tim

    • Greg

      Tim,
      There will be no confiscation just taxes.
      Greg

  14. 2whls3spds

    The only way I would be buying anything right now would be all cash and clear title due at signing.

    We looked at picking up a couple more rental properties near some we already own, they couldn’t even come close to finding the title owners, so no sale.

    We started hedging our bets back in 2007/8

    • Greg

      2wls3spds,
      You are very smart! I have been saying lately that a home with a clear title is very, very valuable. You are one of the few who get it!!
      Greg

  15. Tom H

    Derek, I will not fear the new world order until they try to confiscate the guns. I will not live under any laws but natural law and the US Constitution. While I do believe that the elites are pushing for a new world order, I think they underestimate the level of resistance they will receive in America. When TSHTF, we are going to fight for our freedom. The fiat money we have all endured has given me a taste of slavery and I don’t like it. I will not be enslaved by any world gov’t without a fierce fight. This is our country and our rights, per our constitution, come from God, not the gov’t. Stand up and fight for your God given freedom. As I reminded Greg last week, evil trimphs when good men do nothing.

  16. Stephen Clifton

    If you hold onto your money until rates go up then you will likely be in a position to gobble up a bunch of real estate. This happened in Germany during their currency collapse. Students who had gold and silver were able to buy entire apartment buildings.

    Once rates rise, prices will surely fall to offset the decrease in buying power.

    Stephen

    • Greg

      Thank you Stephen,
      Greg

  17. Matthew

    I agree hyperinflation is worse. When the Fed makes this move hyperinflation will hurt the economy not help it.

    Higher prices = less buyers. That’s a fact!

    The Fed needs to allow home prices to correct. Those prices are inflated. And keeping them artificially inflated will only prolong any form of recovery.

    Once home prices correct, the market will react and start buying them again pushing the value the stable levels.

    • Greg

      Matthew,
      Good stuff man!
      Greg

  18. Rick Shade

    Bernanke was a student of the Great Depression. He thinks availability of money can ward off deflationary forces that depress the velocity of money, and the movement of goods and services. If people think prices are still dropping, they wait. This is the fear. Anyone who believes in hyperinflation is stupid. No one has any money to chase anything. Joblessness, fear of the future..etc. people are retrenching. What Bernanke is doing is not so stupid. He is attempting to keep it going. It will for a while yet.

    However, the only viable solution is to offer relief to debt. Debt by governments, people, business…is too high. and with prices dropping in real estate….people are poorer. in REAL terms.

    only solution is forgiveness of debt…or dropping interest rates..which is what Bernanke is doing. But the thing is starting to unravel. The elite may have taken it a bit too far. QE2 cannot work…because the math doesn’t work.

    look for deflation for a year or so…followed by more deflation…then more…and with the debtload…there is NO ANSWER. Easy to be critical of Bernanke. Something different to offer a solution. There is none.

    misery and tribulation…..great….ahead

    • Greg

      Rick Shade,
      The Fed is printing money it will be inflation and some deflation in things such as housing. You are right about one thing misery and tribulation is ahead. Thank you for the comment. Good men can disagree.
      Greg

  19. SubP

    Are we going to see a global debt forgiveness at some point. Everyone is in debt from personal credit card loans, mortgage loans, banks in trouble, Federal Government, State, Local govt in debt, not to mention foreign governments in debt.

    At some point all debts have to be canceled and forgiven, shutdown Federal reserve (aka, the Banksters) and start clean, fresh. Just like German did by issuing government notes to revive their economy before WWII ?

    • Greg

      SubP,
      There will be at some point. Thank you for the comment.
      Greg

  20. Sean S

    Good article Greg.

    I take what the FED says publicly with a large grain of salt. It will always justify its actions with what sounds like reasonable economic objectives.

    It will never publicly divulge it’s true motives. It’s attitude to Congressional questioning of it’s actions is met with spin, jargon and polite derision. It heavily opposes transparency so what, do we ask, is it hiding?

    The FEDs interests are no longer primarily what is good for the economy but what is first and foremost good for its banking constituency. They are desperate to pump as much cash into the system to artificially pump asset prices as possible for the benefit of the banks and to hell with the consequences. For example, look at the stock market artificially pumped with institutional investors simply speculating with each other, much of it with very cheaply borrowed cash, in a sick economy and hence a very poor business environment. As the astute and articulate John Hussman put it, in part, in his article this week:
    “As of last week, the Market Climate in stocks was characterized by strenuous overvaluation, coupled with overbought, over bullish conditions, and a paradoxical surge in 30-year Treasury yields, which are now near a 6-month high. Nearly 90% of stocks are now above their 20-day, 50-day and 200-day moving averages, which is an unusually overextended condition”. (Source: John Hussman, (Hussman Funds) 8 Nov 2010)

    What “real” incremental wealth is created here? We do not have a situation where all companies are growing and thriving and creating real wealth in a healthy domestic economy. More like a Ponzi economy every month.

    So why has the FED chosen to use QE2 to purchase Government bonds, ie. yet more Government borrowings? I can only assume that Treasury considers that it has now virtually exhausted private sector interest in its “JUNK BONDS” and it’s only effective means for borrowing, to keep Government running, is the FED purchases. A worry I would say. One would assume we will see more of the same in future. What is your view on this Greg?

    Who could blame the criticisms from the international community outlined in your article. If the Feds actions affected only the USA that would be one thing but it goes way beyond that to (a)the export of inflation itself and (b) a negative impact on the relative value of foreign currencies.

    A proportion of excess liquidity created by the FED in the USA eventually flows to foreign countries seeking safer and higher yielding investments. Lets face it – who wants to hold depreciating USDs when the evidence suggests the bottom has yet to be reached. This infusion of usually unwanted, artificially created USD into those foreign markets is inflationary and the additional demand for those foreign currencies usually bids them higher detrimentally affecting the country’s export prices in a range of markets. (If you think the public comments are angry you can imagine what is being said behind closed doors).

    Thank you.

    • Greg

      Sean S,
      Very well written and logical comment. Thank you!
      Greg

  21. Jan

    http://www.spiegel.de/international/world/0,1518,727970,00.html

    I read Der Spiegel and from the linked article, I get a sense of dread about the upcoming G-20. The US is going to get a much deserved fanny kicking. Timmy, Benny & Barry have played all their hands. The American people will pay dearly for the actions of these fools.

    • Greg

      Jan,
      Yes Jan the G-20 will be rough for the U.S. Thank you for the info and link!
      Greg

  22. nm

    Hey Greg:

    Could you post Arthur Blumenthal’s contact info again please? Thanks

    • Greg

      nm,
      Arthur Blumenthal is in New York City at Heratige Auction Galleries. His number is 212-655-8489. He is a trusted friend and very good coin dealer. Please tell him you got the info from the USAWatchdog.com site and tell him I said hello. Good luck.
      Greg

  23. nm

    SubP;

    They only seem to be forgiving corporate debt, not personal debt. Can you explain that? If you bail out rich bankers with our money, leaving the majority of us dead broke, who are the bankers going to do business with? Aliens from outer space?

    This is why the bailouts never made sense to me. Bankers, like all other businesses, depend on middle class Americans for their revenues and if they don’t have money, where will the business come from?

  24. Bill P

    Even when and if the home prices drop,the interest rates will be to high for most people to qualify under the ever tightening mortgage guidelines. Most people will not be cash buyers do to the lack of jobs and increase in prices elsewhere in the economy such as gas.

    The Fed is clueless, and keeps failing with the same actions expecting different results.

    When the interest rates were 10% and 12% the DTI ratios and other guidelines were higher than the are now. The Fed needs to stop slinging money to see if it sticks. To let the economy start the healing process. Before we know it we will be run by China.

    • Greg

      BILL P,
      Good stuf man!
      Greg

  25. bijaya kumara das brian d grover

    I have a legal nullity with my loan. How can I file for a quiet claim deed and rid myself of this problem ? The money I have been paying since 3 months into my loan has never gone to the lender as far as I can determine. It has been sold 4 times and no one has changed the deed. I called the holder of the note and asked for a re-conveyance with no luck because they have been sold to another. If they have been paid in full buy the new purchaser then I should be able to get the title since the new purchaser bought air.

    • Greg

      Bijaya,
      I am not sure you can do that. You should check with a real estate attorney in your state. Thank you for your comment and question.
      Greg

  26. Thomas Lowe

    The only way we will be able to recover from this is if Congress repeals the Fed Notes as being the only legal tender currency in the USA. Competing currencies, like we had prior to 1923, coupled with getting regional banks to issue their own bank notes that are backed by gold, is the only hope we have of surviving in the future apart from becoming a communist state. I don’t relish having to be forced to work in a factory at gunpoint, but that’s what will happen if our money finally goes belly up on the world market.

    Endorse Audit the Federal Reserve and pray it’s not too late for us. http://www.auditthefed.com/

    • Greg

      Thomas Lowe,
      Amen Brother.
      Greg

  27. don

    Cuyahoga County, OH. J. Harvey Crow vs. Broadview Savings and Loan, late 1970′s – early 1980′s.
    J. Harvey wanted to pay off his mortgage, in full and contested Broadview S & L’s final total. He succeeded in having the mortgage invalidated and nullified. Subsequently, the judge awarded Broadview Savings and Loan a lien on the property for the disputed amount. I encountered this in running title in research for negotiating a prospective oil and gas lease. We passed on the lease. Our legal counsel had never seen anything like this.

    I can’t help but think the powers-to-be are very concerned about a citizen level discovery and movement to follow this example. Worth reviewing for anyone in the Cleveland area. If the promissory note holder of record cannot be determined in foreclosure proceedings, then the the promissory note holder of record cannot be determined in a court of law contesting the validity of the mortgage of record.

    Everyone with a mortgage should proceed to invalidate their mortgage in a court of law, IMHO.

    • Greg

      Don,
      Thank you for this comment. This might be similar in other states. This is good food for deliberation.
      Greg

  28. bijaya kumara das brian d grover

    Thanks for all your help guys and it looks like the courts here in CA are siding with the servicers and banks.

    I do not have the funds to bring suit. May be my bankruptcy judge will help if I should file.

    We are working with the new servicer for a modification but what the sent us is very unclear and takes away rights so we sent it back for clarification.

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