Well how about those mortgage rates? Right after Thanksgiving mortgage rates plummeted to new lows driving up refinance volume to new highs. How did this happen? Why the sudden drop? What is going on and how long will it last?
Readers what we're seeing is yet more government intervention trying to stimulate the housing market, which is roughly 16% of the U.S. economy. Starting in 2007 we started to see home prices drop and record foreclosures pulling home prices down even further. Yes i know it sounds so horrible and people are losing their homes and causing banks to lose billions and billions of dollars, but, home prices must come down to restore equilibrium.
You're probably thinking I'm crazy right now. Dustin what are you talking about? Well its simple. Home prices were artificially inflated and rose too high for incomes to catch up. We're not seeing incomes rising in America and with home values and prices sky rocketing into double digits, people couldn't afford to purchase homes. Not to mention the very lax regulatory initiatives from the government to keep predatory lenders at bay. If anything they promoted it.
The Community Reinvestment Act provisions in 1995 set off a chain of events that led us to the current sub-prime, Alt-A meltdown. Guess what? We're not finished. So what has the government been doing lately to promote growth in the housing sector? Well first the Treasury, and now the FED - also known as the Federal Reserve - has been buying up billions of dollars in mortgage-backed securities issued by Fannie and Freddie. Without going into too much detail, mortgage-backed securities are bonds issued by Fannie Mae and Freddie Mac - which are government sponsored enterprises known as the Federal National Mortgage Association and the Federal Home Loan Corporation - aka Fannie/Freddie.
These companies buy mortgages from banks and mortgage lenders, and promote the funding of mortgages by providing liquidity to lenders, through their purchases, freeing up lender capital to continue to fund these loans. Fannie and Freddie then package these loans into securities and sell them to investors worldwide while providing a specific guarantee to investors for any losses and receipt of timely interest payments. When money flows into this secondary market, it drives the price of these bonds higher, resulting in lower yields, thus lower mortgage rates.
Well before the Treasury and Fed stepped in, this market was unstable and had little confidence from investors, and for good reason. Our country was seeing rapid foreclosure with no end in sight. So steps were taken to try to subsidize mortgage rates in hopes that it would make mortgages more affordable thus bringing buyers back into the market, stabilizing home prices, and stimulating the economy.
Its worked in generating business but very few realize what had to be done in order to do this. The Treasury, in order to pay for this, has been issuing billions of new bonds, which is debt, in order to achieve its goal. Now for many of you, this may not send off red flags in your head. Not because you're unintelligent, but because nobody explains it to you. Believe it when I say, if it doesn't want to be known, it won't be told, but that doesn't mean you can't find out or learn.
The government is expected to run a 1.2 trillion dollar deficit in 2009. YES YOU READ THAT RIGHT, 1.2 TRILLION DOLLARS. This means that we are spending 1.2 trillion more than we're taking in and on top of that we are borrowing this money from the Federal Reserve and foreign countries. If Obama gets his stimulus package through Congress it'll turn into 1.6 trillion dollars.
So while I'm very happy to be busy behind keeping up, I'm very concerned about our countries debt load, and the burden it will place on my children and their children for years to come. This debt must be paid and if interests begin to rise again, and they will, this debt will become harder and harder to service putting an even greater burden on the government and leave them to no other option but raise taxes on EVERYTHING they can.
Be very aware of what our government is doing and speak out against actions that will jeopardize the well being of our economy, families, country, and our civil liberties. We are spending our way into bankruptcy leaving us at the mercy of foreign countries who, some of them, don't like us very much. Think your dollar is worth something? Think again. Since the inception of the Federal Reserve in 1913, our dollar has lost 96% of its value and it continues to drop.
WAKE UP AMERICA, its time to be heard!
God Bless!
Copyright © 2008 by Dustin Swigart
