The Feds Biggest Fear

Posted at 1:07 PM (CST) by & filed under

Courtesy of Greg Hunter’s

Dear CIGAs,

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.)