“Hello Deflation!! It’s coming on hard and fast now. What’s Ben’s next trick to get reflation going? I cant wait for this one.”
I have been wondering the same thing, and I came up with the following:
– Fed or Treasury takes over Fannie and Freddie
– The new nationalized lending institution offers home owners refinancing at Greenspan rediciously low rates 1% -2%.
– Now bad mortgages (6%) are refinanced to 2% and the defaults go much lower. The rent to own equation moves in favor of own – the ownership cost is cut by 60%.
– The Fed creates new mortgage bonds that it forces the reserve banks to buy (or locks them out of the short term, or long term lending facilities).
– The Fed justifies this by saying it would cost more to do nothing.
– The cycle of mortgages going bad is stopped or at least the housing crash is delayed and slowly deflates – in a manageable way for banks.
– The new money to pay for the above, adds to inflation, and in a few years, (10), the problem is solved.
I am really hoping that someone can explain why this will not work, and that the FED will need to come up with a real solution!
