interest rates go higher ??

[bsrsharma]

U.S. eventually losing its AAA rating

I think it is meaningless to attach a rating to paper issued by treasury. Treasury can always exchange it for $ at Fed and pay back the creditor. It is better to think in terms of value of currency when rating national debt. Going by the value of $ as measured by oil (or grain or steel etc.,), global markets are already rating it less than “AAA”.

[underdose]

Very well put, bsrsharma!

I was curious what people’s thoughts on the implications of Paulson’s push today for covered bonds. My intuition is that this doesn’t seem like much of a solution. It sounds like it requires banks to be more on the hook for the quality of the loans. Not a bad thing, but will it make them any more eager to lend? They were only happy to lend money at silly interest rates when they could dump the risk on someone else. Now, I would think they, like anyone else, would demand a higher interest rate to compensate them for assuming a higher risk. Won’t this add to upward pressure on mortgage rates? Will, as usual, Paulson’s plan have unintended consequences? Or is there some wrinkle here I’m missing?

[underdose]

Very well put, bsrsharma!

I was curious what people’s thoughts on the implications of Paulson’s push today for covered bonds. My intuition is that this doesn’t seem like much of a solution. It sounds like it requires banks to be more on the hook for the quality of the loans. Not a bad thing, but will it make them any more eager to lend? They were only happy to lend money at silly interest rates when they could dump the risk on someone else. Now, I would think they, like anyone else, would demand a higher interest rate to compensate them for assuming a higher risk. Won’t this add to upward pressure on mortgage rates? Will, as usual, Paulson’s plan have unintended consequences? Or is there some wrinkle here I’m missing?

[underdose]

Very well put, bsrsharma!

I was curious what people’s thoughts on the implications of Paulson’s push today for covered bonds. My intuition is that this doesn’t seem like much of a solution. It sounds like it requires banks to be more on the hook for the quality of the loans. Not a bad thing, but will it make them any more eager to lend? They were only happy to lend money at silly interest rates when they could dump the risk on someone else. Now, I would think they, like anyone else, would demand a higher interest rate to compensate them for assuming a higher risk. Won’t this add to upward pressure on mortgage rates? Will, as usual, Paulson’s plan have unintended consequences? Or is there some wrinkle here I’m missing?

[underdose]

Very well put, bsrsharma!

I was curious what people’s thoughts on the implications of Paulson’s push today for covered bonds. My intuition is that this doesn’t seem like much of a solution. It sounds like it requires banks to be more on the hook for the quality of the loans. Not a bad thing, but will it make them any more eager to lend? They were only happy to lend money at silly interest rates when they could dump the risk on someone else. Now, I would think they, like anyone else, would demand a higher interest rate to compensate them for assuming a higher risk. Won’t this add to upward pressure on mortgage rates? Will, as usual, Paulson’s plan have unintended consequences? Or is there some wrinkle here I’m missing?

[underdose]

Very well put, bsrsharma!

I was curious what people’s thoughts on the implications of Paulson’s push today for covered bonds. My intuition is that this doesn’t seem like much of a solution. It sounds like it requires banks to be more on the hook for the quality of the loans. Not a bad thing, but will it make them any more eager to lend? They were only happy to lend money at silly interest rates when they could dump the risk on someone else. Now, I would think they, like anyone else, would demand a higher interest rate to compensate them for assuming a higher risk. Won’t this add to upward pressure on mortgage rates? Will, as usual, Paulson’s plan have unintended consequences? Or is there some wrinkle here I’m missing?

[Anonymous]

Peterb,

Yeah, historically the 30 year mortage rate correlates rather well to the 10 year T-bill. It is more than coincidence but the point is, it doesn’t have to. They arent pegged in any way.

T-Bills sort of represent a floor to the 30 year mortgage since T bills as sovereign debt are widely viewed as least risky. It follows that mortgage debt must be more risky i.e. higher interest rates. So although not pegged, it is a sensible progression.

The spread between the two is up for grabs, as has been seen in the past 18 months. Also, the willingness of investors to purchase T-Bills is a wildcard. Regardless of the economy heading south the reckless spending of the US Government simply cant be sustained. Eventually the debt will be seen as inherently risky….not risky in terms of payment but risky in terms of what that payment will be worth.

The Fed can ALWAYS pay back the debt….just hit the big red button and print more money. The problem is what are those $$ worth….less and less…i.e. inflation. No one wants to be paid back in 10 years in $$ worth half as much.

The government has been spending and printing too much money for too long. If it continues, which it will, Tbill rates have no choice but to move upwards. Inflation will continue upwards. And the 30 year mortgage rate will be 8-9% (me thinks) in the next 24 months.

The only way for the FED to combat inflation is what Volker did. Increase FED rates (not Tbill rates). This in turn also pushes up 30 year mortgage rates. The money supply contracts and credit becomes expensive. Savings accounts pay rediculious % rates and 30 year mortgage rates pop up to 10%.

It’s a lose / lose. There is nothing the FED or the goverment can do short of curbing spending. It is the ONLY solution and the only thing they can’t ever do.

30 year mortgage rates are going up. Period. Housing prices will continue to collapse. It’s baked in the cake.

[Anonymous]

Peterb,

Yeah, historically the 30 year mortage rate correlates rather well to the 10 year T-bill. It is more than coincidence but the point is, it doesn’t have to. They arent pegged in any way.

T-Bills sort of represent a floor to the 30 year mortgage since T bills as sovereign debt are widely viewed as least risky. It follows that mortgage debt must be more risky i.e. higher interest rates. So although not pegged, it is a sensible progression.

The spread between the two is up for grabs, as has been seen in the past 18 months. Also, the willingness of investors to purchase T-Bills is a wildcard. Regardless of the economy heading south the reckless spending of the US Government simply cant be sustained. Eventually the debt will be seen as inherently risky….not risky in terms of payment but risky in terms of what that payment will be worth.

The Fed can ALWAYS pay back the debt….just hit the big red button and print more money. The problem is what are those $$ worth….less and less…i.e. inflation. No one wants to be paid back in 10 years in $$ worth half as much.

The government has been spending and printing too much money for too long. If it continues, which it will, Tbill rates have no choice but to move upwards. Inflation will continue upwards. And the 30 year mortgage rate will be 8-9% (me thinks) in the next 24 months.

The only way for the FED to combat inflation is what Volker did. Increase FED rates (not Tbill rates). This in turn also pushes up 30 year mortgage rates. The money supply contracts and credit becomes expensive. Savings accounts pay rediculious % rates and 30 year mortgage rates pop up to 10%.

It’s a lose / lose. There is nothing the FED or the goverment can do short of curbing spending. It is the ONLY solution and the only thing they can’t ever do.

30 year mortgage rates are going up. Period. Housing prices will continue to collapse. It’s baked in the cake.

[Anonymous]

Peterb,

Yeah, historically the 30 year mortage rate correlates rather well to the 10 year T-bill. It is more than coincidence but the point is, it doesn’t have to. They arent pegged in any way.

T-Bills sort of represent a floor to the 30 year mortgage since T bills as sovereign debt are widely viewed as least risky. It follows that mortgage debt must be more risky i.e. higher interest rates. So although not pegged, it is a sensible progression.

The spread between the two is up for grabs, as has been seen in the past 18 months. Also, the willingness of investors to purchase T-Bills is a wildcard. Regardless of the economy heading south the reckless spending of the US Government simply cant be sustained. Eventually the debt will be seen as inherently risky….not risky in terms of payment but risky in terms of what that payment will be worth.

The Fed can ALWAYS pay back the debt….just hit the big red button and print more money. The problem is what are those $$ worth….less and less…i.e. inflation. No one wants to be paid back in 10 years in $$ worth half as much.

The government has been spending and printing too much money for too long. If it continues, which it will, Tbill rates have no choice but to move upwards. Inflation will continue upwards. And the 30 year mortgage rate will be 8-9% (me thinks) in the next 24 months.

The only way for the FED to combat inflation is what Volker did. Increase FED rates (not Tbill rates). This in turn also pushes up 30 year mortgage rates. The money supply contracts and credit becomes expensive. Savings accounts pay rediculious % rates and 30 year mortgage rates pop up to 10%.

It’s a lose / lose. There is nothing the FED or the goverment can do short of curbing spending. It is the ONLY solution and the only thing they can’t ever do.

30 year mortgage rates are going up. Period. Housing prices will continue to collapse. It’s baked in the cake.

[Anonymous]

Peterb,

Yeah, historically the 30 year mortage rate correlates rather well to the 10 year T-bill. It is more than coincidence but the point is, it doesn’t have to. They arent pegged in any way.

T-Bills sort of represent a floor to the 30 year mortgage since T bills as sovereign debt are widely viewed as least risky. It follows that mortgage debt must be more risky i.e. higher interest rates. So although not pegged, it is a sensible progression.

The spread between the two is up for grabs, as has been seen in the past 18 months. Also, the willingness of investors to purchase T-Bills is a wildcard. Regardless of the economy heading south the reckless spending of the US Government simply cant be sustained. Eventually the debt will be seen as inherently risky….not risky in terms of payment but risky in terms of what that payment will be worth.

The Fed can ALWAYS pay back the debt….just hit the big red button and print more money. The problem is what are those $$ worth….less and less…i.e. inflation. No one wants to be paid back in 10 years in $$ worth half as much.

The government has been spending and printing too much money for too long. If it continues, which it will, Tbill rates have no choice but to move upwards. Inflation will continue upwards. And the 30 year mortgage rate will be 8-9% (me thinks) in the next 24 months.

The only way for the FED to combat inflation is what Volker did. Increase FED rates (not Tbill rates). This in turn also pushes up 30 year mortgage rates. The money supply contracts and credit becomes expensive. Savings accounts pay rediculious % rates and 30 year mortgage rates pop up to 10%.

It’s a lose / lose. There is nothing the FED or the goverment can do short of curbing spending. It is the ONLY solution and the only thing they can’t ever do.

30 year mortgage rates are going up. Period. Housing prices will continue to collapse. It’s baked in the cake.

[Anonymous]

Peterb,

Yeah, historically the 30 year mortage rate correlates rather well to the 10 year T-bill. It is more than coincidence but the point is, it doesn’t have to. They arent pegged in any way.

T-Bills sort of represent a floor to the 30 year mortgage since T bills as sovereign debt are widely viewed as least risky. It follows that mortgage debt must be more risky i.e. higher interest rates. So although not pegged, it is a sensible progression.

The spread between the two is up for grabs, as has been seen in the past 18 months. Also, the willingness of investors to purchase T-Bills is a wildcard. Regardless of the economy heading south the reckless spending of the US Government simply cant be sustained. Eventually the debt will be seen as inherently risky….not risky in terms of payment but risky in terms of what that payment will be worth.

The Fed can ALWAYS pay back the debt….just hit the big red button and print more money. The problem is what are those $$ worth….less and less…i.e. inflation. No one wants to be paid back in 10 years in $$ worth half as much.

The government has been spending and printing too much money for too long. If it continues, which it will, Tbill rates have no choice but to move upwards. Inflation will continue upwards. And the 30 year mortgage rate will be 8-9% (me thinks) in the next 24 months.

The only way for the FED to combat inflation is what Volker did. Increase FED rates (not Tbill rates). This in turn also pushes up 30 year mortgage rates. The money supply contracts and credit becomes expensive. Savings accounts pay rediculious % rates and 30 year mortgage rates pop up to 10%.

It’s a lose / lose. There is nothing the FED or the goverment can do short of curbing spending. It is the ONLY solution and the only thing they can’t ever do.

30 year mortgage rates are going up. Period. Housing prices will continue to collapse. It’s baked in the cake.

[bob007]

increasing interest rates will kill the california market. I just spoke to an co-worker who has a 5 year ARM which will reset in 2008.

[bob007]

increasing interest rates will kill the california market. I just spoke to an co-worker who has a 5 year ARM which will reset in 2008.

[bob007]

increasing interest rates will kill the california market. I just spoke to an co-worker who has a 5 year ARM which will reset in 2008.

[bob007]

increasing interest rates will kill the california market. I just spoke to an co-worker who has a 5 year ARM which will reset in 2008.

[Author]

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