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If the Treasury lends out ~700B for ~MBS and is repaid ~700B for MBS, and the Fed buys $1-2T (low end of the repayment you mention) in MBS, who is really doing
by pjmorris 5y ago
If the Treasury lends out ~700B for ~MBS and is repaid ~700B for MBS, and the Fed buys $1-2T (low end of the repayment you mention) in MBS, who is really doing the bailout?
- arcticbull 5y agoTreasury made loans with repayment schedules to specific businesses. The Fed purchased certain kinds of assets to hold temporarily on their balance sheet. They both filled different roles - one was meant to manage inflation and the other to secure the stability and function of the markets. The Fed's dual mandate is to maintain maximum employment and low, predictable inflation rates over medium term. Spotting Ford in a rough patch doesn't fit the mandate.
- pjmorris 5y ago> low, predictable inflation rates It seems to me that tripling the monetary base and investing two parts of it in MBS is going to have an inflationary effect on house prices. Am I being obtuse here?
- arcticbull 5y agoTo be clear, I don't think you're being obtuse at all. Fractional reserve lending means that an increase in the monetary base is a result of lower interest rates - money supply operates on a pull model not a push model. Lower interest rates mean a more expensive house costs the same per month when mortgaged, which in turn increased the outstanding supply and balance of mortgages, hence new money. Lower interest rates increase the price of houses, but to a much lower extent the affordability of those houses - which is more likely to be measured on the monthly cost of a 30 year fixed loan. It will move the goalposts on down payments, however, but down payments are only 2-20% of the cost of the house. In my opinion, however, I believe zoning to be a much bigger contributor to overall affordability.