Yesterday the Fed finished their final Federal Reserve Open Market Committee meeting of the year and stunned markets with an unprecedented drop in key interest rates.Â They opted to reduce the Fed Funds Rate to a range for the first time in target setting history as opposed to a definite value.Â They also dropped them to their lowest point in history, between 0 and .25%
Well, I think it’s safe to say that they can’t go any lower with federal interest rates.
So, what happens when your first weapon to fight economic weakness runs out of ammo?Â You grab another weapon!Â And this one is called quantitative easing.Â Translation: print money until our probÂlems go away.
The idea is simple: if banks are so loaded with cash that they are busting at the seams, they will HAVE to start lending, helping to finish the housing crisis and effectively restarting the economy.Â The only drawback is that this is the kind of open floodgate that is really hard to close once the economy is moving again.Â Too much money floating around will devalue our currency and bring the threat of runaway inflation back into view.
But that’s for us to worry about in a few years.Â For the purposes of right now, I say “Gentlemen, get your printing presses ready!”
Mortgage rates dropped on the news of easy money, bringing your 30 year fixed rate down to 4.5% (4.70% APR).
One thing that I feel is important to point out is that house prices will stabilize before the housing crisis ends.Â I see a lot of talking heads on television saying that we can expect this crisis to extend into late â€˜09 or even â€˜10, citing a steadily increasing foreclosure rate and increase loan delinquency as the leadÂing indicators.Â Okay, I’m not going to argue that a lot of homeowners are still in trouble.Â But this market is currently priced with consideration for current and future housing fallout.
Basically, if there was an end in sight for foreclosures, house prices would already be a lot higher than they are now.Â Realtors aren’t stupid.Â They’re pricing homes on the market right now by guessing where the market is going to be in 3-6 months.
There’s a ton of opportunity out there, folks.Â An absolute ton.
In other news, Bernie Madoff of Madoff Securities managed to scare the already timid financial marÂkets by scamming his investors out of over 50 billion dollars.Â The SEC (the people that our tax dollars pay to catch scam artists) never had a clue about the fraud until Madoff’s own kids turned him in.Â That’s some fine policing there, SEC.Â
Maybe Bernie should look into becoming a magician.Â He clearly has a knack for making things disapÂpear.