Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

The Fed's $2.7T mortgage problem

axios.com

Post reply on HN
Print view View original

31–40 of 106 posts

Re: The Fed's $2.7T mortgage problem

#31

Post by kodah »

readthenotes1 wrote: post #6
unchocked wrote: post #2

Given that there's nothing forcing the Fed to unload these mortgages, the option of putting them on the market (thus driving commercial mortgage rates higher) seems like a policy lever that will be good to have, cooling real estate inflation selectively separate from the federal funds rate.

Driving rates higher won't cool inflation except by raising prices - which is inflation. They want to stifle the demand so as to match supply better, but when it's a supply shock and the United States is short something like 3 million houses, it seems a fairly punitive and misguided way to approach solving the problem.

There's another option that the fed isn't considering: let Congress find a way to force businesses out of congested areas where houses aren't and won't be available any time soon. There's also financially incentivising remote work and providing incentives to move away from major cities.

There's still a supply shortage in building homes to deal with, but that'd at least solve a problem for a good chunk of folks.

Re: The Fed's $2.7T mortgage problem

#32

Post by fleetwoodsnack »

konfusinomicon wrote: post #11
jjoonathan wrote: post #4

Problem? No, it's working as designed: as a plausibly deniable mechanism to print trillions for rich people. Meanwhile, inflation will be blamed on the billions printed for poor people. "Balance sheet that never rolls off" is very much in the same genre as "loan that is actually a grant" and "financing tax cuts with debt."

I dabble in news sources from both sides of the aisle and I've not heard the opinion that inflation is a result of poor people, only that its the result of a perfect storm of the pandemic and an unjust war halfway across the world, which mostly makes sense... who is blaming the poor?

There are a number of fiscal and monetary mechanisms available to central governments and central banks respectively, which are used to spur economic activity and to relieve economic hardship: by directing government spending or by creating monetary liquidity.

The assertion is not so much that poor people cause inflation; rather, that inflationary fiscal and monetary policies are often only recognized as such when they happen to benefit middle-to-lower income people.

Example: PPP Covid programs which pay business owners billions is necessary and proper given the circumstances, but direct payments to taxpayers is not because it will cause inflation.

In truth, they both provide relief, and they both contribute to inflation.

Re: The Fed's $2.7T mortgage problem

#33

Post by redisman »

JumpCrisscross wrote: post #17

> it will incur big financial losses that reduce the funds the central bank returns to the Treasury...expect officials to face tough questions from Capitol Hill to explain why they've lost billions of dollars on behalf of the American people This isn't how it works. No doubt, some will try to spin it that way. But the Fed balance sheet's gains and losses are an accounting artefact. (It will always make money when low…

The housing market is in a mega bubble. Why exactly does it need support to push it even further into madness?

Re: The Fed's $2.7T mortgage problem

#34

Post by kodah »

realce wrote: post #22
readthenotes1 wrote: post #6

Earlier quoted context omitted.

Driving rates higher won't cool inflation except by raising prices - which is inflation. They want to stifle the demand so as to match supply better, but when it's a supply shock and the United States is short something like 3 million houses, it seems a fairly punitive and misguided way to approach solving the problem.

Is this what you would do if you wanted certain classes of people to capitulate on their "American Dream" and turn it into "at least I can rent a house from Goldman Sachs" for some reason?

This is already happening in the Bay Area (more or less)

Re: The Fed's $2.7T mortgage problem

#35

Post by ZoomerCretin »

JumpCrisscross wrote: post #14
readthenotes1 wrote: post #6

Earlier quoted context omitted.

Driving rates higher won't cool inflation except by raising prices - which is inflation. They want to stifle the demand so as to match supply better, but when it's a supply shock and the United States is short something like 3 million houses, it seems a fairly punitive and misguided way to approach solving the problem.

> rates higher won't cool inflation except by raising prices - which is inflation Rates rising drives prices down. Of the mortgages on their books. And of the homes collateralizing them.

You're on an island with five chairs. There are four people. Everyone has a chair.

Add six people. There are now five chairs and ten people. How can you manipulate the prices of chairs such that all ten people can have their own chair?

Artificially lowering the prices of chairs does not solve the underlying issue: There are not enough chairs for everyone that needs one.

By treating housing price surges as excessive demand (raising mortgage rates), you lower demand not only for _existing_ homes, but also for creating new homes. If your goal is to ensure that housing prices always go up and affordability/homelessness go in wrong direction, the Federal Reserve's policy is very effective.

They're wrong to prematurely kill demand before it can cause new housing construction to increase, fixing the underlying issue of not enough supply.

Re: The Fed's $2.7T mortgage problem

#36

Post by user3939382 »

anm89 wrote: post #16
upupandup wrote: post #7

Earlier quoted context omitted.

what does this mean exactly? We can't raise the rates anymore without substantial structural shift in our economy? Such as the end of ridiculous earnings-to-price multiples?

We took a crisis of bank and consumer balance sheets and relocated it to the government balance sheet by artificially generating liquidity backed by government liabilities. We didn't change many of the underlying mechanics (if you believe that the mbs rating schemes and bad mortgages were a symptom and not a cause which I do, we did fix those things) The problems with a debt crisis at the sovereign level is there is…

The Fed will curb inflation with high rates that slow down the entire economy and drive up unemployment, which is exactly what they're doing.

Re: The Fed's $2.7T mortgage problem

#37

Post by amanj41 »

JumpCrisscross wrote: post #14
readthenotes1 wrote: post #6

Earlier quoted context omitted.

Driving rates higher won't cool inflation except by raising prices - which is inflation. They want to stifle the demand so as to match supply better, but when it's a supply shock and the United States is short something like 3 million houses, it seems a fairly punitive and misguided way to approach solving the problem.

> rates higher won't cool inflation except by raising prices - which is inflation Rates rising drives prices down. Of the mortgages on their books. And of the homes collateralizing them.

Yeah, not really sure what the original commenter was on about... The price of money itself is higher when rates go up, so prices of goods and assets must go down to compensate for reduced demand

Re: The Fed's $2.7T mortgage problem

#38

Post by kart23 »

"The Fed's pandemic actions fueled a housing boom. As it tries to withdraw that support, it could be bad news for housing"

How is this bad news? Housing is incredibly expensive relative to the average American's salary. Yeah it sucks for people that bought a house recently, but in the long term, it is absolutely a good thing.

Re: The Fed's $2.7T mortgage problem

#39

Post by anm89 »

s1artibartfast wrote: post #3

I read the article twice an I don't understand the challenge posed by leaving the mortgages on the balance sheet. I don't think that the fed has wo worry about freeing up the capital to relocate because they printed it into existence in the first place. They also don't want to do more QE because the market is already overheated.

If they can't kill inflation by killing equity markets and bonds the last target left is the housing market. So if you believe that their true goal is to kill inflation at this point, which I more or less do, than the thing the Fed feels like it needs to do is to target housing prices directly and their best lever for that is the MBS on the balance sheet.

Re: The Fed's $2.7T mortgage problem

#40

Post by philwelch »

dvt wrote: post #30

> The Fed's pandemic actions fueled a housing boom. As it tries to withdraw that support, it could be bad news for housing — and the Fed's standing on Capitol Hill. I think this article is a bit of a nothingburger. Of course QT has the opposite effect of QE, that's the entire point . The 2020 housing boom will not blow up like in 2008 because today's mortgage backed securities are much more stable than the C-tier CDO…

> as long as the labor market is doing well

Which is indeed the last shoe that has yet to drop in the current recession.

Post reply on HN