The Fed's $2.7T mortgage problem • Hacker News Board

Re: The Fed's $2.7T mortgage problem

#101

Post by anm89 » Fri, May 20, 2022, 2:59 AM UTC

kmonsen wrote: post #99

anm89 wrote: post #84

Earlier quoted context omitted.

You can kill inflation with demand side strategies, even if the root cause of the recent changes in inflation are supply side. Imagine an ad infinitum example. Let's say the price of gas goes to $1M a gallon. The fed then somehow removes every dollar from the economy. The price of gas is still going to be approaching zero when denominated in dollars after demand is forced to zero(in reality the price of gas would jus…

Only if you are the only country in the world (or bigger than the rest combined). That being said all of the central banks are doing the same so maybe it works that way. If someone want they can get a free lunch, no need to increase the rate but everyone else lowers inflation for them.

You are refuting the details of my self admittedly absurd example. The point is, you can kill supply fueled inflation with demand side polices. Any country can do this within the scope of transactions denominated in the currency they control

Re: The Fed's $2.7T mortgage problem

#102

Post by kmonsen » Fri, May 20, 2022, 3:13 AM UTC

unnamed76ri wrote: post #73

kmonsen wrote: post #48

Earlier quoted context omitted.

But if the inflation is not due to overconsumption in the US, but about global problems with supply side issues on the front and China in lockdown not helping at all, how does it make sense to cause a housing crash? I certainly think the fed should stop to build the bubble, but it should also not go all in and crash everything.

Inflation’s main cause is printing trillions of dollars in unbacked currency. The Trump admin and now the Biden admin are very fond of doing so for the sake of short term political advantage.

Why does Norway that didn't print money have similar inflation in that case?

Re: The Fed's $2.7T mortgage problem

#103

Post by kmonsen » Fri, May 20, 2022, 5:23 AM UTC

anm89 wrote: post #101

kmonsen wrote: post #99

Earlier quoted context omitted.

Only if you are the only country in the world (or bigger than the rest combined). That being said all of the central banks are doing the same so maybe it works that way. If someone want they can get a free lunch, no need to increase the rate but everyone else lowers inflation for them.

You are refuting the details of my self admittedly absurd example. The point is, you can kill supply fueled inflation with demand side polices. Any country can do this within the scope of transactions denominated in the currency they control

Sure, but the effectiveness will be less if the "problem" is global. If the US has 50% of the worlds demand for some good, and only the US fights inflation, then the effectiveness of the measures taken will only be 50%. So for the US maybe that is still possible, but if you are Costa Rica that becomes meaningless.

Re: The Fed's $2.7T mortgage problem

#104

Post by harambae » Sat, May 21, 2022, 4:47 AM UTC

kart23 wrote: post #38

"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.

This is how I see it as well. If clean drinking water doubled in price in 2 years would the same people go on CNBC and praise the gains in the "strong water market"?

Re: The Fed's $2.7T mortgage problem

#105

Post by harambae » Sat, May 21, 2022, 4:54 AM UTC

lvl102 wrote: post #9

The Fed is compounding its mistakes of not stopping QE last year by pulling forward QT in order to fight inflation that is outside of its control (Ukraine and China).

Inflation was out of control before the (most recent) Ukraine war

Re: The Fed's $2.7T mortgage problem

#106

Post by imranhou » Mon, May 30, 2022, 4:58 PM UTC

anm89 wrote: post #39

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.

I don't get how selling MBS on the market will lower housing prices, housing prices are a result of demand/supply + interest rate affordability, neither of which will be affected by selling MBS' that carry an older lower rate and don't pay out that much. I think it only results in Fed technically losing money.