So it's likely you've heard about the 'big Fed announcement' that took place yesterday. If you haven't, please drop your current lender and call me, because you're not being kept 'in the know' like you should be ; )
QE2 is the abbreviation of Quantitative Easing II, an extension of Fed purchases of debt in an effort to keep rates low and extend, if not enhance, economic recovery. Unlike round 1, this 2nd purchasing binge comes with a lot of backlash and at the dismay of even some members of the Federal Reserve. So what is the reason? What does QE2 mean for the near future and the long term?
Well, to make it simple, yet absolutely terrifying, it's a roll of the dice with our economy (hopefully a very carefully calculated roll of the dice!). For your business, this means rates WILL stay extremely low, so with prices on homes remaining low for the foreseeable future, the market should be an easy sell for your buyers.
If you have the mindset of going to work each day and not worrying/caring what the economy as a whole is doing, the above is pretty much all you need to know...and so you have a specific, the target for the Fed is $600 billion (yes, billion with a 'b'...remember that # was unfathomable?) in debt purchases by the end of quarter 2, 2011. Now get out there and sell!
For those who want more of a grasp on things, keep reading.
The backlash towards QE2 (which admittedly, I am extremely biased AGAINST regardless of how much it helps my business today) stems from the fact that it is, by all accounts, a roll of the dice. While QE1 certainly helped pull the economy out of a freefall, it certainly hasnt been all rainbows and sunshine. Rates are incredibly low, however home sales have not skyrocketed...the problem is that no matter how much you give cheap money to the banks, it benefits them NOT to lend it when they can make money off it by investing. In fact, banks currently have over $1trillion in reserves that THEY ARE NOT LENDING. Guidelines are still extremely stiff, and though there are a lot of people out there that would love to buy a home or refinance, the economy has damaged a lot of folks credit...for these people, until those FICO's go up, there's not a lot they can do (Do you have clients in this position? If so, give me a call, we've got a way to get those FICO's up!)
The other negative of QE2 is the potential for disaster down the line...since this is basically the equivalent of the Fed firing up printing presses for money, inflation becomes a very real concern. The value of the dollar WILL be diminished by this act (simply supply and demand), and while this will help the exporting aspect of our economy...ladies and gentlemen, us as Realtors and mortgage professionals, dont export anything. The immediate response from a weaker dollar will likely be higher commodity prices, including everyone's favorite...oil....expect gas prices to continue to rise.
Eventually, the Fed is goign to have to unload this debt as well...the problem is, they've been the only ones buying it over the past year and a half....I'm not sure what makes them think they'll have a market for this debt anytime in the near future, and if they dont or are unable to sell it, the risk of extreme inflation (which any good economist knows, is a raging animal once unleashed and VERY hard to keep in check) is a very real threat...
To sum it up, this could help our market a little bit, but guys and gals...rates are already THE LOWEST THEYVE EVER BEEN...if people arent buying now, it's more often than not because they CANT for other reasons, so I dont really expect these actions to change our day to day business much more than QE1 did. I DO foresee (once again, and this hurts to even type) banks making a TON OF MONEY...once again at taxpayer expense, by having access to cheap money, which they can invest in commodity markets and gain a handsome return, all without lending it out to those who need it most.
HOPEFULLY small business will gain by having cheaper access to commercial money...that would be the only real positive in my mind from QE2, and that's perhaps the gamble with the lowest odds.
For a great article to accompany the above, I recommend reading
http://blogs.wsj.com/economics/2010/11/03/qa-on-qe2-what-a-fed-move-would-mean/
Comments(0)