The Fed has announced that it will buy six-hundred billion dollars – that’s eleven zeros – of government debt in the form of Treasury Bonds by next June. The new plan is called QE2 (quantitative easing), and the goal is to keep long term interest rates down in order to stimulate the economy.
Where does the Fed get that kind of money? Out of thin air! They are in charge of the money supply, so it can do that. Rob Chrisman of Mortgage News Daily cited a mortgage industry vet who said it best:
“Now, here I am printing money out of thin air, creating electronic entries for specified amounts on my own balance sheet. I then, on my own wire, aka Fed Wire, send that amount over to the US Treasury Department’s operating account. At exactly that same moment I simultaneous enter an asset entry on my own balance sheet which is identified by a specific CUSIP number for that particular U.S. Treasury bill or note that I just purchased with my magic money. Voila – I am making interest on money that didn’t exist 30 days ago. This interest income becomes a part of my operating revenue. I have purchased a trillion or so dollars of bonds and notes, and I have earned (billions) of dollars in interest, from cash that didn’t exist until I waived my magic money making wand.”
You may be wondering, “QE2? Was there a QE1? How did that go?” Yes. The Fed has already created over a TRILLION dollars that has been invested in government debt and mortgage bonds. One could argue that it achieved its intended purpose. Rates are lower than they have been in fifty years, and Friday’s job report showed that the private sector is adding jobs.
If this second round of qualitative easing works, it may create new opportunities. Already low interest rates could go even lower. The U.S. News and World Report’s Money Blog captured the case and point:
“But low rates don’t do us any good if we fail to take advantage of them … The combination of low rates and falling real estate prices make for a perfect time to buy a home. Particularly for first time buyers, there may never be a better time to take the plunge into homeownership than over the next year. Some say home values may still fall over the next year, so knowing exactly when to buy can be a bit of gamble. But locking in incredibly low rates on a 30-year mortgage is a great way to reap the benefits of the current interest rate environment.”
Something each person needs to consider is whether or not their current mortgage best aligns with their long and short term financial goals and provides the lowest cost of money. This is true whether you are paying rent and would like to buy your first home, you bought a home six years ago or refinanced in the last six months. Now is the time to contact your trusted Real Estate and Mortgage Professionals to discuss your options.
I am available any time for no pressure or obligation mortgage reviews. Let me know if I can help you or someone you care about.