Borrowers who can refinance probably already have since rates just prior to Operation Twist were the lowest in six decades.
Interest income for those who depend on bank deposits such as retirees, or those who need to be liquid are seeing the lowest interest rates in history, reducing their income.
Those who have a mortgage that is underwater or a Loan-to-value that is too high to qualify will not be helped by this program, and are not able to refinance, a fact that hurts the general economy as one in five homes are in this condition.
If we can stipulate that the economy is not suffering because of high rates, then why are we taking this action at this time, which will neither create jobs, nor create any confidence in the economy? Banks have more than $1Trillion dollars sitting on the Fed’s Balance Sheet at near zero percent interest, so liquidity is not an issue either.
Banks do not lend because the demand is not there, or they don’t see profitable opportunities in the market place, namelylending to borrowers who do not demonstrate an ability to repay the loan. This is the definition of “pushing on a string.”
While the Federal Reserve is apparently doing all it can to help the economy; acting alone, or without the policy makers in Washington supporting its actions with concrete plans to jumpstart the economy with a laser focus on Jobs and Growth creates this lopsided approach which will have many unintended consequences, and will not soothe the markets.
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