See What You Did, Zimbabwe Ben?! 30y Mortgages on the Rise Thanks to the Fed's (Sneaky) Printing Problem

JDA is considered "restricted" among the Fed set
Shhhh, don't tell Congress or ZB might get in trouble
(yes, I did see what you did there. ALL of you
But you have no idea what I did there, do you?

Ohhh my dear, dear ZB. Didn't you learn anything in your bazillion years of econ class? You keep playing with those Treasurys and trying to print your way out of disaster and this is what happens.


Mortgage rates rose for a third straight week as the 30-year loan climbed back above the 5% level for the first time since Oct. 29, Freddie Mac said Thursday.

The mortgage agency's weekly rate survey showed the national average on the 30-year mortgage at 5.05%, up from 4.94% a week ago but below its year-ago average of 5.14%. The 15-year loan, a popular refinancing choice, also jumped, to 4.45% from 4.38%. A year ago the 15-year loan was at 4.91%.

Adjustable-rate mortgages rose as well, but only slightly. The five-year Treasury-indexed hybrid ARM averaged 4.40%, up from 4.37%. The hybrid was at 5.49% a year ago. One-year Treasury-indexed ARMS averaged 4.38%, up from 4.34%. Last year at this time the ARM was at 4.95%.

To achieve the rates, the 30-year loan required the payment of an average 0.7 point; the other three loans needed 0.6 point. A point is 1% of the loan amount, charged as prepaid interest.

"Although interest rates for 30-year fixed-rate mortgages are above 5% this week for the first time since the end of October, they are still around 0.5 percentage points below this year's peak set in mid-June," said Frank Nothaft, Freddie Mac chief economist. "ARM rates increased by a lesser amount as the market consensus calls for no rate hikes by the Federal Reserve in the immediate future."

Yeah so about those Treasurys... (h/t WC Varones) Check out the latest Sprott Report and if you don't regularly read it, you're an idiot:

In the latest Treasury Bulletin published in December 2009, ownership data reveals that the United States increased the public debt by $1.885 trillion dollars in fiscal 2009. So who bought all the new Treasury securities to finance the massive increase in expenditures? According to the same report, there were three distinct groups that bought more than they did in 2008. The first was “Foreign and International Buyers”, who purchased $697.5 billion worth of Treasury securities in fiscal 2009 – representing about 23% more than their respective purchases in fiscal 2008. The second group was the Federal Reserve itself. According to its published balance sheet, it increased its treasury holdings by $286 billion in 2009, representing a 60% increase year-over-year. This increase appears to be a direct result of the Federal Reserve’s Quantitative Easing program announced this past March. Most of the other identified buyers in the Treasury Bulletin were either net sellers or small buyers in 2009. While the Q4 data is not yet available, the Q1, Q2 and Q3 data suggests that the State and Local governments and US Savings Bonds groups will be net sellers of US Treasury securities in 2009, while pension funds, insurance companies and depository institutions only increased their purchases by a negligible amount.

So who was the third large buyer? Drum roll please,… it was “Other Investors”. After purchasing $90 billion in 2008, this group has purchased $510.1 billion of freshly minted treasury securities so far in the first three quarters of fiscal 2009. If you annualize this rate of purchase, they are on pace to buy $680 billion of US treasuries this year – or more than seven times what they purchased in 2008. This is undoubtedly the group that made the US deficit possible this year. But who are they? The Treasury Bulletin identifies “Other Investors” as consisting of Individuals, Government-Sponsored Enterprises (GSE), Brokers and Dealers, Bank Personal Trusts and Estates, Corporate and Non-Corporate Businesses, Individuals and Other Investors. Hmmm. Do you think anyone in that group had almost $700 billion to invest in the US Treasury market in fiscal 2009? We didn’t either. To dig further, we turned to the Federal Reserve Board of Governors Flow of Funds Data which provides a detailed breakdown of the owners of Treasury Securities to Q3 2009. Within this grouping, the GSE’s were small buyers of a mere $5 billion this year; Broker and Dealers were sellers of almost $80 billion; Commercial Banking were buyers of approximately $80 billion; Corporate and Non-corporate Businesses, grouped together, were buyers of $11.6 billion, for a grand net purchase of $16.6 billion. So who really picked up the tab? To our surprise, the only group to actually substantially increase their purchases in 2009 is defined in the Federal Reserve Flow of Funds Report as the “Household Sector”. This category of buyers bought $15 billion worth of treasuries in 2008, but by Q3 2009 had purchased a whopping $528.7 billion worth. At the end of Q3 this Household Sector category now owns more treasuries than the Federal Reserve itself.

I didn't realize Ben Bernanke kept a printing press in his household. Oh well, now I know.

As we have seen so illustriously over the past year, all Ponzi schemes eventually fail under their own weight. The US debt scheme is no different. 2009 has been witness to spectacular government intervention in almost all levels of the economy. This support requires outside capital to facilitate, and relies heavily on the US government’s ability to raise money in the debt market. The fact that the Federal Reserve and US Treasury cannot identify the second largest buyer of treasury securities this year proves that the traditional buyers are not keeping pace with the US government’s deficit spending. It makes us wonder if it’s all just a Ponzi scheme.

Sprott "wonders" if it's just a Ponzi scheme but I'm going to go ahead and say holy fuck, what kind of Bernie Madoff shit does the Fed think it is pulling?

Come on, ZB, come clean, we all saw what you did there you dirty bastard.

This isn't quantitative easing, it's pure unadulterated bullshit and theft. Oh and lies. Told you the Fed would keep buying Treasurys, who else would?!

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


Joe Blow said...

A 5.3% decline.. I'm confident that has already happened. Oh my. What have we become?

Well, JDA, thank you for your work here. I greatly enjoy the site.

1mealperday said...

sotty about our luck. Seems we aint got none. If i was a drinking man, this is the time to tippem up. Smoking a bowl will do me mellow. Eshomnome i say!
Girl i hope you have a safe place to hang out next couple of years.Know your friends and neighbors well. Buy well in advance of more truck firms going under like Arrow on tuesday. Life is cruel at xmas.
Hope you have a safe year. Many thanks.


Thanks, it's actually my pleasure. :)


Don't worry, I have more than one plan. My escape route is clear ;)


1mealperday said...

I have folks in L.A. Lot of tension there, but the folks seem unaware. Like growing old, we dont notice cause we dont want to. Its worrisome what will happen on D day. The day the dollar capitulates.