Interest Rates and Hyper Inflation
May 15, 2009 by Ben Janke
Filed under MortgageVines.com News
Andy Kessler asks a very important question: How do you “Put the Toothpaste Back in the Tube?”
Since we are printing up all of the money that doesn’t exist, and going into more and more debt, most economist agree that the threat of hyper inflation is coming down the road and either we head it off now or get eaten by it later.
Kessler begins thinking about how the Federal Reserve might go about heading off inflation as the economy begins to recover:
But how? Why, just do the exact opposite of what is in action now.Of course, you raise the interest rates. There are some bad debt out there that should never have been there such as the debt left by AIG and Bear Stearns. By removing all the backstops it put in for the commercial paper and other markets to keep them functioning. But won’t that have the effect of slowing the economy? You can bet on it. This is a tightrope act. Getting all that toothpaste back into the tube will require the skills of a surgeon and the moxie of a middle linebacker, and someone deaf, dumb, and blind to congressional meddling. Keep in mind that we are treading on uncharted ground now.
How this actually executes is going to be a critical factor in the future of the mortgage industry and your mortgage business. Something like this will most likely be very difficult to implement well. When there are interest rates at 10% or higher, who really wins?
As the Federal Reserve meets for FOMC this week the question of inflation is beginning to re-enter the discussion.
Federal v. State Banking Powers
Here is another issue that may have strategic impact on the future structure of the mortgage industry: “Can the US Treasury Shield National Banks from New York State Law?”
Four years ago, Eliot Spitzer, then the New York attorney general, asked several national banks to explain why they were disproportionately charging blacks and Hispanics high interest rates.
Instead of an answer, he got a lawsuit. The banks, and the Treasury Department agency that regulates them, persuaded federal courts to bar the state attorney general from enforcing New York anti discrimination laws.
On Tuesday, the U.S. Supreme Court will hear New York’s appeal. If the state wins, it would mark a break with decades of precedent that mostly favors the powers of the federal government and open a new era for 50 state regulators to play a bigger role.
This would most likely put a huge movement and shift in the way that banks operate and we can only imagine that rates will start to move and probably up.
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