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Mortgages: Fed Throws in the Kitchen Sink

There was a very good article about the US economy in general–and mortgages in particular–in the Times this morning. No, not the New York Times or the Los Angeles Times. It was in the original Times, which was first published in 1785 in London, England. Maybe you need to view things from across the Atlantic to get some perspective on our current financial plight.

Anyway, I urge you to read the piece. It’s all about the Fed’s latest policy of ‘quantitative easing’. Never heard of it? Me neither, up until very recently. But bankers do tend to use dry language, even to describe their most radical initiatives.

And quantitative easing is sure radical. It is the printing of vast amounts of money to buy up long-term debt-mortgage securities and government bonds. And if there’s a grain of truth in Milton Friedman’s monetarist theories, that can only mean inflation.

Perhaps we could use a dose of inflation to kick-start the mortgage and real estate markets. Maybe the alternative, stagflation, is even worse. The Times isn’t so sure. It says:

Quantitative easing is, in essence, what you do as a central bank when you have run out of things to do to avert catastrophe. It is that moment in the horror movie when you are backed up into the kitchen by the intruder and you start pulling out the kitchen sink as your last weapon.

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