Is The Housing Recovery Just an Illusion Created by the Federal Reserve?

By Christopher Matthews – The Federal Reserve has kept short term interest rates at near-zero since 2008. In order to stimulate the economy further, the central bank has engaged in quantitative easing (QE) or the purchase of U.S. treasury bonds and mortgage debt in order to drive down long-term interest rates as well. The most recent round of QE was specifically aimed at mortgage-backed securites (MBS), and was effective at lowering mortgage rates to all-time lows.

Our economy is undoubtedly better off by being in a situation where home prices are rising rather than falling. But this analysis does beg the question: What happens when the Fed tries to extricate itself from quantitative easing? How will homeowners react when — because of the Fed’s selling of MBS — their home values plummet? more> http://tinyurl.com/byyxhla

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Is There a Reckoning Coming Thanks to Quantitative Easing?

By Rana Foroohar – Gross recently stunned the markets by calling equities a Ponzi scheme and warning investors they will never see 6% real returns again and would be lucky to get 3%. Bill Gross and Mohamed El-Erian believe there will ultimately be a price to pay for the Fed’s money infusion in the form of return-eroding inflation and other economic distortions. When that happens, real growth (already sluggish) will stagnate further, borrowing costs will skyrocket, stocks will swoon, real estate will struggle and consumers will hunker down. It will be like the 1970s but withless room for productivity gains. All this is compounded by the fact that finance as a fuel for capitalism is tapped out. more> http://tinyurl.com/d5e2ftv

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Romney’s plan to dump Bernanke sparking anxiety on Wall Street

President Barack Obama, left, flanked by Treasury Secretary Timothy Geithner, and Federal Reserve Chairman Ben Bernanke, and Vice President Joseph Biden, right, receive an Economic Briefing, Monday, March 23, 2009, in the Cabinet Room of the White House in Washington. (Photo credit: Wikipedia)

By Peter Schroeder – The Fed chairman has not won any friends among Republicans for his efforts to boost the economy, which have included three rounds of “quantitative easing.”

The massive bond purchases have sent stock markets soaring, but conservatives fret that the Fed’s rapidly-expanding portfolio is going to be a nightmare to unwind and could result in severe inflation.

Bernanke‘s Fed agreed in September to buy $40 billion of mortgage bonds a month, and to continue doing so even after the labor market picks up the pace. more> http://tinyurl.com/8oau6dq

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Investors opt for gold ahead of U.S. “fiscal cliff”

By Eric Onstad – Investors are going for gold as their top commodities choice in what looks like a turbulent fourth quarter for the sector, planning for the possibility of a “fiscal cliff” that could shrink the U.S. economy and spur more money printing.

Previous bouts of quantitative easing (QE) have sent commodity markets soaring with other risk assets, but commodities have recently broken away from tracking equities as investors question the impact of the third round of U.S. bond-buying along with other programs in Europe, Japan and China. more> http://tinyurl.com/9jsa2f2

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A QE rally in search of Main Street confirmation

By James Saft – While we may want to enjoy the quantitative easing-fuelled rally while it runs, it is probably best to remember that sometime, perhaps soon, a bull market will depend on improvement in the real economy.

Perhaps the biggest help has been from the ECB, which has said it will buy debt from euro zone countries, a move interpreted as taking a euro breakup off the table, at least temporarily. And the Bank of Japan this week weighed in with another $1 trillion or so in planned asset purchases.

Just by reducing the VIX by calming investors during the height of the crisis, the Fed was able to have a big impact on markets and potentially the real economy. When the Fed took extraordinary measures in 2008 and 09, the VIX was first in the 60s and then in the 40s, exceptionally high levels historically. It stands today at 14, about at the level you might find in a coma ward, so expecting much bang for the Fed’s buck from that quarter is unwise. more> http://tinyurl.com/8gkb635

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