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Economic Review

12/08/08

Is all the phantom money being pumped into the system actually paying off?

You’ve all seen the exorbitant bailout money, the origin of which is still eluding the best market minds, which has been pumped into the system.  Many well founded critiques have asserted that much of this injection has not been focused as to address the true root of the economic and financial system chaos we are experiencing.  However, there appears to be one glimmer of hope that has emerged from all this printing of and throwing around of big bucks, and this is the recent exuberant rally that is transpiring in the US Treasury market.  The recent really has brought the Yield level of 10 Year maturities nearing the 2.50% mark that has resulted in 30 Year fixed mortgage rates to reach nearly 5%.

On the positive, this drop in mortgage rates does actually address some for the problematic underpinnings plaguing our system…namely the affordability of borrowed money. This may actually thwart some foreclosure activity for larger borrowers as it makes their monthly payment much more affordable.

However, the one problem to this scenario is the rising jobless rate that is transpiring. This trend unfortunately may neutralize the better affordability of loans because if income for homeowners simply ceases, it really doesn’t;’ matter how low mortgage rates go.  Large mortgages become unaffordable.