The Looming Foreclosure Crisis: As the Fed Runs Out of Bullets, Local Governments are Stepping In

[eridani]

http://www.nationofchange.org/looming-foreclosure-crisis-fed-runs-out-bullets-local-governments-are-stepping-1404830946

Former Assistant Treasury Secretary Paul Craig Roberts wrote on June 25th that real US GDP growth for the first quarter of 2014 was a negative 2.9%, off by 5.5% from the positive 2.6% predicted by economists. If the second quarter also shows a decline, the US will officially be in recession. That means not only fiscal policy (government deficit spending) but monetary policy (unprecedented quantitative easing) will have failed. The Federal Reserve is out of bullets.

Or is it? Perhaps it is just aiming at the wrong target.

The Fed’s massive quantitative easing program was ostensibly designed to lower mortgage interest rates, stimulating the economy. And rates have indeed been lowered – for banks. But the form of QE the Fed has engaged in – creating money on a computer screen and trading it for assets on bank balance sheets – has not delivered money where it needs to go: into the pockets of consumers, who create the demand that drives productivity.

Some ways the Fed could get money into consumer pockets with QE, discussed in earlier articles, include very-low-interest loans for students and very-low-interest loans to state and local governments. Both options would stimulate demand. But the biggest brake on the economy remains the languishing housing market. The Fed has been buying up new issues of mortgage-backed securities so fast that it now owns 12% of the mortgage market; yet housing continues to sputter, largely because of the huge inventory of underwater mortgages.

[Demeter]

1. Or jobs doing useful work, like Infrastructure

Obamacare created lots of paperwork jobs: they produce nothing, but eat up a lot of time, money, effort, while killing the spirit.

FDR created real jobs that strengthened the country and developed people's skills. We are still using the infrastructure that his New Deal built. But doing the New Deal again would be sensible. That would help people, at both ends: giving and receiving. What's in it for our corporate Super Citizens? Nothing! They can't rip off people and profiteer with that!

[snot]

2. +1!

In my mind, the biggest drag on the economy is the lack of jobs! Nobody can afford to buy anything, because we don't have any income.

[pat_k]

3. Don't forget all those Home Equity Lines of Credit (HELOCs) coming due....

According to Lender Processing Services http://www.lpsvcs.com/LPSCorporateInformation/NewsRoom/Pages/20131209.aspx 48% of outstaning HELOCs were originated in 2004-2006... typically interest only for 10 years... so principle is starting to come due.