Care to Elaborate?
My post last night generated some questions over at the Seeking Alpha publication so I wanted to elaborate briefly.
I think that the mega refi/loan forgiveness deal is going to happen. I feel the US government will absorb the costs. I have no idea what the numbers will be, and I do not think it really matters. The question of morality and fairness to others is a waste of time as it has never stopped anything before so just leave that one out totally.
Now that said, many would wonder how the US can fund such a transfer of debt. My only answer is you have seen a bunch of it happen already. Consider how much additional debt was floated over the past year and now go check on some bond yields. See any problem? I do not. This in no way means I agree there will not be, but the first leg of the experiment went swimmingly well.
You can see what I mean whenever Paul Krugman writes a blog post titled something like:
"We spent a trillion (I wanted 10) and nobody batted an eye!"
The bond market is not making much sense right now; why bid up an asset (US debt) that can (and will?) be issued in unlimited amounts? I have no idea, but that short bus is as crowded as it gets without snapping a leaf spring.
I would add that much of this action has moved to the big US banks through FED enabled trading games with guaranteed profit. Where are the bond vigilantes? Making cash hand over fist thank you very much don't bother them.
It is rare I disagree with Ilargi of The Automatic Earth, but in today's missive he opines:
Millions of homeowners get to live cheaper, enabling them to spend more, home prices would go up, and it would cost the government nary a penny. Why didn't anyone else think of that? Well, all you need to do is look at who indeed would pay the costs. Which is the lenders, who would now receive 2-3% less in monthly interest payments. Wall Street would never accept it, unless Washington makes up the difference. Which Washington would never accept to do.
I totally disagree.
If things are pretty good and getting better, why do we get a piece by PIMCO's Managing Director Paul McCulley that contains such wild statements as these (via Tim Iacono):
But that could change, if the risk of a return to recession continues to rise, spooking the equity market. A few thousand points of Dow might be what is needed to get the attention of Austerian legislators wanting to get re-elected! Am I forecasting that? Not yet, but the odds are rising, I think.Hey, you have been warned. This is how monetary policy is made nowadays, by kneejerk reactions to asset prices. Some more printing press euphoria:
To generate increased growth in aggregate demand, some sector of the economy must be willing to pro-actively lever its balance sheet. And that must be the fiscal authority, if the private sector is intent on delevering. Yes, I know all about the perils of long-term fiscal unsustainability. But I also know that in the long run, we are all dead. I see no reason to die young from fiscal-orthodoxy-imposed anorexia.This line of thought is workable if two things are true about you:
-You are already rich
-You are closer to the end than the beginning of your journey
When some of the biggest players and smartest people are talking crazy and using really large numbers you should be ready to have something handed to you, none of which will be fun, well for you anyway.
Have a good night.