Something Needs to be Done – A Glimpse of the Future

In the summer of 2016, US and global economic growth rates are nowhere close to estimates.  In fact, a global recession, or worse, is imminent.  At home, student loan defaults are now close to 100%.  The unemployment rate is climbing, as minimum wage workers finally realize that the financial pain of working or not working is identical.  In Euro-land, as the weather warms up, the never-ending flotillas from Northern Africa resume swamping the Southern shores.

 

NIRPA black hole opens up in the world of centrally planned money

Illustration by Denis Cristo

 

By now, the Treasury has long given up on the idea of privatizing the agencies.  Freddie and Fannie will soon be part of HUD, surviving for the sole purpose of providing affordable housing for all – whatever that is supposed to mean.  Policymakers have determined that the real estate market is stalling.  Desperate times require desperate measures.  Something needs to be done.

After an intense pow-wow between the administration, Congressional leaders and the Federal Reserve, the Negative Mortgage Rate Program (NMRP) is born. The program is simple.  Homeowners will be paid to borrow.  The Federal Reserve declares that the NMRP is a brilliant extension of NIRP (negative interest rate policy), because it will benefit everyone, not just the 1%ers.

 

fannie-mae-cartoonA good reason to break into song…

Cartoon by cartoon by Steve Breen

Here is how it works:

 

No downpayment needed.  100% financing.

No payments needed.  This is the reverse of the negative amortization loans during the subprime era.  In other words, it is a negative negative amortization, or neg-neg-am loan.  The loan balance will decrease instead of increase.

No need for mortgage insurance since, with no payments, there can be no defaults.

No qualifying needed, hence removing the entire cumbersome loan application process.

 

Say you borrow $100,000 at -1% interest.  Here is the math:

 

Your interest cost will be -$1,000 per year.  In other words, your loan balance will be $99,000, if you make no payments at all.

Using a commonly accepted 30 year term, the loan balance at the end of 30 years would be around $50,000, all without the borrower having to pay a dime in mortgage expense.

In fact, instead of charging around 4% for a mortgage, reverse that to -4% interest.  In 30 years, the mortgage will be totally extinguished.

 

Freddie and Fannie will originate these loans, package them as neg-neg-am-MBS and sell them all to the Federal Reserve.  Housing recovers overnight and the Feds declare “mission accomplished.”

 

locationWhat can possibly go wrong? It’s free money!

Cartoon by Jack Ohman

 

Get Out the Straight Jackets

Before you call me nuts, this is actually already reality.  The governments of Germany, Switzerland, Japan and others are charging savers for the privilege of lending them money.  Why stop there?  Let the people enjoy negative interest rates when they buy a house, or a car, or borrow for a college education.  In fact, why bother with taxes.  Just let the government borrow to operate.  The more it borrows, the more it makes.

 

Germany, 2 year yieldGermany’s 2-year note yield has been negative since the summer of 2014 – currently it is at a new low of minus 50 basis points – click to enlarge.

 

Watching Ms. Yellen answer questions during the “Humphrey-Hawkins” testimony the last two days was painful.  It is time to put the central bankers of the world in straight jackets and throw them into the cuckoo’s nest where they belong.

 

Draghi HolderGet Out the Straight Jackets – This heavy duty model might even hold Draghi!

Photo via ebay.com

 

Chart by: BigCharts

 

Chart and image captions by PT

 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

4 Responses to “The Negative Mortgage Rate Program (NMRP)”

  • sufganiyah:

    Negative mortgage rates already exist in Spain.

  • Hans:

    Effective today, I shall refer to “it” as Off-Center Bank(ers) or
    even better Crank Bank(ers).

    Too many brain cells and time are being wasted or destroyed, discussing
    this economic and monetary destroying, wholly man made institution.

    And for those Fed-o-philes, please by all means, continue your instructive
    debates about the valve of this agency and it’s monetary policies and hence
    being so enlightened as to provide light and a sanctuary for the ignorant masses.

  • Crysangle:

    Although we doubt it would reach that extreme it is good to understand the parameters that monetary authority are working with . In the above example there would have to be associated laws that deny multiple applications for pure profit , so in effect property ownership would become legislated whereby application for negative rated loans would require full disclosure of assets – we are looking at a fully statist distribution of wealth according to dictat with little room for any incentive to enterprise except gaming the system , or for socio-paths the acquisition of political position .

    I don’t think we are even able to imagine a lite version properly , where society’s values are erased as the population plug into the new norm . In that case , leverage will be maintained , maybe reduced to token , and yet still carrying some recognition of superiority or worth or submission to the issuer … just enough to displace the old set of values while being able to deny the structure has fundamentally changed . Maybe after that it will be the ‘most loyal’ that finally take the position of social attributors , as per your example , for the last token of generosity would be to remove monetary obligation, while simultaneously stepping into the ideal of direct rule for ‘to the fairness of all’ . Who could say or prove better of that than those who removed the chain of payment and replaced it with direct access by decree . Unfortunately as a principle that approach does not work , for we cannot decree a field bear harvest , nor that people produce without using coercion – who will listen when they are already well off , and when they find they are no longer so they are likely to have found every motive to blame the authors, or join them in blaming others . We know what that produces of mankind . When you take away the concept of the worth of trade and the pursuit of an end by that means , then there is only theft left to recompense what is lacking .

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • America Goes Full Imbecile
      Credit has a wicked way of magnifying a person’s defects.  Even the most cautious man, with unlimited credit, can make mistakes that in retrospect seem absurd.  But an average man, with unlimited credit, is preeminently disposed to going full imbecile.   Let us not forget about this important skill...  [PT]   Several weeks ago we came across a woeful tale of Mike Meru.  Somehow, this special fellow, while of apparent sound mine and worthy intent, racked up...
  • Retail Capitulation – Precious Metals Supply and Demand
      Small Crowds, Shrinking Premiums The prices of gold and silver rose five bucks and 37 cents respectively last week. Is this the blast off to da moon for the silver rocket of halcyon days, in other words 2010-2011?   Various gold bars. Coin and bar premiums have been shrinking steadily (as have coin sales of the US Mint by the way), a sign that retail investors have lost interest in gold. There are even more signs of this actually, and this loss of interest stands in stark...
  • Credit Spreads: Polly is Twitching Again - in Europe
      Junk Bond Spread Breakout The famous dead parrot is coming back to life... in an unexpected place. With its QE operations, which included inter alia corporate bonds, the ECB has managed to suppress credit spreads in Europe to truly ludicrous levels. From there, the effect propagated through arbitrage to other developed markets. And yes, this does “support the economy” - mainly by triggering an avalanche of capital malinvestment and creating the associated boom conditions, while...
  • Gold Divergences Emerge
      Bad Hair Day Produces Positive Divergences On Friday the ongoing trade dispute between the US and China was apparently escalated by a notch to the next level, at least verbally. The Trump administration announced a list of tariffs that are supposed to come into force in three week's time and China clicked back by announcing retaliatory action. In effect, the US government said: take that China, we will now really hurt our own consumers!  - and China's mandarins replied: just you wait, we...
  • Industrial Commodities vs. Gold - Precious Metals Supply and Demand
      Oil is Different Last week, we showed a graph of rising open interest in crude oil futures. From this, we inferred — incorrectly as it turns out — that the basis must be rising. Why else, we asked, would market makers carry more and more oil?   Crude oil acts differently from gold – and so do all other industrial commodities. What makes them different is that the supply of industrial commodities held in storage as a rule suffices to satisfy industrial demand only for a...
  • Chasing the Wind
      Futility with Purpose Plebeians generally ignore the tact of their economic central planners.  They care more that their meatloaf is hot and their suds are cold, than about any plans being hatched in the capital city.  Nonetheless, the central planners know an angry mob, with torches and pitchforks, are only a few empty bellies away.  Hence, they must always stay on point.   Watch for those pitchfork bearers – they can get real nasty and then heads often roll quite literally....
  • Lift-Off Not (Yet) - Precious Metals Supply and Demand
      Wrong-Way Event Last week we said something that turned out to be prescient:   This is not an environment for a Lift Off Event.   An unfortunate technical mishap interrupted the latest moon-flight of the gold rocket. Fear not true believers, a few positive tracks were left behind. [PT]   The price of gold didn’t move much Mon-Thu last week, though the price of silver did seem to be blasting off. Then on Friday, it reversed hard. We will provide a forensic...
  • Cryptocurrency Technicals – Navigating the Bear Market
      A Purely Technical Market Long time readers may recall that we regard Bitcoin and other liquid big cap cryptocurrencies as secondary media of exchange from a monetary theory perspective for the time being. The wave of speculative demand that has propelled them to astonishing heights was triggered by market participants realizing that they have the potential to become money. The process of achieving more widespread adoption of these currencies as a means of payment and establishing...
  • The Fed's “Inflation Target” is Impoverishing American Workers
      Redefined Terms and Absurd Targets At one time, the Federal Reserve's sole mandate was to maintain stable prices and to “fight inflation.”  To the Fed, the financial press, and most everyone else “inflation” means rising prices instead of its original and true definition as an increase in the money supply.  Rising prices are a consequence – a very painful consequence – of money printing.   Fed Chair Jerome Powell apparently does not see the pernicious effects...
  • Merger Mania and the Kings of Debt
      Another Early Warning Siren Goes Off Our friend Jonathan Tepper of research house Variant Perception (check out their blog to see some of their excellent work) recently pointed out to us that the volume of mergers and acquisitions has increased rather noticeably lately. Some color on this was provided in an article published by Reuters in late May, “Global M&A hits record $2 trillion in the year to date”, which inter alia contained the following chart illustrating the...

Support Acting Man

Item Guides

j9TJzzN

The Review Insider

Dog Blow

Austrian Theory and Investment

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com