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: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

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:

  • How to Survive the Winter
      A Flawless Flock of Scoundrels One of the fringe benefits of living in a country that’s in dire need of a political, financial, and cultural reset, is the twisted amusement that comes with bearing witness to its unraveling.  Day by day we’re greeted with escalating madness.  Indeed, the great fiasco must be taken lightly, so as not to be demoralized by its enormity.   Symphony grotesque in Washington [PT]   Of particular note is the present cast of characters. ...
  • Credit Spreads: The Coming Resurrection of Polly
      Suspicion isn't Merely Asleep – It is in a Coma (or Dead) There is an old Monty Python skit about a parrot whose lack of movement and refusal to respond to prodding leads to an intense debate over what state it is in. Is it just sleeping, as the proprietor of the shop that sold it insists? A very tired parrot taking a really deep rest? Or is it actually dead, as the customer who bought it asserts, offering the fact that it was nailed to its perch as prima facie evidence that what...
  • The Strange Behavior of Gold Investors from Monday to Thursday
      Known and Unknown Anomalies Readers are undoubtedly aware of one or another stock market anomaly, such as e.g. the frequently observed weakness in stock markets in the summer months, which the well-known saying “sell in May and go away” refers to. Apart from such widely known anomalies, there are many others though, which most investors have never heard of. These anomalies can be particularly interesting and profitable for investors – and there are several in the precious metals...
  • A Falling Rate of Discount and the Consumption of Capital
      Net Present Value Warren Buffet famously proposed the analogy of a machine that produces one dollar per year in perpetuity. He asks how much would you pay for this machine? Clearly it is worth something more than $1.00. And it’s equally clear that it’s not worth $1,000. The value is somewhere in between. But where?   We are not sure why Warren Buffett invoked a money printing machine of all things – another interesting way of looking at the concept is by e.g....
  • Business Cycles and Inflation – Part I
      Incrementum Advisory Board Meeting Q4 2017 -  Special Guest Ben Hunt, Author and Editor of Epsilon Theory The quarterly meeting of the Incrementum Fund's Advisory Board took place on October 10 and we had the great pleasure to be joined by special guest Ben Hunt this time, who is probably known to many of our readers as the main author and editor of Epsilon Theory. He is also chief risk officer at investment management firm Salient Partners. As always, a transcript of the discussion is...
  • What President Trump and the West Can Learn from China
      Expensive Politics Instead of a demonstration of its overwhelming military might intended to intimidate tiny North Korea and pressure China to lean on its defiant communist neighbor, President Trump and the West should try to learn a few things from China.   President Trump meets President Xi. The POTUS reportedly had a very good time in China. [PT] Photo credit: AP   The President’s trip to the Far East came on the heels of the completion of China’s...
  • Is Fed Chair Nominee Jay Powell, Count Dracula?
      A Date with Dracula The gray hue of dawn quickly slipped to a bright clear sky as we set out last Saturday morning.  The season’s autumn tinge abounded around us as the distant mountain peaks, and their mighty rifts, grew closer.  The nighttime chill stubbornly lingered in the crisp air.   “Who lives in yonder castle?” Harker asked. “Pardon, Sire?” Up front in the driver's seat it was evidently hard to understand what was said over the racket made by the team of...
  • Business Cycles and Inflation, Part II
      Early Warning Signals in a Fragile System [ed note: here is Part 1; if you have missed it, best go there and start reading from the beginning] We recently received the following charts via email with a query whether they should worry stock market investors. They show two short term interest rates, namely the 2-year t-note yield and 3 month t-bill discount rate. Evidently the moves in short term rates over the past ~18 - 24 months were quite large, even if their absolute levels remain...
  • A Different Powelling - Precious Metals Supply and Demand Report
      New Chief Monetary Bureaucrat Goes from Good to Bad for Silver The prices of the metals ended all but unchanged last week, though they hit spike highs on Thursday. Particularly silver his $17.24 before falling back 43 cents, to close at $16.82.   Never drop silver carelessly, since it might land on your toes. If you are at loggerheads with gravity for some reason, only try to handle smaller-sized bars than the ones depicted above. The snapshot to the right shows the governor...
  • Heat Death of the Economic Universe
      Big Crunch or Big Chill Physicists say that the universe is expanding. However, they hotly debate (OK, pun intended as a foreshadowing device) if the rate of expansion is sufficient to overcome gravity—called escape velocity. It may seem like an arcane topic, but the consequences are dire either way.   OT – a little cosmology excursion from your editor: Observations so far suggest that the expansion of the universe is indeed accelerating – the “big crunch”, in...
  • Claudio Grass Interviews Mark Thornton
      Introduction Mark Thornton of the Mises Institute and our good friend Claudio Grass recently discussed a number of key issues, sharing their perspectives on important economic and geopolitical developments that are currently on the minds of many US and European citizens. A video of the interview can be found at the end of this post. Claudio provided us with a written summary of the interview which we present below – we have added a few remarks in brackets (we strongly recommend...
  • Precious Metals Supply and Demand
      A Different Vantage Point The prices of the metals were up slightly this week. But in between, there was some exciting price action. Monday morning (as reckoned in Arizona), the prices of the metals spiked up, taking silver from under $16.90 to over $17.25. Then, in a series of waves, the price came back down to within pennies of last Friday’s close. The biggest occurred on Friday.   Silver ended slightly up on the week after a somewhat bigger rally was rudely interrupted...

Support Acting Man

Top10BestPro
j9TJzzN

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]

 

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com