I am not an economist, and I don’t play one on TV, and I didn’t stay at a Holiday Inn Express last night… but I kinda look like one. Plus, Seth Price of Placester isn’t an economist either as far as I know, although he’s a good friend who is not only brilliant but good looking to boot. So I figure, I’m gonna have some fun with a blogpost one of his guys (Colin Ryan, who also doesn’t appear to be an economist) recently wrote on the Placester blog (BTW, Placester is our web designer for HearItDirect). Think of it as sending them linklove with some fun economic/politics debates.
Colin thinks that QE3 — the plan by the Federal Reserve to buy $40B worth of mortgage bonds every month for the foreseeable future — is a wonderful thing for the housing market. He writes:
[I]f we’ve learned anything from all the measures the Fed and the government have taken to mitigate this recession, it’s that recovery will come not immediately, but gradually. As far as that goes, the Fed’s plans come with promises to extend near-zero interest rates well into 2015 and continue buying bonds aggressively until recovery is “well established.”
These promises say two important things to consumers. First, the kinds of assets that caused the housing collapse in the first place, long labeled toxic, are safe again. Indeed, by buying mortgage-backed securities the Fed—an authority when it comes to risk—is suggesting that they’re not only safe, but valuable.
Second, by committing to the long haul, the Fed is providing a safety net that will encourage optimism, coaxing consumers out of hiding. “Go ahead,” the Fed is saying, “buy/sell/build that home. We’ll be here to support you.”
So, in the short-term, this buying-up-of-bonds won’t necessarily have an effect on housing, but in the long run, Colin believes that the Fed will stimulate the housing market.
Where to begin… Well, let’s begin at the beginning.