What's another trillion dollars in the scheme of things?
The government has decided to inject another trillion dollars into the economy. You don't have to be an economist with a bunch of letters behind your name to know that significant consequences both good and bad will result from that kind of expenditure of money.
Why did they do it?
The stated purpose for the money is to spend another $750 billion shoring up Fannie Mae and Freddie Mac with the balance going to buy 10 year T-Bills to drive down interest rates even further.
Inflation and Devaluation
If you inject a trillion dollars into the economy without the existence of a corresponding trillion dollars in additional goods and services, the result is pretty simple. You have a lot more money chasing the same goods and services, which creates the dual risk of putting inflationary pressure on the price of those goods and services as well as devaluing the currency. The truth is we could probably use a little inflationary pressure right about now so that is not necessarily a bad thing. It just needs to be closely monitored.
Interest Rates
The expectation is that since interest rates are closely tied to the yield on a 10-year treasury bond, the expenditure of an additional $300 billion on bonds could drive down mortgage rates another half percent. With interest rates already below 5%, how many additional people will that half percent incentivise to buy a home or refinance? I'm not sure the incremental impact justifies such a large expenditure.
Secondary Market
I do sincerely hope that the additional capital to Fannie and Freddie will be sufficient to cure lenders of their post-traumatic stress syndrome. Deals are routinely taking over 60 days to fund no matter how well packaged the file is. Part of this has to do with more rigorous underwriting standards, which is not necessarily a bad thing. But part has to do with the difficulty in finding a buyer in the secondary market. If this additional $300 billion to the secondary market makes it easier to sell loans, banks can push more loans through and the increased profits will result in more loan products to more borrowers.
Many economists believe that this massive infusion could mean we are at or near the bottom of the market. The problem with both the bottom and the top of the market is that you don't know you have hit it until it has passed.
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LOL - Laughs OnLine
"Sometimes reality is right in front of your face."
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Wine Below the Knees
by Herb Gonzales
As the economy continues to be sluggish, my wine picks seem to become more and more important to those looking to stretch that dollar. For all you folks new to my wine column, my intentions are to share wine picks that are usually no more than $10, typically found "below the knees" on the shelf.
The first is Anakena Sauvignon Blanc 2008 Chile- This Sauvignon Blanc is tasty! The wine was sharp and clean and had the color of an expensive yellow diamond. The nose had an aroma of melon and possibly a hint of peach undertone. When sipped, the flavors hit the back of my palate allowing the wine to go down smoothly. The wine drank well and was served with a little chill. Chile has become a great wine growing region with a lot of wines that are very affordable and give you a great bang for your buck. I purchased this wine at BevMo for $10.99. However, I purchased this wine in connection to BevMo buy one and received the second bottle of wine for only a penny.
The second is from Four Sisters Shiraz 2005 Australia- Four Sisters is the creation of Trevor Mast, owner and winemaker at Mount Langi Ghiran. The label was produced with the help of the eldest daughter Daliah, a graphic designer; the label depicts each one of the sisters. When I poured the wine, the contrast of the wine was an intense dark plum color. The nose of the wine had dark berry/spice to it. I swirled the wine to allow the wine to interact with the air and the aroma which preceded it was more of a chocolate/spice aroma. The taste of the wine was smooth with mellow tannins. The wine was not overpowering and hit the palate nicely. The aftertaste was long and smooth and well balanced. I purchased the wine at Trader Joe's for $9.99 a bottle.
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Sincerely,
Kwame J. Granderson
Equinaire
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