Bernanke Asset Purchases Risk Unleashing 1970s Inflation Genie, by Craig Torres, Bloomberg.com


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For the second time since he became chairman in 2006, Ben S. Bernanke is leading the Federal Reserve into uncharted monetary territory.

Bernanke next week is likely to preside over a decision to launch another round of large-scale asset purchases after deploying $1.7 trillion to pull the economy out of the financial crisis, comments from policy makers over the past week indicate. This time, with interest rates already near zero, the Fed will be aiming to increase the rate of inflation and reduce the cost of borrowing in real terms. The goal is to unlock consumer spending and jump-start an economy that’s growing too slowly to push unemployment lower.

Estimates for the ultimate size of the asset-purchase program range from $1 trillion at Bank of America-Merrill Lynch Global Research to $2 trillion at Goldman Sachs Group Inc., with economists at both firms agreeing the Fed will likely start by announcing $500 billion after the Nov. 2-3 meeting. The danger is that once the Fed kindles price increases, inflation will be difficult to control.

“By reducing real interest rates and trying to break the psychology of ‘Why spend today when I can buy goods cheaper tomorrow,’ they are hoping to drive growth that would be more commensurate with a pickup in employment,” said Dan Greenhaus, chief economic strategist at Miller Tabak & Co. in New York. “The risk is a late 1970s type of scenario where the inflation genie gets out of the bottle.”

The U.S. Treasury Department yesterday sold $10 billion of five-year Treasury Inflation Protected Securities at a negative yield for the first time at a U.S. debt auction as investors bet the Fed will be successful in sparking inflation. The securities drew a yield of negative 0.55 percent.

‘Unacceptable’ Inflation

William Dudley, president of the New York Fed and vice chairman of the Federal Open Market Committee, yesterday repeated that current levels of inflation and a 9.6 percent unemployment rate are “unacceptable” and said the Fed needs to take action, even though expanding the balance sheet isn’t a “perfect tool.”

“To the extent that we can do things to improve the economic environment, we certainly owe it to the millions of people who are unemployed to do so,” Dudley said in response to audience questions after a speech in Ithaca, New York. Policy makers haven’t yet decided whether to buy additional assets, he said.

A second jolt of monetary stimulus would expand the Fed’s $2.3 trillion balance sheet to a record and likely work through the exchange rate as well as interest rates, said former Fed governor Lyle Gramley. A weaker dollar would boost U.S. exports and push prices higher as the cost of imported goods rises.

Competitive Exports

“It is a channel that works not only from the standpoint of encouraging more growth and making exports more competitive, but if you’re worried about inflation getting too low, this tends to put a little upward pressure” on it, said Gramley, a senior adviser at Potomac Research Group in Washington.

An index of the dollar versus six major currencies is down 5.2 percent since Sept. 20, the day before Fed officials concluded their last meeting by saying inflation measures were “somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability.” The Standard and Poor’s 500 Index is up 3.8 percent since then.

A 10 percent decline in the dollar in the first six months of next year would push the economy above estimates of trend growth, moving indicators on inflation and employment more rapidly toward the Fed’s policy goals, according to a simulation run by Macroeconomic Advisers LLC on their model of the U.S. economy.

Effect on GDP

Gross domestic product would rise 1.1 percentage points more than the St. Louis-based firm’s baseline forecast for next year, to 4.8 percent. In 2012, growth of 5.7 percent would exceed the baseline forecast by 1.3 percentage points.

Unemployment would fall to 7 percent by the end of 2012, 1.4 points lower than the firm’s baseline forecast. The consumer price index, minus food and energy, would rise 0.4 percent and 0.7 percent more each year.

A continuing rally in stocks could also provide an added lift to growth, the firm’s simulation showed.

The firm, co-founded by former Fed governor Laurence Meyer, predicts the Wilshire 5000 stock index will jump 14 percent next year and 16 percent in 2012. The index tracks the impact of rising asset prices on household net worth. An additional 10 percent gain in the stock index in the first half of 2011 boosts growth by 0.1 percentage point and 0.3 percentage point more than the firm’s baseline forecast.

‘Transmission Mechanism’

“The transmission mechanisms are risk assets and a lower dollar,” said Steven Einhorn, who helps manage $5 billion at hedge fund Omega Advisors Inc. in New York. “Exports will respond over the next six to 12 months, and a further lift in risk assets will have benefits in more consumer spending as it lifts households’ net worth.”

A weaker dollar won’t be welcomed by U.S. trading partners concerned about the danger of competitive devaluations as nations seek to boost exports and growth.

Bernanke received “criticism” at a meeting of Group of 20 central bankers and finance ministers in South Korea last weekend, said German Economy Minister Rainer Bruederle.

“It’s the wrong way to try to prevent or solve problems by adding more liquidity,” Bruederle told reporters. “Excessive, permanent money creation in my opinion is an indirect manipulation of an exchange rate.”

$500 Billion

Economists Jan Hatzius at Goldman Sachs and Ethan Harris at Bank of America predict the Fed will spread an initial $500 billion in asset purchases over six months. That is the figure mentioned in the Oct. 1 speech by Dudley, who said $500 billion in purchases could have the same effect as cutting the benchmark federal funds rate by as much as a 0.75 percentage point.

The FOMC’s meeting next week could be contentious, with regional bank presidents such as Charles Plosser of Philadelphia and Richard Fisher of Dallas expressing concern in public remarks about a second round of asset purchases. Neither is a voting member of the FOMC this year.

Plosser told reporters Oct. 20 that high unemployment may not be “amenable to monetary-policy solutions” and added that he was “less inclined to want to follow a policy that is highly concentrated on raising inflation and raising inflation expectations.”

Fisher said central bank officials must be mindful of the effect their actions are having on the dollar.

Dollar Impact

“We need to be aware of the impact whatever we do has on other variables, and one of the variables is the dollar, the value of the dollar against other currencies,” Fisher said in an Oct. 22 interview in New York.

The prospect of an easier policy for a long period could prompt foreign investors to use Fed purchases as an opportunity to unload longer-term Treasuries, said Vincent Reinhart, former director of the Fed Board’s Division of Monetary Affairs.

“This might put more pressure on the exchange value of the dollar than the Fed is willing to tolerate,” said Reinhart, a resident scholar at the American Enterprise Institute in Washington.

Some commodity prices have already started to move up in anticipation of further Fed stimulus. Gold futures traded on the Comex in New York have risen 22 percent this year to $1,338.90 an ounce, while silver is up 40 percent.

“The Fed would like to talk up as many asset classes as it can,” said Scott Minerd, the Santa Monica-based chief investment officer at Guggenheim Partners LLC, who helps oversee $76 billion.

Asset Bubbles

“The history of the Fed, over the last 20 years, is one of bubble to bubble: one bubble deflates to create another bubble,” Minerd said. “We are certainly heading into the mother of all bubbles with commodities and gold.”

Another danger for the Fed is that its policy fails to have the intended effect, damaging the central bank’s credibility, Reinhart said.

“What happens if they bulk up the portfolio by another $500 billion in the next six months and there is no material change in markets or the outlook,” he said. “Presumably, the Fed will double-down and buy some more, but at some point, people will ask, ‘Is that all there is?’”

U.S. central bankers cut the benchmark lending rate to zero in December 2008. Seeking more stimulus, they launched a $1.7 trillion program to buy mortgage-backed securities, housing agency debt and U.S. Treasuries. The purchases ended in March.

Jackson Hole

Bernanke told central bankers in Jackson Hole, Wyoming, in August that those purchases “pushed investors into holding other assets with similar characteristics,” lowering interest rates on a broad range of debt.

While a second round of Treasury purchases would also lower nominal rates, the FOMC has been explicit about the need to lower real interest rates through higher inflation, minutes of its Sept. 21 meeting show.

The personal consumption expenditures price index, minus food and energy, rose at a 1.4 percent annual rate in August. That’s below the Fed’s long-run preference range of 1.7 percent to 2 percent. The year-over-year increase in consumer prices jumped as high as 14.8 percent in 1980 during the administration of Jimmy Carter.

Even moderate rates of inflation can shift wealth through the economy. Companies can make more money because their prices rise faster than wages. Households can also benefit as incomes eventually rise while costs on fixed-rate debt stay the same.

Chipotle Mexican Grill Inc. chief financial officer John Hartung told Bloomberg Television Oct. 22 that he expects inflation to be in the low-single to mid-single digits next year. “We would welcome modest inflation along with the continued pickup in consumer demand,” Hartung said.

To contact the reporters on this story: Craig Torres in Washingtont ; or Scott Lanman in Washington at slanman@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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Chris Dudley’s Tax Cut: Capitol Gains


People are upset that Chris Dudley wants to cut the Capitol gains tax by 73%.   In this down economy who is going to be paying any capitol gains in Oregon over the next 4 or more years?  We might as well get rid of Capitol gains for businesses that pay living wage jobs and hire Oregonians and increase taxes on businesses that hire people from out of state.  The tax cut should only count if the job goes to someone that lives in Oregon.  We could also tier a deferment for the tax over the next 10 years to ensure businesses are motivated to grow through this down cycle and advance employment.   Just saying….LOL

http://www.chrisdudley.com/issues/plan-to-create-private-sector-jobs.html

Obama Administration Awards Additional $1 Billion to Stabilize Neighborhoods Hard-Hit by Foreclosure, RisMedia


RISMEDIA, September 13, 2010—U.S. Housing and Urban Development Secretary Shaun Donovan awarded an additional $1 billion in funding to all states along with a number of counties and local communities struggling to reverse the effects of the foreclosure crisis. The grants announced today represent a third round of funding through HUD’s Neighborhood Stabilization Program (NSP) and will provide targeted emergency assistance to state and local governments to acquire, redevelop or demolish foreclosed properties.

“These grants will support local efforts to reverse the effects these foreclosed properties have on their surrounding neighborhoods,” said Donovan. “We want to make certain that we target these funds to those places with especially high foreclosure activity so we can help turn the tide in our battle against abandonment and blight. As a direct result of the leadership provided by Senator Chris Dodd and Congressman Barney Frank, who played key roles in winning approval for these funds, we will be able to make investments that will reduce blight, bolster neighboring home values, create jobs and produce affordable housing.”

The funding announced today is provided under the Dodd-Frank Wall Street Reform and Consumer Protection Act. To date, there have been two other rounds of NSP funding: the Housing and Economic Recovery Act of 2008 (HERA) provided $3.92 billion and the American Recovery and Reinvestment Act of 2009 (Recovery Act) appropriated an additional $2 billion. Like those earlier rounds of NSP grants, these targeted funds will be used to purchase foreclosed homes at a discount and to rehabilitate or redevelop them in order to respond to rising foreclosures and falling home values. Today, 95 cents of every dollar from the first round of NSP funding is obligated—and is in use by communities, buying up and renovating homes, and creating jobs.

State and local governments can use their neighborhood stabilization grants to acquire land and property; to demolish or rehabilitate abandoned properties; and/or to offer downpayment and closing cost assistance to low- to moderate-income home buyers (household incomes do not exceed 120% of area median income). In addition, these grantees can create “land banks” to assemble, temporarily manage, and dispose of vacant land for the purpose of stabilizing neighborhoods and encouraging re-use or redevelopment of urban property. HUD will issue an NSP3 guidance notice in the next few weeks to assist grantees in designing their programs and applying for funds.

NSP 3 will take full advantage of the historic First Look partnership Secretary Donovan announced with the National Community Stabilization Trust last week. First Look gives NSP grantees an exclusive 12-14 day window to evaluate and bid on properties before others can do so. By giving every NSP grantee the first crack at buying foreclosed and abandoned properties in these targeted neighborhoods, First Look will maximize the impact of NSP dollars in the hardest-hit neighborhoods—making it more likely the properties that communities want to buy are strategically chosen and cutting in half the traditional 75-to-85 day process it takes to re-sell foreclosed properties .

NSP also seeks to prevent future foreclosures by requiring housing counseling for families receiving home buyer assistance. HUD seeks to protect future home buyers by requiring states and local grantees to ensure that new home buyers under NSP receive homeownership counseling and obtain a mortgage loan from a lender who agrees to comply with sound lending practices.

In determining the allocations announced today, HUD, as it did with NSP1, followed key indicators for the distribution formula outlined by Congress. HUD is using the latest data to implement the Congressional formula. The formula weighs several factors to match funding to need in the 20% most distressed neighborhoods as determined based on the number and percentage of home foreclosures, the number and percentage of homes financed by a subprime mortgage related loan, and the number and percentage of homes in delinquency. To estimate the level of need down to the neighborhood level, HUD uses a model that takes into account causes of foreclosures and delinquencies, which include housing price declines from peak levels, and increases in unemployment, and rate of high cost and highly leveraged loans. HUD also considers vacancy problems in neighborhoods with severe foreclosure related problems.

In addition to a third round of NSP funding, the Dodd-Frank Wall Street Reform and Consumer Protection Act creates a $1 billion Emergency Homeowners Loan Program to be administered by HUD. This loan program will provide up to 24 months in mortgage assistance to homeowners who are at risk of foreclosure and have experienced a substantial reduction in income due to involuntary unemployment, underemployment, or a medical condition. HUD will announce additional details, including the targeted areas and other program specifics when the program is officially launched in the coming weeks.

For more information, visit www.hud.gov.

RISMedia welcomes your questions and comments. Send your e-mail to:realestatemagazinefeedback@rismedia.com.

http://rismedia.com

Federal Housing Stimulus: How Much More?, Diana Olick, CNBC


New reports are rolling around Wall Street and Washington today that the Obama Administration is considering yet another economic stimulus package; this round would be for small businesses. This comes just one week after increased chatter about more government stimulus for housing.

Congress returns the week of September 13th, and as Democrats face an uncertain election this November, you know they’re going to be looking to make average Americans feel more secure about their finances.

But how much has housing stimulus really helped?

Through July 3, 2010, the IRS reports a bill of $23.5 for the home buyer tax credit, according to a letter dated yesterday (September 2nd) from the Government Accountability Office to Rep. John Lewis, Chairman of the House Ways and Means Committee’s Subcommittee on Oversight. $16.2 billion for the first time and move-up credits and $7.3 billion for interest-free loans which recipients will begin repaying in January.

The Department of Housing and Urban Development has also already allocated nearly $6 billion for the Neighborhood Stabilization Program, which gives state and local governments and non-profit housing developers funds to acquire property, demolish or rehabilitate foreclosures and offer assistance to low- to middle-income homebuyers for down payments and closing costs. In the coming weeks it will add $1 billion to that. Just this week HUD Secretary Donovan gave NSP grantees a leg up over investors, by providing a first right of refusal for those grantees to buy foreclosed homes.

The talk around Washington is for yet another home buyer tax credit, this time perhaps for short sale and foreclosure buyers. Unfortunately every time we get a short-term stimulus, we get an inevitable drop off in sales and prices, as we’re experiencing now. Yes, we saw a mini burst of buying from credits last fall and this spring, but the overall numbers are still way down, and inventories are still far too high.

The one steady in gauging housing is confidence, and until we get that back, sales will remain weak for the foreseeable future.

Government stimulus, arguably, sells houses, and we need that to bring down our currently record-high inventories.

But Government stimulus is also temporary, and everyday buyers and sellers recognize that, which doesn’t add to their already faltering confidence.

Questions?  Comments?  RealtyCheck@cnbc.com

Multnomah County Foreclosures


It has been nearly 5 months since Multnomahforeclosures.com (http://www.multnomahforeclosures.com/) has been updated. As of July 6th, 2010 the site will be updated weekly again. Each week the Notice of Default lists for several counties in Oregon and Clark County will be posted. This information is public information and is provided to make it easier for real estate buyers and the professionals that serve them to develop opportunities in the Oregon market.

Visit Multnomah Foreclosures, download the Notice of Default reports for free and help the Oregon Market grow!

FHA CHANGES ARE COMING!


Mortgage Insurance Premiums increased from 1.75 to 2.25% – Effective April 1st
· Seller Contribution decreased from 6% to 3% – TBA early Spring

· Increased Monthly MI – Effective date TBA

Increased down payment for borrowers with lower credit scores TBA

TAX CREDIT: Buyer must have a binding purchase contract by April 30th to qualify for tax credit.

WHAT DOES ALL OF THIS MEAN?

A 200k purchase price after April 30th may have up to a 15k impact on the borrower.
(Assuming current rates stay the same. Well…we all know what happens when we assume J)

ACTION REQUIRED:

Convert any “shoppers” into BUYERS between NOW and April 30th!

Don’t hesitate to call or e-mail with any questions you may have concerning how this will affect your clients.

Melissa Stashin

Sr. Mortgage Banker/ Branch Manager
NMLS #40033

Pacific Residential Mortgage, LLC

2 CenterPointe Dr. STE 500

Lake Oswego, OR 97035

(503) 670-0525 x113

(971) 221-5656 Cell

(503) 670-0674 Fax

(800) 318-4571 Toll Free

http://www.TeamStashin.com

Multnomah County Foreclosures Web Site Updated with New Lists


Multnomahforeclosures.com was updated today with the largest list of Notice Defaults to date. With Notice of Default records dating back nearly 2 years. Multnomahforeclosures.com idocuments the fall of the great real estate bust of the 21st centry.

All listings are in PDF and Excel Spread Sheet format.

Multnomah County Foreclosures
http://multnomahforeclosures.com