Here is the problem. In typical recessionary times they would lower interest rates to spur the economy. This would result in refi activity and consumers had a way to utilize this interest rate reduction to lower a house payment and achieve a higher monthly disposable income. Or they could do a cash out or whatever.

In the current environment even if they do lower interest rates it is not much help since in most cases the existing mortgage underwater. Credit card rates are already jacked up and consumers are reluctant to increase balances due to uncertainty and CC interest rates.

As Susan points out, we need to save more, however that would come at a price against economic activity. In essence saving more on a national level is putting yourself or your neighbor out of work in a consumer based economy during a recession. In addition, if we are to save, banks need to pay an interest rate to make it worth while. We cannot have both high rates to savers and low rates on mortgages. The Japanese model says savers will lose.

“During Japan’s long years of economic darkness, one member of the board of the Bank of Japan—the only woman—complained bitterly about the nation’s zero-interest rate policy. “You are taking money from my people—the elderly savers—to support those bad bankers whose greed and mismanagement drove the nation into this recession. Families have to be very rich to survive on interest rates of less than one-half per cent.”

Other than dropping money out of helicopters, there does not appear to be a way to put money in the hands of the consumer. The result will likely be taxpayer funded government jobs and projects.

Sadly, our government has passed laws favoring unions and making it more expensive for a non union company to bid on government work than a union contractor. Since union rates are significantly higher than real world pricing, it forces our government to pay the highest price possible for construction work. But hey, what does billions matter when you are spending trillions of money you don’t have.

1933 Germany or the 1870 America situation that was posted in another link, all ignore today’s enviroment, the fact that we are already along this curve as Dick points out and that the world, not just the USA, is taking unprecedented action in these areas.

Low rates might be a good thing for a starving realtor, but as MM points out, these lower rates are not a direct input to the supply-demand relationship, since demand is now being stringently filtered on the basis of qualification. The population of willing and qualified potential buyers is likely to prove quite underwhelming.

And Dick, you just don’t think big enough. Don’t think Enron. Don’t think 9/11. Think 1933. And not 1933 America. 1933 Germany.

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Click.

Anyhoo…in Tucson: median asking price still 7-8x median income, massive layoffs imminent, and I rent for 1/3 the cost of owning same home, even after a 20% drop. Bottom??? heheheheheheh…no.

Seeing that the Fed has amassed trillions in assets, one has to assume that in these times that those trillions are yet to be defaulted mortgage paper. Now I am not going to claim what the default rate is going to be on that paper but I will claim that the Fed Holding is the equivalent of a giant seller in the market.

Back to your 20 years Wall Street experience, what did you do when you knew that their was a large entity divesting themselves of a holding? My guess is that you just stood back out of the way until the seller was done.

With the banks giving bad assets to the Fed in exchange for treasuries, we might see banks holding off on filing notices of defaults but that only extends inventory out to some point in the future.

I see a Fed inventory chart performing two functions. One is when they start to run out of inventory and two and more importantly, when banks will ease up on lending standards again.