We’re not that far removed here from actions happening in the U.K. now.

http://www.dailymail.co.uk/news/article-1127278/Revealed-Day-banks-just-hours-collapse.html

WHEN YOU ARE LOSING MONEY FROM LENDING, YOU DEMAND HIGHER RETURNS, not lower!!!

Mortgage rates have to go up in the long run, no matter what the outcome of all these socialist attempts are.

The mainstream press is FINALLY catching on….

http://www.inman.com/news/2009/01/26/banks-unleash-flood-reos

Nevertheless, Mr. Mortgage has a good point about the Fed’s MBS manipulations accruing to the benefit of PIMCO. If I were Bill Gross, though, I would not be buying Treasuries. If the Fed needs someone to buy treasuries, they can print money & do it themselves. Welcome to Zimbabwe!

There is a fourth option:

Have the government enforce capitalism with my proposal or one similiar to it. Yes,some banks will fail based on their own past business decisions and actions. But you know, that is okay. There is no need for so many banks (8500), lending and borrowing will be contracting to correct the “phony ” economy we have experienced. You, yourself stated cash is king.

There is still pain involved, but it is less than what is still to come.

Especially without the creation of more jobs here in the USA.

I’m not certain of the direct mechanism by which the government allowing PR would drive interest rates up.

This is what I do know: The banks do not want any part of this. They are hoarding funds at present. This in turn is putting political pressure on representatives to mitigate an impending mortgage debt-disaster with their constituencies.

In essence, it is pitting the homeowner against Wall Street – much as Susan has suggested. The monied interests however run the political structure in DC behind the scenes, don’t ever kid yourself of that. They will always come first, up to and until Marie Antoinette loses her head for the second time.

I’m looking at this from a slightly larger perspective however. The sheer amount of money – both already spent and currently allocated, is going to drive up interest rates – across the board. It has to. It’s only a matter of time. The $64k question is: When it starts, how quickly will they begin to run up?

Unfortunately, the government (that includes us, as we are the government) is in a corner of which there is no painless alternative. In that corner are two escape routes.

1. Raise interest rates to cover the losses – past, present and future and by doing so, immediately collapse what’s left of our economy into a severe Depression. Of which, we would again recover and build upon reality, but not without much interim pain & suffering.

2. Quantitative easing – i.e., printing money with no backing to cover the losses and by doing so, create an inflationary firestorm that would ruin both the economy and the Republic.

*3. Default. Which would in essence, bring about both aforementioned scenarios simultaneously.

This is where we’re at. It’s not hopeless, but don’t count on a painless turn-around of the status-quot anytime soon.

-C.C.

Staying on topic of Mortgage Rates Soaring (which is bad for me and those waiting to buy) how would the Government allowing principal reductions affect interest rates?