Economics Update

Gee, the updated numbers for US GDP are in, and they have gotten worse, going from an annual rate of contraction of -0.3% to -0.5%.

In an effort to staunch the bleeding, the Federal Reserve has announced a new sh#@pile buy:

The Federal Reserve announced on Tuesday that it will initiate a program to purchase the direct obligations of housing-related government-sponsored enterprises (GSEs)–Fannie Mae, Freddie Mac, and the Federal Home Loan Banks–and mortgage-backed securities (MBS) backed by Fannie Mae, Freddie Mac, and Ginnie Mae. Spreads of rates on GSE debt and on GSE-guaranteed mortgages have widened appreciably of late. This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally.

They are also opening up a facility for
consumer and small business loans.

This took down 30 year mortgage rates to a record low, down 1-1/8 percentage point to 4-7/8.

Of course, right now, the banks are so skittish that they are unlikely to do a mortgage unless the property is sold at a seriously depressed price anyway.

This is actually good sense, as the Case-Schiller home price index fell 17.4% year over year.

That’s probably why the Libor is trending up again. Too much uncertainty, so banks want more for their overnight loans.

Then again with the number of banks characterized as “troubled” by the FDIC jumped from 117 in the 2nd quarter to 171 in the 3rd quarter, the highest number in 13 years.

It’s no wonder that some of the technical wonks who watch the stock market are noting that this is the most volatile market ever, with average daily swings over the last 50 trading days of 3.82%.

By way of comparison, this number was 0.33% in February.

Oil fell a bit to day, to $50.77/bbl, and I think that the markets are starting to wonder about just how much money that the Federal Reserve will print, so the dollar fell on the news of the new Fed lending facilities.

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