Reflating the Housing Bubble?

by Mario Rizzo

 

In an effort to prevent deflation, the Fed has now decided to do more quantitative easing, that is, to buy with newly created high-powered money various assets aside from short-term Treasury securities. Over the next six months it will buy up to $300 billion in long-term Treasury bonds.

 

It will also purchase additional mortgage-backed securities (MBS) in the amount of $750 billion as well as up to $100 billion in additional securities of Fannie and Freddie (to a total of $200 billion). These are the parts of the new policy that concern me most. They are bad ideas. Continue reading