The Federal Reserve says it will print another $480 billion to buy more mortgages. The stated reason is to bring mortgage rates down even lower to stimulate the housing market. While that is true, there is a bigger picture here. Does anyone really think that dropping mortgage rates another quarter of a percent will have much impact on home sales?
The much bigger reason the Fed announced another round of money creation is to increase the prices of stocks and hopefully cause the prices of houses to increase as well. Economists use a fancy term for this called “the wealth effect.”
The story goes that if you feel wealthy you are more likely to spend money instead of save it. The Fed wants all of us to spend money because that is how we measure economic growth in America. If we all spend more money, businesses prosper and eventually hire more people.
Read more...Fed Trying to Make You Feel Wealthy | the Blog of the Real Estate Center
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