Can Anyone Please Explain What is Going on With this Graph and Why it is Bad? Thanks
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Ah, I c. Ok, well, the general idea is that when you borrow money for a mortgage, the bank issues the mortgage. But the banks do not want to take the risk, so they repackage the mortgage as a Mortgage Backed Security, which is a complicated way of saying the bank is selling the cashflow generated by the mortgage, you follow? The graph is showing that no one trust the cash flow to continue, so they are selling off their MBS', because they are worried their money is not safe. The only buyer is the Fed. That means the Government owns all the houses in reality, not the people paying the mortgage. I hope that makes sense.
During a time like this would it be better to have your properties mortgaged and have your money liquid or pay off the mortgages? Or does that not matter. I guess, what is the potential problem brewing
I see I see... thank you I understand. so basically if we were to take this thing to straight communism, the FED would already be in a position to seize what they already own... interesting
they don't even have to seize it. They already technically own it. If people cannot make their payments, the house gets sold in an asset disbursement, and those who have access to capital can buy the properties for pennies on the dollar. If the gov creates a new digital currency and gives it to certain groups, you have basically just orchestrated the biggest wealth transfer in the history of mankind while consolidating power among minorities and stripping it away from your political enemies.
And does this imply that the banks foresee massive inflation and or some deep economic decline
Find a chart that goes back a few more years, and look at 2000 to 2008, then look up the mortgage crisis of 2008 and the aftermath. Not like we'd ever make the same mistake again . . .
It's not a mistake unfortunately. This is the 3rd time in my life I have watched this unfold.
Of course it's not. It's just another way the right people get richer.
Take into consideration the low mortgage rates of most of those MBSs, compared to higher (and more profitable) mortgage rates happening now. A bank can only hold so much debt (loans). Selling lower profit holdings to begin higher profit holdings is good business. That the Fed is the buyer is a “modern” development. They do things mainly to assist market liquidity, not to set the groundwork for Bitcoin or Communist takeovers. (I disagree with the breakdown of the dollar as a reason for this graph.)
A better gage of whether or not the smart money expects economic expansion or interest rate rises: if people are buying homes or refinancing right now. There is a home shortage (and building supply shortages) in most US markets, partly caused by lockdowns and part by demographics, but mainly due to dramatic economic slowdowns and stagnant job market. This makes home prices rise. Mortgage rates will adjust to demand, as well as inflation.
From what I can tell, investing in home builders and banks is a good bet right now. Meaning economic growth is expected to return. There is flight from inner cities, but growth in home ownership and thus mortgages is expected to increase in most US markets.
Thus, I don’t see this graph as necessarily frightening. Although it should be discussed in reference to the proper role of the Fed. Etc.
It signals a breakdown in trust for the American dollar as a global reserve currency. The things the Fed are doing, they are doing because they are controlling the world with money. That system is rapidly dissolving like a raccoon dipping a sugar cube in water.