Pimco’s El-Erian thinks Fed to monetize more U.S. debt through treasury purchases

June 12, 2009 by · Leave a Comment
Filed under: Opinion 

Surprise, surprise.  Like we didn’t see this coming.  Interest rates are right back up to the previous levels that was crushing the housing market.  Unless something is done, what should happen, will happen and that means more foreclosures and the lowering of home prices.  Ben Bernanke testified that the Federal Reserve would “not” monetize any more debt that it had already committed too, but I don’t see how that is possible unless we are going to raise interest rates enough to get the foreign participation of investors the U.S. government will need to soak up the trillions of dollar of new debt we will be issuing.

News (Reuters):

The rapid rise in bond yields will force the Federal Reserve to “engage again” in the purchases of U.S. Treasuries and mortgage-backed securities, Mohamed El-Erian, the chief executive of bond giant Pacific Investment Management Co., said Friday.

The surge in Treasury yields is lifting mortgage rates, threatening to dampen home demand and kill off the refinancing boom that is bolstering the health of some households.

“What mistake can the U.S. economy afford to make? If you look at it that way, I suspect that we will see the Fed engage again in these markets,” El-Erian told Reuters Financial Television.

Debate is brewing within the Federal Reserve over whether it should ramp up its purchases of Treasuries and mortgage-backed securities to keep a lid on interest rates, or scale them back to avoid an outbreak of inflation.

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