Dennis' Mortgage Blog

On July 29, 2011 the Commerce Department issued data on 2nd Quarter GDP numbers, and strong downward revisions to 1st Quarter GDP showing a barely moving economy.  The data was released two weeks after Federal Reserve Chairman Ben Bernanke told Congress that the Fed may put more money into the economy to try to stimulate growth and job creation.  If this were to occur it would be known as QE3, or Quantitative Easing Three.

On July 13, 2011 I posted this video that gave some visual looks at the money spent by the Fed in QE1 and QE2 and who has benefited.  The short answer has been holders of stocks, gold and bonds plus those able to qualify for mortgages. Who has not benefited have been those seeking jobs, companies looking for consumers to grow their businesses and the economy as a whole.

So despite the very real failures of QEs 1 & 2 plus the several trillion dollars in spending from Washington starting with the Stimulus in February 2009, the Fed, the President and many members of Congress continue to speak of continuing the same fiscal and monetary policies that have exploded the deficit, earned a downgrade on U.S. debt and seen 14 million Americans, or more, remain out of work.

Today the Labor Department released Producer Price Index (PPI) data for July.  Also known as Wholesale Prices, PPI measures the costs for goods and services paid by companies, as opposed to the Consumer Price Index that measures the cost of goods and services for consumers, or retail prices.  Prices paid by wholesalers work their way through to consumers and is an early indication of future price increases or decreases.

The July figures for PPI increased above expectations to 0.2% over June prices (June saw a decline of 0.4%).  Driving the increase were tobacco, food and truck price increases.  Year over year wholesale prices climbed 2.5%.  The increase occurred despite a drop in gasoline prices for the second month in a row.

With wholesale prices up 2.5% for the past twelve months, exceeding the Fed's target inflation rate, there is obvious concern about consumer prices and the inflation gauge used by the Fed.  Should consumer prices show a spike in July the Fed will be constrained on its ability to initiate QE3 which could produce more inflation in an stagnant economy.  Old timers like myself will recall the stagflation headlines and magazine covers of the mid-1970's when President Nixon imposed wage and price controls on the economy slowing growth which then experienced inflation with the OPEC oil embargoes raising gasoline and energy costs.

A reaction to Keynesian economic policies such as those utilized by the U.S. in the past two and a half years, and in Europe for the past decade or more, stagflation is often the result of too much money into an economy from government sources that results in little to no economic development but growing costs and debts for government.  The result is higher prices with reduced demand.  It is an economic situation that is extremely difficult to correct.

With today's PPI numbers showing a jump in prices from June, tomorrow's CPI numbers will be very important in establishing if the Fed can implement QE3 as it appears Bernanke would like, or if it will be restrained from further moves other than keeping interest rates at current near zero levels into 2013 as previously announced.

With all the economic issues that are occurring mortgage rates have benefited with sharp declines.  Take advantage of the current rate situation, call me to see how, 562-472-1118.