Karl Denninger: I'll Fight The Fed

02-08-2011 • Market-ticker.org

This is an immediate 11% reduction in the implied value of every home in America, and it is exactly the opposite of what Bernanke said he was going to do. Here's the math; don't believe me, get out your HP12c and run it yourself. $100,000 borrowed, 30 years, 4% interest rate = $475.83 P&I. Same P&I, 30 years, 5% interest rate borrows only $89,007.56. That's an 11% loss of value and since 90% of the buyers purchase a payment in the housing market, not a price, this is an immediate 11% deflation in home values. Now if I'm not supposed to "fight the Fed" then I should have believed that Bernanke's policies were going to support home values. That they would keep mortgage rates low. And that the 4% 30 year money would become a benchmark for the intermediate term, allowing me to buy this coming spring. This is what he stated he was not only capable of doing, but would do. None of that happened. Instead, what occurred is that Bernanke has lost control of the long end of the curve even though he explicitly stated that he could control it prior to initiating QE2.