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To me this is a macroeconomic non event. Who cares if the 30 year home mortgage rates go another 1/2 of 1% lower? If you cannot get people buying homes with long term rates near 4%, then I don't see how 3.5 or 3% will make a big difference.

The Fed is fighting the wrong war. They are trying to use interest rates as a way to entice investment. The problem is this recession isn't about low demand perse. This recession is about people being overloaded with historical debt obligations on assets with declining values. When you are a typical American underwater on an existing mortgage, no amount of lowering of mortgage rates will force you to invest in a new home.

The only effective way to accelerate resolving this down economic cycle is for the Fed (or Federal government) to come up with programs that help individual homeowners to clear their debts permanently. For example, you could set a floor price on real estate with programs that offer to buy home mortgages for 50% of their 2007 assessed values. Rather than paying for that with debt, simply print money and monetize the purchases. Put those assets onto the government balance sheet for 15 years and make the homes rentals. By carefully controlling the purchase prices you could control how much money flows back into the economy. It's unlikely that this would be inflationary since it would only be fed to a smallish percent of households willing to sell out at steep losses. The program would help fight deflation and should be tuned and sized for that goal.

Without arguing the specifics, all that is clear to me is that programs that adjust interest rates are a complete waste of everyone's time. It's the wrong tool for the problem we have here.
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