The Treasury helps out with the debt securities to fund the paper money that The Fed tells the Printing and Engraving Office to print and circulate throughout the country. The Fed sends instructions to the Treasury regarding the printing of money, but it does not exclusively control this action. You may believe in free markets but it is more important to have any type of market including those in which prices are controlled. The housing market, in turn, is totally dependent upon the international collateralized bond markets and credit markets. Credit markets dominate, and rates must remain low in order to create the margin spreads that have flushed the banking system with profits.


The Fed should not worry because they can increase rates on financial instruments other than most fixed mortgage contracts. Penalties for late payments would go up and credit limits would come down for the lower quality borrowers.
Contract annual finance charge rates would go up, and for many consumer borrowers their card prices are already high.
Rates on home equity credit would go up even higher, and the lowest quality consumer borrowers would find themselves shut out of the credit markets—sharply reducing their spending capacity for discretionary goods and automobiles. The credit market would turn against itself.When the inflation comes, and prices start to pass through supply chains like what is happening to the steel markets, companies may start double-thinking their contracts and cancel orders, thus reducing a source of employment in the wholesale sector.


The Fed worries about rising TV prices but not nearly as much as it is worried about the trillions of dollars in notional derivatives that underpin the credit markets and interest rates.
The collateralized bond markets float upon a jet stream of derivatives.This frightening scenario is neither far-fetched nor far from taking place.



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