Geithner Has No Desire to Lead the Fed When Bernanke Retires

 By Korollos Shalaby

The U.S. Treasury Secretary Timothy Geithner said Wednesday that "there is no chance" that he will be proposed as chairman of the Federal Reserve (Fed) and argued that the U.S. economy is in a more "resilient" state after the 2008 crisis.

"No chance. I have great respect for the institution, but that will be the privilege of another person," Geithner said in an interview with the website Politico on his last day in front of the Treasury.

The U.S. economic recovery is entering the final stretch, though unemployment remains high and will only gradually decrease, said the outgoing Treasury secretary there, Timothy Geithner.

"I believe in recovery. If this were basketball, we're starting the fourth quarter," Geithner said in an interview with the Wall Street Journal.

Some media had mentioned the name of Treasury Secretary Geithner as president of the Federal Reserve (Fed), when Ben Bernanke’s term expires in 2014. Geithner, 51, said his future plans include returning to New York to be with his family and traveling with his wife, after three and a half years as head of the Treasury Secretary.

The U.S. economy is in an advanced chapter of its "recovery", said Geithner, which is currently at 7.8%. "That's the inevitable, terrible and tragic legacy of a financial crisis of this nature," he said.

However, he said there is still a "very substantial space" in fiscal policy to reduce the rate of unemployment. "It would be easier if it were accompanied by a long-term plan to reduce future deficits," he said, referring to the ongoing negotiations in Congress to agree on a new budget.

Finally, he used to take stock of his years as Secretary of the Treasury, in which the Congress had to bailout the financial industry and automotive industry. Geithner is a member of the economic team that worked with Obama in the White House to help stabilize the economy.

"I have worked with a president whom I admire deeply," he said. President Obama has already announced his election to succeed his former Geithner's chief of staff, Jack Lew, whose nomination must be approved by Congress.

The United States went further in debt than others to balance the nation's income and cut the risk of leverage in the financial system, "and had the large adjustment in the housing sector," Geithner said.

The recovery in Europe is in a nascent stage much but the continent has done "really important things, like remove market risk of a catastrophic collapse."

Last summer, the European Central Bank (ECB) agreed to do everything necessary to protect the euro and backed up that promise with a bond purchase program if a country needed him after requesting a bailout.

Korollos Shalaby is a nationally acknowledged mortgage expert with over 6 years experience as a loss mitigation expert and mortgage finance consultant. He has owned several companies and has been at the forefront of all lending and banking practices since 2006.

Fed Critics Question Usefulness of Quantitative Easing

By Korollos Shalaby

Critics of the Fed have long warned that quantitative easing could result in dangerously bloated balance sheets at the Central Bank, but it has never been clear why the internal finances of the Fed should have such an effect.

Now, the president of the Dallas Fed, Richard Fisher, argues that the health of the Fed's balance sheet could affect the health of the federal government, and even the regulatory role of the Federal Reserve.

Under three rounds of quantitative easing and various other market support programs, the Fed has purchased a whopping $ 2 trillion in Treasuries and mortgage bonds since the financial crisis hit in 2008. At that time, the Central Bank accounted for 900 million in bonds and securities on its balance sheet. Those bonds had accumulated over the years in "open market operations" which is the buying and selling when the Fed makes its policy changes.

Fisher's two favorite subjects are the virtues of his adopted state tax and fiscal sins of the legislature in Washington DC, which ran as a Democratic Senate candidate in 1994. He also mocks California's finances in a story that imagines the governor of California, Jerry Brown, spending millions on environmental impact studies after a confrontation he had with a coyote earlier, we know that the governor of Texas, Rick Perry shot a coyote on a morning walk. ("Bullet Cost: 25 cents. Cost to taxpayers: zero)."

Fisher, who currently has no vote in the Open Market Committee of the Federal Reserve, has long argued that further bond buying is useless until Congress balances the budget. He insists that QE is not achieving its stated goal of reducing the unemployment rate. Other critics, such as bond investor Jeffrey Gundlach, echoed his claims that quantitative easing has crashed into the law of diminishing returns.

Fisher goes further, saying that QE is not only useless, but is potentially toxic.

"The question is how far we are willing to go and how big will the balance sheet that we will be able to leverage before we run the risk of not only (damage) the financial welfare of the Fed, but also the country", Fisher said during a question and answer session after his speech at the Chamber of Commerce in Gainesville.

Basically, if the Fed maintains its mortgage and Treasury bonds as yields rise, it will have to adjust its portfolio with the markets. To remain solvent after a certain level, the central bank should stop sending cash to the Treasury. In 2010, the Congressional Budget Office (CBO) warned that the federal government could become increasingly dependent on remittances generated by the Fed's balance sheet.

Korollos Shalaby is a nationally acknowledged mortgage expert with over 6 years experience as a loss mitigation expert and mortgage finance consultant. He has owned several companies and has been at the forefront of all lending and banking practices since 2006.

Fed’s Efforts to Revitalize Economy Bolstered by Strong Housing Market

By Korollos Shalaby

The Federal Reserve’s efforts to revitalize the United States’ economy are being bolstered by an increasingly robust housing market.

With interest rates remaining near record lows and home values on the rise, homeowners and banks are beginning to see their financial situations improve. According to Bank of America Corp. and Deutsche Bank AG, this is making it easier for financial institutions to give out more lines of credit.

“We’re in the very early stages of a reinforcing cycle,” said Michelle Meyer, a New York-based senior economist at Bank of America, the second-biggest U.S. lender by assets. “The Fed has been quite impactful.”

Meyer has predicted that monthly housing starts could reach upwards of 1 million by the end of 2013, as opposed to 894,000 from last October. According to Deutsche Bank’s Joseph LaVorgna, Residential construction may also continue to improve the housing market. It has been projected that construction may add to the nation’s GDP for the first time since 2005. And if the current trend continues, construction may account for around 1 percent of the U.S.’s GDP by the next year.

“The one thing missing from this economic recovery was a healthy contribution from housing, and we might finally be on the cusp of that,” said LaVorgna, chief U.S. economist for Deutsche Bank in New York, who predicts the GDP may grow about 2.5 percent in 2013. “Housing is going to be integral to the economy. We’re assuming it continues to do some of the heavy lifting.”

In its effort to continue to improve the housing sector, the Fed indicated last September that it would buy nearly 40 billion of mortgage backed securities to stabilize the market. This so called “quantitative easing” has had its critics though it has certainly shown some signs of success.

Borrowing costs were driven down to all-time lows thanks in part to the central bank’s decision to continue to purchase large volumes of housing debt. Now, the average rate for a 30-year fixed mortgage is 3.32 percent. This is only slightly higher than the all time low of 3.31 during the previous week.

Home prices in the U.S. continued to rise from the previous year and saw the largest increase since June of 2006, according to the data provider CoreLogic Inc.

The sales for new and existing dwellings combined rose to 5.16 million for October, which was 40 percent higher than June of 2010.

Many economists are optimistic at the pace of progress, though it is equally true that this optimism has been largely tempered for quite some time with the knowledge that things could go very wrong very quickly.


“Monetary policy is working,” said Yelena Shulyatyeva, a U.S. economist at BNP Paribas SA in New York. “What we’ve seen is a very robust housing recovery this year, particularly in prices. It’s kind of an accelerator for other sectors of the economy, consumption in particular.”

With a deficit fight still looming large in Washington, it’s hard to predict what impact if any it will have on housing.

Korollos Shalaby is a nationally acknowledged mortgage expert with over 6 years experience as a loss mitigation expert and mortgage finance consultant. He has owned several companies and has been at the forefront of all lending and banking practices since 2006.