Tuesday, July 15, 2008
Fannie & Fredie
The Secretary of the Treasury is advocating Federal loans at low interest rates to the mortgage firms known as Fannie and Freddie. This proposal while laudable in purpose further increases the Federal debt. Why do we do it that way? Is money in short supply such that there is a real opportunity costs if diverted? I do not think so. There is plenty of unused capacity in the real economy. There is no reason for taxpayers to consume less so that these mortgages can be extended. Why does not the Federal Reserve and the Treasury simply write a check to Fannie and Freddie? We do it the old way only because we are locked in to old customs and obsolete institutions. It is time for modernization of fiscal policy. I call it zero interest public debt.