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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

MBA’s index of loan requests for home purchases tumbled 13.6 percent

Posted by WARREN MOSLER on April 27th, 2011

This is disturbing, along with still weak housing price indicators, and the ongoing downward revisions to GDP forecasts, as aggregate demand remains under international attack on all fronts.

On the govt side, China is cutting demand to fight inflation, with India and Brazil presumed to be doing same. Austerity measures continue to bite in the UK and the euro zone, and are looming in the US.

On the private credit expansion side, regulatory over reach continues to restrict lending by the US banking system, and particularly with the small banks. This limits both bank and non bank lending, as the non bank lending is most often at least indirectly dependent on bank lending.

Additionally, the rising costs of food and fuel are taking purchasing power from those with the higher propensities to consume and shifting it to those with far lower propensities to consume.

And, of course, ongoing QE continues to remove interest income from the economy, as does the shift of interest income from savers to bank and other lender net interest margins, in a process that has yet to reach the national debate as a point of discussion.

Other commodity prices also continue to rise as hoarding from pension funds and the like via passive commodity strategies continues to expand globally.

This sends price signals that increase supply, which means human beings are being mobilized to produce stockpiles of gold, silver, and other metals and commodities not to ever be used for real consumption, but to forever remain as ‘reserves’ to index financial performance as demanded by current institutional structures. This is a monumental waste of human endeavor as well as the real resources, including energy, that are committed to this process.

So at the macro level we are removing teachers from what have become over crowded classrooms, removing nurses from neglected patients, and removing workers from building, repairing, and maintaining our homes and other infrastructure, to send them to either the unemployment lines or the gold mines.

And because they think at any moment we can suddenly become the next Greece, both sides agree with the necessity and urgency of promoting this policy.

Mortgage Applications Fell Last Week: MBA

April 27 (Reuters) — Applications for U.S. home mortgages fell last week as higher insurance premiums for government-insured loans sapped demand, an industry group said Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 5.6 percent in the week ended April 22.

“Purchase applications fell last week, driven primarily by a sharp decrease in government purchase applications as new, higher Federal Housing Administration premiums went into effect,” Michael Fratantoni, MBA’s vice president of research and economics, said in a statement.

The decline reverses a recent increase in government purchase applications, which was likely due to borrowers trying to beat the deadline, Fratantoni said.

The MBA’s seasonally adjusted index of loan requests for home purchases tumbled 13.6 percent, while the gauge of refinancing applications slipped 0.6 percent.

Fixed 30-year mortgage rates averaged 4.80 percent in the week, easing from 4.83 percent the week before.

22 Responses to “MBA’s index of loan requests for home purchases tumbled 13.6 percent”

  1. save america Says:

    “sends price signals that increase supply, which means human beings are being mobilized to produce stockpiles of gold, silver,”

    I agree, people should stop gold mining, and MT900 supercar building, and invest resources into life extension research. Still, I hear there are entire GHOST CITIES in china, so certainly that must be a waste too, like all the empty houses in detroit, nevada, florida, etc etc


    beowulf Reply:

    The satellite photos of the Chinese ghost cities are kind of awesome. Some of them have sat empty for several years.


  2. MamMoTh Says:

    Speaking of gold, silver, etc.
    Are they NFAs whose price is set by the market and not by the government, hence created/destroyed endogenously?


    ESM Reply:

    I think of financial assets as assets which are somebody else’s equal and offsetting liability. Which is also how I think of money, so financial asset = money.

    Gold and silver are simply assets because they are nobody’s liability.

    They can be created of course by digging them out of the ground.

    Gold generally is not consumed and therefore not destroyed, although in theory it can be made radioactive by exploding an atomic device nearby, thereby rendering it useless as a store of value for at least 58 years.


    JCD Reply:

    “no Mr. Bond, I expect you to die!” ….


    beowulf Reply:

    Ha ha, Evil Business School paid off for you. Well played :o)

  3. MamMoTh Says:

    Here’s an example of the private sector destroying NFAs:


    Matt Franko Reply:

    This is one of the reasons why throughout history authorities used corrosion resistant metals such as silver and gold to make coins vice non-durable paper notes… Resp,


    MamMoTh Reply:

    Just kidding. I am much more interested in getting my previous question answered actually.


  4. hbl Says:

    I especially appreciate your posts on outlook, Warren, thanks. You again make lots of good points. I did see a recent post elsewhere showing that current US government budget cuts are mostly smoke and mirrors (pretending spending that ended automatically before this year is really a new spending cut). But of course the reduce-the-deficit talk is very damaging and eventually more substantial cuts may be made.

    “On the private credit expansion side, regulatory over reach continues to restrict lending by the US banking system, and particularly with the small banks. This limits both bank and non bank lending, as the non bank lending is most often at least indirectly dependent on bank lending.”

    I think there is a theoretical basis for the idea that QE directly reduces bank lending relative to non-bank lending, and that the data from US and Japanese QE periods support this.

    (I don’t have an opinion on current regulation, but few other bloggers seem to be claiming regulatory overreach right now!)

    The reason is the non-financial private sector can keep stable its portfolio allocation of money assets versus other assets via a shift in the composition of all private sector debt toward an increased percentage of non-bank lending relative to bank loans. This effectively “undoes” on-the-fly the increase in the broad money supply that would otherwise occur under QE.

    Start with the graph half way down this post showing how the two types of lending have diverged under QE, and then read the post itself and the earlier one from October linked from it, if interested:



    i don’t see how ‘broad money supply would otherwise occur under QE’?


    hbl Reply:

    Under QE, the Fed buys bonds from the primary dealers. But the primary dealers have not unloaded [roughly] $2 trillion of securities from the asset side of their own balance sheets since late 2008 (QE1 plus QE2). They are acting as intermediaries for sales by the private sector as a whole to the Fed — at least I have seen this stated on other financial blogs, and it seems only logical.

    The mechanism might be that the bonds temporarily leave the primary dealers’ balance sheets but then those PDs “automatically” buy more bonds from the broader private sector to “replenish” their supply. Or perhaps that intermediate step is skipped and it is a single sale from private sector to Fed, facilitated by the PD… I’m not certain.

    If nothing else were to occur in the economy to offset QE’s dynamic, then broad money supply (in this case mostly bank deposits) would increase by a significant percentage of the amount of QE as households, businesses, and the non-bank financial sector parted with bonds they sold to the Fed. (Not necessarily by the full amount of QE, as perhaps the banking system would choose to reduce its bond holdings a little, and sales of bonds by banks to the Fed don’t increase broad money supply).

    I sometimes see stated the QE only increases base money supply, not broad money supply, and I find that a bit ambiguous and potentially misleading. It requires further explanation.


    Ramanan Reply:


    Yes its a bit ambiguous and potentially misleading because at the instance of settlement with the private sector, deposits are created or not depending on whether the counterparty has an account at the Fed or not, anti-respectively.

    Rarely does someone make this point. Once this happens, how the private sector portfolio preferences change the stocks of assets and liabilities is the right question which you have nicely addressed in your blog.

    JKH Reply:

    You are right.

    QE increases broad money as well. Dealers write cheques to their clients to pay for the bonds that they sell to the Fed. Those cheques when deposited increase broad money. The dealer’s bank account on the other hand is a wash. The dealer’s bank’s reserves increase due to the sale of the bonds to the Fed, since the bank gets credited on the dealer’s behalf.

    The same thing holds when the dealer is bank owned. Follow it through, both system deposits and system reserves increase.

    The only exception to this is any cumulative decrease in commercial bank holdings of bonds over the course of QE.

    And you are right, to suggest otherwise is misleading, and doesn’t help in the interpretation of QE.


    qe doesn’t increase the aggregate that includes the tsy secs bought by the fed. It might be called ‘L’ if i recall correctly


    think of qe as the govt repurchasing the debt it sold.

    the tsy sells secs and gets paid by the economy, then the fed buys the same secs and pays the economy.

    the fed buying secs is functionally identical as the tsy never having issued them (except for the interim activity)
    so for all practical purposes once the fed buys them they are gone.

    (and the fed selling secs is the same for us as the tsy issuing new ones)

    MamMoTh Reply:

    the fed buying secs is functionally identical as the tsy never having issued them (except for the interim activity)

    But the interim activity – the interests paid on them – is what makes a functional difference, since one function of tsys is to pay interests.

    I think it’s more correct to say that QE is functionally identical to bringing forward the maturity of tsys. So in a way it is printing money, although money bound to be printed anyway.

    The main difference is that debt is not rolled over, otherwise outstanding debt will be much higher than it is.


    if you include all fed liabilites as ‘US debt’- reserve accounts and securities accounts- the outstanding debt of the US govt remains the same

    Tom Hickey Reply:

    If QE increases broad money then one would expect to see M2 expanding relative to base money. Has that happened?

    hbl Reply:


    Broad money supply (M2, MZM, etc) has increased, but not in line with the magnitude of QE (i.e., not as much as the increase in base money).

    It is of course impossible to disentangle all the concurrent dynamics — a desire by the private sector to hold more money balances as usually occurs concurrent with economic growth, some effect from aggregate deleveraging reducing money supply in relative terms, etc.

    But I think it’s pretty clear that QE *absent other factors* increases broad money supply, and that other factors of various sorts are at work.

  5. hbl Says:

    Warren said: “the fed buying secs is functionally identical as the tsy never having issued them”

    I agree with this perspective on QE. However, it is entirely consistent with my point above! Government spending above taxation increases the broad money supply, absent other changes in the economy. The government has been running a deficit during the entire duration of QE. If instead of QE the government hadn’t issued the treasuries at all, the broad money supply would have increased! Thus if QE and not having issued treasuries at all are equivalent, the broad money supply would increase under QE also, again absent other changes in the economy.

    I was describing one version of those “other changes” in the economy, specifically reactive changes that occur entirely because of QE.

    Warren said: “qe doesn’t increase the aggregate that includes the tsy secs bought by the fed. It might be called ‘L’ if i recall correctly”

    I understand the MMT perspective on treating all liabilities of the government as a form of money because they are all so similar, but I think blurring the definitions of existing conventional terms people are familiar with (such as broad money supply) confuses many who are learning MMT, whether or not it’s possible to come up with a technical measure in the context of which the statements are true. (This is something I have noticed more on other sites than here.)



    Agreed, except I generally don’t call all govt liabilities ‘forms of money’ as I shy away from using the word ‘money’ in these types of discussions.

    I do say cash, securities, and reserves are all Fed/US govt. liabilities as far as the economy is concerned


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