A Serious Warning From the Federal Reserve about Interest Rates

If you follow Peter Schiff: One of his predictions, exploding interest, has not yet become reality. I picked this up from the Economic Policy Journal Blog.

This certainly won't help the housing market.

I believe the use of installment land contracts will surge. A matter of fact, Robinson & Henry in Castle Rock, Colorado have already resurrected the ILC's and coined the name Bankless Financing Program.

The ILC's were set up in the 70's when interest rates were in the double digits. Since individuals could not purchase a home at 18% they would pay the seller's loan (at the lower interest rate) through and outside escrow company. Installment Land Contract is also known by the name Contract for Deed.

Robinson & Henry is actively closing without banks.

A Serious Warning From the Federal Reserve about Interest Rates

This gets a bit technical, but the Federal Reserve is flashing that there could be serious, I am talking major league serious, interest rate hikes down the road.

The first clue to this was last week Thursday's report out of FT that the Fed may use mutual funds as a source to shrink Fed reserves by conducting reverse repurchase agreements with the the funds. When something like this is leaked by the Fed, they are trying to alert the markets so they won't be surprised by such a move when it occurs. As I wrote last week, I saw one reason for this move as the Fed:

...contemplating doing this, if banks start to lend against excess reserves, as a back up to Bernanke's plan to control money growth via the interest rate it pays on excess reserves.

Okay, so the Fed has a back up plan, but now there is an interesting story in WSJ's weekend edition headlined: Official Sees Aggressive Rate Boosts in the Offing. The story reports:

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