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Andy Kessler asks a very important question: How do you “Put the Toothpaste Back in the Tube?”

Since we are printing up all of the money that doesn’t exist, most economist agree that the threat of hyper inflation is coming down the road and either we head it off now or get eaten by it later.  Interest Rates vs. Hyper Inflation

Kessler begins thinking about how the Federal Reserve might go about heading off inflation as the economy begins to recover:

But how? Why, just do the exact opposite of what is in action now.  Raising interest rates in the answer. By sopping up dollars by not only selling Treasuries, but also selling all those mortgage-backed securities and other toxic stuff bought from Bear Stearns, AIG, Fannie and Freddie, and everyone else. By removing all the backstops it put in for the commercial paper and other markets to keep them functioning. Will this change the economy speed? You can bet on it. This is a tightrope act. Getting all that toothpaste back into the tube will require the skills of a surgeon and the moxie of a middle linebacker, and someone deaf, dumb, and blind to congressional meddling. And worse, this is something that has never been done before.  What is a Mortgage Planner?

How this is emplimented is going to to vital to the future of the mortgage business and mortgage rates. All assume that it will be nearly impossible to do perfectly. When there are interest rates at 10% or higher, who really wins?

As the Federal Reserve meets for FOMC this week the question of inflation is beginning to re-enter the discussion.

Federal v. State Banking Powers

Here is another issue that may have strategic impact on the future structure of the mortgage industry: “Can the US Treasury Shield National Banks from New York State Law?”

Four years ago, Eliot Spitzer, then the New York attorney general, asked several national banks to explain why they were disproportionately charging blacks and Hispanics high interest rates.

Instead of an answer, he got a lawsuit. The banks, and the Treasury Department agency that regulates them, persuaded federal courts to bar the state attorney general from enforcing New York antidiscrimination laws.  Mortgage Interest Rates

On Tuesday, the U.S. Supreme Court will hear New York’s appeal. If the state wins, it would mark a break with decades of precedent that mostly favors the powers of the federal government and open a new era for 50 state regulators to play a bigger role.

This would most likely put a huge movement and shift in the way that banks operate.