Mortgage rates hit all-time low, but lending activity remains quiet

This is worrisome.

I posted a couple of days ago that it could very well be that current government policy may be too timid - the economy is showing signs of softening, and needs some sort of boost to keep it on a recovery path.

But I could be wrong. It could be that government has already done everything that it can reasonably be expected to do. With most of the world now focused on reducing deficits, it seems unlikely that we will see any significant stimulus packages proposed.

Fed policy is already accomodative, and it would seem to make no sense to restart "quantitative easing" - the credit markets have already pushed interest rates to low levels, as this article in today's Washington Post indicates.

So where will the catalyst come from?

An excerpt from the Post's article:

The average rate on a 30-year fixed-rate mortgage dropped to 4.69 percent this week from 4.75 percent last week, Freddie Mac reported Thursday. That marks the lowest level since the company started tracking the data in 1971 and breaks the most recent low set in December. Rates have hovered below 5 percent since early May.

Yet home sales are tumbling and mortgage applications are slipping. Potential buyers have retrenched, discouraged by employment fears, the recent expiration of a home buyer's tax credit and tough lending standards, industry experts said.

Mortgage rates hit all-time low, but lending activity remains quiet

And now we have the Germans turning the tables on President Obama, and lecturing our country about the dangers of borrowing too much (from the German publication Der Spiegel):

Germany Warns US Not to Become 'Addicted to Borrowing'

Indeed, German Finance Minister Wolfgang Schäuble poured more fuel on the fire in a contribution published Friday in the business daily Handelsblatt. Referring to US demands that Germany abandon austerity in favor of addition economic stimulus measures, Schäuble said that "governments should not become addicted to borrowing as a quick fix to stimulate demand. Deficit spending cannot become a permanent state of affairs."

http://www.spiegel.de/international/business/0,1518,702849,00.html

If low interest rates can't help, and if governments around the world continue to focus on raising taxes and reducing spending, we need to come up with more creative solutions to keep the fledgling recovery going. It will be interesting to see what comes out of the G-20 meeting this weekend.