09-25-2009, 01:37 PM
The Fed caused this crash by being too loose, they lowered interest rates immediately after 9/11 to 1% and let the lenders go buck wild with all the easy money, which drove up home prices to unsustainable levels. Think of it this way, the lower the overnight lending rate, the more money gets put into circulation. It's what they call too many dollars chasing too few assets, and it creates bubbles. It created the tech bubble in the 90s and the housing bubble this decade.
What the Fed SHOULD have done is gotten tighter and either should have never lowered it to 1% in the first place, or at least not have kept it there anywhere near as long as they did.
The current situation is NOT a recovery. It's the Fed sticking to their typical M.O.: lowering interest rates to recover from recessions. The problem this time is it's now as low as you could possibly go so it is taking longer, there's simply nothing more the Fed can do. But it's still the same old boom and bust cycle the Fed perpetuates. By having the lending rate set to near zero, they are yet again creating too much money to chase too few assets (which is why oil has risen again) and will create yet another bubble that will burst.
It's laughable how Bernanke can say we are in a recovery. If we were truly in a recovery he still wouldnt have to keep the lending rate at near zero. Do not trust a word this man says, he is either entirely incompetent, or knows the gig is up and is just trying to make it last as long as possible.
The real solution as always is to let the market decide lending rates. If the Fed wasnt tampering with the lending rate, businesses that are overextending themselves would simply go bust, which would create an atmosphere of cautiousness so that industry wouldnt make ridiculous gambles and expect government bailouts. We wouldnt have boom/bust cycles, and if by chance there was a global crisis, the recovery would be MUCH swifter without Fed mingling.
What the Fed SHOULD have done is gotten tighter and either should have never lowered it to 1% in the first place, or at least not have kept it there anywhere near as long as they did.
The current situation is NOT a recovery. It's the Fed sticking to their typical M.O.: lowering interest rates to recover from recessions. The problem this time is it's now as low as you could possibly go so it is taking longer, there's simply nothing more the Fed can do. But it's still the same old boom and bust cycle the Fed perpetuates. By having the lending rate set to near zero, they are yet again creating too much money to chase too few assets (which is why oil has risen again) and will create yet another bubble that will burst.
It's laughable how Bernanke can say we are in a recovery. If we were truly in a recovery he still wouldnt have to keep the lending rate at near zero. Do not trust a word this man says, he is either entirely incompetent, or knows the gig is up and is just trying to make it last as long as possible.
The real solution as always is to let the market decide lending rates. If the Fed wasnt tampering with the lending rate, businesses that are overextending themselves would simply go bust, which would create an atmosphere of cautiousness so that industry wouldnt make ridiculous gambles and expect government bailouts. We wouldnt have boom/bust cycles, and if by chance there was a global crisis, the recovery would be MUCH swifter without Fed mingling.