The Fed: Oops, we're doing it again!

American Thinker ^ | March 6, 2012 | Frank Ryan, Colonel, USMCR (Retired)

[OwenKellogg]

The Fed: Oops, we're doing it again! By Frank Ryan No sooner had the housing market bubble burst in 2008 than the culprit for the real estate bubble was identified, in part, as the teaser interest rates.

Teaser interest rates, also called adjustable rate mortgages, are very low short-term interest rates which reset to more normal longer term rates after a period of time.

These teaser interest rates allegedly enabled people to buy a type or size of home beyond that which they ordinarily might have afforded due to very low initial monthly payments.

When these interest rates reset after the "teaser period ended," it became apparent that many people who had previously acquired homes were no longer able to afford them.

In the present day, Federal Reserve chairman Ben Bernanke recently commented that consumer spending is growing relatively weakly in the United States and that interest rates must be kept low to encourage consumer spending.

Since the housing bubble, the Federal Reserve and the Department of the Treasury have implemented a significant number of policies aimed at keeping interest rates relatively low. Some of the weapons used in their arsenal include Quantitative Easing I, Quantitative Easing II, and Operation Twist.

The intent of Quantitative Easing and Operation Twist -- adding up to almost $3 trillion to date --- was to help stimulate consumer spending and rejuvenate the economy. Despite these efforts and subsequent record-low interest rates, unemployment has remained well in excess of 8%.

When combined with federal government deficits in excess of $1 trillion per year and a very loose monetary policy, it would seem that consumer spending should be increasing very rapidly and unemployment dropping.

[OwenKellogg]

Col. Frank Ryan, CPA is a retired Marine Reserve colonel. He specializes in corporate restructuring, and he lectures on ethics for the state CPA societies. He has served on numerous boards of publicly traded and non-profit organizations.

[OwenKellogg]

“Should the Federal Reserve continue to interfere with the interest rate markets, the Quantitative Easing bubble bursting will lead to a depression unlike anything this nation has ever seen.”

[OwenKellogg]

One immediate downside of the artificially low interest rates: all the companies and government entities that offer pension plans are having to revalue the pension liabilities using the artificially low interest rates. This increases the pension liability, thereby exacerbating those plans that are underfunded, making it more likely that the pension plans fail

[Pecos]

The Fed interfering with the housing market is perfectly in line with the Progressive principle that Government is required in every aspect of everyone’s lives. Don’t you people understand? You are too stupid to take care of yourself. We have to do it for you!

[Tainan]

Another planned assault on the economic (in)stability of the U.S.A.

[BfloGuy]

interest rates must be kept low to encourage consumer spending.

That's the predominant thinking in the U.S., but it's wrong. Interest rates should float to their market levels encouraging consumers to save. It is saving and investment that create prosperity.

Consumer spending extinguishes capital.