Stearns County, Minnesota | In my lifetime there were two times, when the Federal Reserve acted, that really changed the economy. The first time was in 1979-80, when they raised the discount rates to over 18%, which ended up bringing the farm crisis to a peak by about 1985. The other time was after 9/11, which was in 2001, the stock market was falling every day. The Federal Reserve came in and started dropping interest rates as the market went down. To me, this action looked like they were trying to save the stock market from a crash. To the average household, that was working at a job, and had a 401k, he was losing a lot of equity in the stock market. The result was, that this same person, could not get a decent rate on his savings. So this person started looking at his nest egg, which was his equity in his house. Many people traded up or built a new and bigger house, with the idea that was the best place to have their equity. The housing real estate kept climbing and was very hot, until late 2007 and early 2008. By October 2008, the housing boom bubble broke. It was then that a lot of people lost the equity in their house. It seems to me that if the Federal Reserve had kept interest rates up where they were before 9/11, you would not have had the crash in the housing market in 2008. |