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11/23/11(Wed)08:38:55 No. 364348196 File1322055535.jpg -(801 KB, 1024x768, Federal_Reserve[1].jpg ) In
a Free-Market, when interest rates are low, it means people are saving.
When they are high, it means people are spending, or saving a lot less.
This sends signals out into the market which tells investors what to
invest in, whether it be housing, up-and-coming businesses, long-term
investments during saving periods, short-term investments during
spending periods, etc. The problem arises when a single
institution controls interest rates, ex: the federal reserve. Interest
rates were extremely low during the late 90's and 2000's, which sent
false signals about saved capital into the market. Even though there
wasn't enough savings in the market, it appeared that there was due to
the low interest rates. This caused a mass malinvestment into many
things, most notably the housing market. When it turned out that nobody
actually had money to buy all of these houses, the real-estate market
crashed. Government Sponsored Enterprises like Fannie Mae & Freddy
Mac only accelerated the housing bubble due too their reckless behavior
with mortgages. To give you perspective of how inflated they were,
housing prices are still going down. So in reality, the problem
really comes down to the manipulation of interest rates, which is
allowed by fiat currency. I hope somebody learned something.