On Thursday, September 17, 2015, Federal Reserve Chair Janet Yellen announced that, once again, America's central bank was leaving a key interest rate – the Federal Funds rate at which banks lend money to each other overnight – at barely above zero. The Federal Reserve has manipulated and maintained this interest rate near zero for almost seven years, now.

Fed Policy Has Created Zero and Negative Interest Rates

When adjusted for inflation, the Federal Funds rate and the yield on one-year U.S. Treasury securities have been negative for almost all of the time since 2009. In real buying terms borrowed money has been either costless or actually given away with a positive real return to the borrower!

In other words, imagine that you borrowed $100 from someone with the promise that in one year you would return the $100 plus $2, or a two percent return on the lender's money. But suppose that in a year's time, you pay back the lender only $98.

That is what a negative real rate of interest means. After adjusting for inflation, the lender has less real buying or purchasing power than he did before with the principle of his loan. If you have lent that $100 but over the year price inflation has been, say, four percent, then when you get back $102 from the borrower (your $100 of principle but $2 of interest), this is not enough to buy at higher prices what the $100 had bought in the market before you lent that sum of money a year earlier.

As a reflection of this, the prime rate of interest – the rate of interest normally charged by banks to most "credit worthy" borrowers – has been around 3.35 percent since 2009. Even with price inflation (as measured by the consumer price index) relatively low since 2008, averaging in the range around 1.5 to 2 percent for the last 7 years, this means that when adjusted for inflation, such borrowers have been paying a real rate of interest of barely 2 percent for most of that time.

At the same time, mortgage rates on 30-year conventional loans have been between 3.5 to 4.5 percent since 2011, so again when adjusted for price inflation, real mortgage costs for a homeowner has been between 1.5 and 3 percent.

By historical standards, it has cost little or almost nothing to borrow funds in the American financial markets, courtesy of the former chairman Ben Bernanke and current chairwoman Janet Yellen and the other members of the Board of Governors of the Federal Reserve, who possess the monopoly manipulation authority over the quantity of money in the banking system.

- See more at: http://dailybell.com/editorials/36544/Richard-Ebeling-Low-Interest-Rates-Cannot-Perpetuate-a-House-of-Cards/#sthash.0mlA7jKc.dpuf