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News Link • Housing

LOW INTEREST RATES CANNOT SAVE A HOUSE OF CARDS

• http://fff.org, by Richard M. Ebeling

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 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.

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