William Thien

The Fed, America’s Bubble Machine

Posted on: August 23, 2015

One of the economic side effects of this age of ultra-low interest rates we have seen for the last decade or more is that due to the cost of money being so low, inflation has been artificially stimulated for an extended period of time. As a result, the price of homes for example has been dramatically elevated way beyond their true value where were we in a normal economy subject to normal market forces, the median price of a home would not be so elevated.

This creates a dilemma for the regular homeowner making just the normal monthly payment on their home. As soon as the FED begins raising interest rates, even the slightest amount, unless a home owner has been making extra payments on their house, chances are most Americans making only the monthly mortgage payment and nothing more will almost immediately be upside down when it comes to the value of their house in relation to the cost of their mortgage. In other words, their house will be worth less, in many cases much less than what they owe on their mortgage.

The FED is making things worse by stimulating inflation for extended periods of time, way beyond what is necessary and in doing so potentially creating another bubble. This happened before with Alan Greenspan which lead to the 2008 bubble and it now appears to be a cyclical behavior on the part of the FED.

Which raises the question, “Has the FED become a financial ‘bubble machine?'”

Copyright © William Thien 2015

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