There are a couple of answers to this question, but let’s just deal with it from one angle today. Interest Rates. When I was a very young man first opening my personal bank accounts one could open a savings account and get an interest rate of about 6%. It was a good deal. The bank took my money, placed it into an account, loaned mortgages at 8% and made a 2% margin or so, plus fees. I made a good return above inflation. Mortgage lenders were held to a tight borrowing standard because their margins of profit were tight and so the had to be correct, and borrowers didn’t borrow that much money because the rent of money, what we call interest rates, were fairly prohibitive, keeping consumers from generally over extending themselves.
So what happened was, savers generally pleased their monies not into the stock market but the banking system. Generally a long term savers used Certificate of Deposits or savings accounts to protect their wealth and gain growth above inflation. But once interest rates started to be artificially lowered based on Federal Reserve doctrine, rather than a free market banking system, savers began to be pushed out of more traditional long term investments. Why? Because the rate of returns, money made through interest on savings accounts and bonds were wiped out. So long term investors were forced to seek after yield, or interest on their principle else where. This has led to a series of what economists call bubbles. Savings and Loans in the early 90’s, Tech Stocks in 2000, Housing in 2007, and in my opinion world-wide equities markets now. Each of these bubbles is the result of Federal Reserve and U.S. Government (and other governments) intervention in the markets.
The Federal Reserve’s policies have resulted in the destruction of personal savings. They have removed the moral hazards that made it prohibitive for individuals and corporations to take on too much debt. At the same time it has made it cheap for banks to gamble and lower their credit standards. All of this debt, bad investment, and unsound banking is now built up in the world system. People do not realize how untenable and how fragile the system has become. Today I saw an article about how there were no ships in transit in the North Atlantic bringing goods to the U.S. for the first time in history. Oil is falling, and most talking heads just don’t know why there is a glut of the stuff. Commodities are through the floor. Manufacturing is slowing down at a rapid pace because inventories to sales ratios at retailers are rising quickly. The malinvestment, the bad decisions that are caused by artificially low interest rates are now coming to the surface. Once the traders figure this out. Once Wallstreet permabulls see the writing on the wall, it’ll be too late. It’s already too late.
Call your congress person and Senator and tell them to Audit the Federal Reserve. It’s the first step to making sure oligarchs never do this to us, the people of the world ever again.
The Evangelical Libertarian