As I was watching CNN on the kitchen TV, I saw the Federal Reserve reduced interest rates to 1%. That is simply ridiculous. Interest rates at 1% bear no market resemblance.
Ron Paul mentioned the Fed’s actions are immoral and I agree. There are a lot of retirees that could and should be earning a lot more than 1% on their money. Interest income being paid at 1% doesn’t allow the retirees to keep pace with inflation.
When the internet bubble popped, the Federal Reserve dropped interest rates to 1%. What did it create? Another bubble in real estate and malinvestment. Below Ron Paul explains the effect of easy money on the economy.
“Longer-term and more capital-intensive projects, projects that would be unprofitable at a high interest rate, suddenly become profitable.
Because the boom comes about from an increase in the supply of money and not from demand from consumers, the result is malinvestment, a misallocation of resources into sectors in which there is insufficient demand.
In this case, this manifested itself in overbuilding in real estate. When builders realize they have overbuilt and have too many houses to sell, too many apartments to rent, or too much commercial real estate to lease, they seek to recoup as much of their money as possible, even if it means lowering prices drastically.” —
When prices need to come down, we need to allow this to happen. Instead, the government keeps trying to prop up these unreasonable prices. It’s simple supply and demand. If the supply for housing exceeds the demand for housing, the price must drop.
The market needs to determine interest rates. That should start with the abolishment of the Federal Reserve.
Submitted by Tom Waller
