Letter to the Editor below in FT Weekend points out that the U.S. Fed has determined the rate of interest on money, and that rate in real terms has been artificially low for years. 

I keep coming back to 9/11 as the unmentioned or overlooked catalyst for the current economic upheaval. The NY stock market plunged when it opened after 9/11, and from that moment to stabilize the economy the Fed has been pumping reserves into the banking system, cutting interest rates, and keeping them artificially low to prop up the economy. Overall, with Greenspan and Bernanke, it has been a regime of "cheap money"--one might even say “cheap, cheap money”. The punchbowl ("liquidity") has been on the table for borrowers, real estate developers, and stock market speculators of all sorts. Among other things, this environment created the real estate bubble and condo overbuilding. 

With such low rates, nobody can "save"--the rate of return makes it a losing proposition, especially now with inflation on the horizon, and with rates on treasuries well below the official rate of inflation, which is understated in any event. 

I have suggested that 9/11 was the result of a foreign policy failure, based on pure domestic American politics. It was the result, the blowback from Washington's one-sided Mideast policies and its unholy alliance with Zionism and the "Israel Lobby". We are now reaping a delayed aftershock to the economy. Since 9/11 these seemingly imbecilic and self-destructive policies in the Middle East have not changed. Instead, they have been reaffirmed and institutionalized by both political parties in Washington. We are bogged down in ruinous wars which are bankrupting the country. We are locked in. On balance and in retrospect, the adverse repercussions from the Jihadist terrorist attack of 9/11 have been long-lasting and decisive.  

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Artificially low rates led to crisis

Published: October 4 2008 03:00 | From Mr Stewart Vaughan.

Sir, With reference to your excellent editorial last weekend I would add that governments intervene as free markets are held responsible for the present crisis. Such criticism ignores that the price of the commodity at the centre of this crisis, money, has not been fixed by the markets but controlled by central banks.

If interest rates had not been held artificially low, but allowed to reach levels determined by the markets on a risk/reward basis, we would not be where we are today.

Stewart Vaughan,
Paris, France

Copyright The Financial Times Limited 2008