Into the predicament of the U.S. economy the Fed and Congress are accomplices.

<P> A year ago, when the Fed seems reasonable to determine the federal funds rate of 5.25%, the looks like we will spend a very boring year. .However, when you think about when starting away the illusion of economic prosperity, in fact, this is only until last August. .</ P> <P> Since then, the U.S. and global financial markets started. .From the subprime crisis began to spread to credit markets and other unforeseen financial sector vulnerabilities, and then we started to witness the economic uncertainty, credit default and the spread of information missing in the market, leading to credit dried up, thereby affecting the economic expansion and employment situation .. .</ P> <P> It http://finance. Hearing, how come the U.S. economy of the current dilemma, the answer contains a number of factors. .First, the Fed is indeed undeniable that the property bubble burst to make a "contribution." .It is June 25, 2003 the federal funds rate to 1% and substantially maintained a "reasonable period"?? Precisely, until 2004 June 30, and after a very slow increase in interest rates, .until a year later the rate is only 3.25%. .</ P> <P> 1% interest rate from the lowest since the Eisenhower administration. .This level of interest rates inevitably rise to the unprecedented real estate industry. .In fact, when the Federal Open Market Committee members know that this is likely to lead to the real estate boom, and in the development process of the speculative bubble on the market a warning. .</ P> <P>, of course, is always easy to be wise after the event. .We remember that there are a number of other factors to consider, the Internet bubble burst, corporate internal governance scandals, "9? 11" growing incidence of terrorist attacks, and so the Fed needs to deal with recession and deflation. .Over time, the performance was relatively mild recession, deflation has not yet begun, the Fed's policy makers believe that their aggressive monetary easing policy has provided the "security", worked. .</ P> <P> But monetary policy caused the subprime crisis is certainly not the only factor. .Congress busy to blame the Federal Reserve and other agencies, but in fact one of the U.S. Congress is also an accomplice, it passed legislation urging banks and other institutions to increase credit lines to those who so far is relatively low credit ratings of individuals, the Federal Reserve and other regulators have .repeal provisions of the relevant management banks to support the so-called "secondary market" loans. .</ P> <P> Congress and policy makers planted the seeds of the crisis, the Federal Reserve to lower interest rates with fertilization, the courage to nurture innovation in the financial industry is a large number of subprime loans, more than any one big enough wildest imagination. .These mortgage loans are converted into securities, and from the well-known rating agencies have a high credit rating, the insurance company to provide security for these securities, then sold to a huge number of various institutional investors. .And everyone agrees that this guarantee is reliable. .</ P> <P> Some might argue that this problem because the Basel capital standards improve international risk was intensified, the standard and encourage banks to the sub-prime collateral transfer from the balance sheet structured investment vehicles (SIV .) in order to once a highly rated asset-backed commercial paper in the form of financing. .Home buyers are now being described as the image of innocent victims, some of whom simply dressed speculators, they would forward to "the temptation of low initial interest rates" to sign the mortgage contract to purchase "low-value assets", in the real estate bubble .get value in return period. .</ P> <P> everyone happy, everyone is getting richer, and everyone thought that this situation can continue. .But of course, all are built on false assumptions?? Real estate prices will always go up, the purchaser can always adjustable rate mortgages before interest rates reset with its pledge to refinance. .</ P> <P> but all good things are coming to an end, especially when a good thing too. .As interest rates rise, housing prices fluctuate first appeared, and then decline. .Delay in repayment and the case of foreclosures on the rise. .Then all of a sudden, Wall Street, the Fed and all the people are awakened by this painful reality, everyone realized that the bubble has begun to burst?? Like all the previous bubble. .</ P> <P> those government agencies and financial institutions as well as in their market has been under the control of the retribution. .They have the arrogance of the former kind of gorgeous feel guilty. .Fed officials and Wall Street's elite have long years to brag about the resilience of modern financial markets, have taken the trouble to discuss the financial innovation, financial diversity, financial derivatives, risk management models, and so there is the concept of the superiority, all of which they advocated .claims outstanding new products to diversify risk, against systemic problems. .</ P> <P> we have heard a lot in recent years such as "great moderate control" argument?? The Fed and other central banks have made great efforts to control inflation and inflation expectations, which created an economic and financial stability and .the business cycle curve flatten?? to inflation and recession to disappear from our lives. .</ P> <P> fact, we found that these are nothing but houses of cards, a push on the back. .But we are clever. .(The author is a Market News International's senior Federal Reserve policy observers) </ P>.