Niagara Gazette — Consider real estate. The primary cause of the Great Recession was the bursting of the housing bubble. People bought expensive homes that they shouldn’t have (while lending institutions and the government enabled them) in hopes of continued growth in the market, believing they could turn around and sell the home a few years later for many dollars more. It wasn’t long before it was realized
that they couldn’t support their investments: Rising energy and food prices socked the economy in 2007. That caused job cuts and cutbacks which in turn affected those who had taken on the exorbitant home payments. Housing prices plummeted and homeowners who were underwater abandoned ship. Because of that sting, people are hesitant to buy first and second homes again, banks won’t
allow them to, and, above all, many people are incapable of doing so in today’s world because of high unemployment and lower wages.
Government bonds and notes used to be solid investments, too. Someone could buy the debt from the government and, years down the line, reap the rewards from a solid yield in the 5 to 9 percent range in the 1990s and a middling 3 to 6 percent during the 2000s. Now, a 10-year Treasury note has a yield around 1.5 percent. To buy them at such low rates, you’d have to be either a fool, ungodly conservative, retired or worried about an all-out economic collapse. What has contributed to this destruction of the bond market is the willingness of the Federal Reserve to continue to buy-up debt in an effort to keep the federal government afloat.
The Fed has also been complicit in the loss of gains on Certificates of Deposit (CDs). Borrowing from the Fed and other banks is too easy for financial entities thanks to historically low rates, so banks no longer have a reason to lean on consumers for borrowing. Back in the 1980s your average investor could make a killing on CDs – 6-month returns were as high as 17 percent and 5-year CDs were at 12 percent. Now, banks market to their clients 2 percent yields like they’re the best thing going.