Financial Crisis - Credit Crunch

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Economics

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The recession of 07-09 the Feds lowered interest rates in an attempt to increase investment & consumption spending which in turn would lower the unemployment rate.  Why would a policy by the Fed lead to a future financial crisis-credit crunch

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Explanation & Answer

Fed Assets Rise $31.1 Billion to $2.35 Trillion on Treasuries‎ - The Federal Reserve’s total assets increased $31.1 billion to $2.35 trillion as the central bank expanded its portfolio of U.S. Treasury debt. Holdings of Treasuries rose by $27.6 billion to $901.2 billion as of Nov. 24, according to a weekly release today. Mortgage-backed securities on the balance sheet fell by $475 million and federal agency debt securities fell by $816 million.  The Fed transferred $56.5 billion to the U.S. Treasury from January until September from interest earned on its securities portfolio, the central bank said in a report Nov. 24. U.S. central bankers on Nov. 3 decided to increase their balance sheet with $600 billion in additional purchases of U.S. Treasury bonds.  M2 money supply fell by $3.1 billion in the week ended Nov. 15, the Fed said today. That left M2 growing at an annual rate of 3.1 percent for the past 52 weeks, below the target of 5 percent the Fed once set for maximum growth. The Fed no longer has a formal target.

US Fed Total Discount Window Borrowings Wed $46.69 Billion - The U.S. Federal Reserve's balance sheet expanded i



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