Why are we in a depression? Is this just a natural phenomenon of a free market economy? Do free markets inevitably go into depression therefore the politicians or the Federal Reserve [The Fed] should manage the economy?

Do you understand the importance to the answer to these questions and how they effect you personally? Your liberty? Your ability to provide for yourself and your family? No other external factor has as much impact on your life as this.

The Fed has been holding interest rates at or near zero for almost a decade now. Interest rates are a price just like the price of a home or a car. It is the price of borrowing money. Just like any price, it relays information. Just like the price of a home signals how many and who will buy homes, the interest rate signals investors as to what and how much investment the economy can put into capital.

When people save money they are exchanging purchases today in exchange for purchases in the future. (They are saying- I won't buy something today, I will buy at some date later). And this increases the money supply which in turn lowers the interest rate.

That lower rate now signals to investors that people are saving and now is the time to invest in capital (new businesses, homes to build, etc.)

And because this signal happened naturally, once the investors complete their project (new business, building homes, etc...), there is purchasing power to support those projects because people saved their money (so when the future comes and people retrieve their savings to buy, they will support these new businesses, buy homes, etc...)

But when the Fed drives interest rates down to zero by printing tons of money, it sets a mis-allocation of resources into play. The low interest rate signals the investors to start new projects (new businesses, build homes, etc...) but there was no actual savings to support these new projects in the future. People did not actually save money and exchange purchases today for purchases in the future.

So once the projects are near complete, they fail.

This is known as the boom/bust cycle. It is the inevitable result of the Fed holding down interest rates through monetary expansion.

The answer to the above question is NO, the economy does not naturally go into depression. The Interest rate insures a natural balance of capital resources and consumers support of them.

The Fed is the root cause for the housing bubble. It is the root cause for this depression.

So what's their answer to this crisis? Print more money and hold down interest rates to spark investment.

They have done this now for so long that they are having difficulty even getting another bubble!

The real solution? Stop printing money, allow interest rates to return to their natural level. If we do this, we will go through a deeper depression that will cause deflation and allow market corrections to occur. After about 18 months of the government and the Fed of leaving the economy alone, the economy will recover.

If you want to know if this will end. Just look at the interest rate. As long as they hold it down this low, we're in bigger trouble than ever!