The Ultimate Money Guide for Bubbles, Busts, Recession, and Depression

Chapter 15. BONDS: YOUR FIRST GREAT INCOME OPPORTUNITY

Crisis breeds opportunity, good comes out of bad, and past mistakes can lead to future breakthroughs. This is particularly true in bubbles, busts, recession, and depression. And it may also be true about the most powerful tool at your disposal to boost your income—interest rates.

In recent years, one of the most frequently used—and abused—tools of the Federal Reserve has been to cut interest rates. They cut interest rates to fight the technology bust, the 9/11 aftermath, the housing bust, the mortgage meltdown, the credit crunch, and the debt crisis. They cut interest rates to help avert deflation, debt defaults, and other disasters. Fed Chairman Ben Bernanke even sought to push down interest rates in order to create inflation.

This is not just an erudite debate about monetary policy, mind you. Near-zero interest rates are an ongoing threat to every penny you've saved or want to save. At the same time, if their policies backfire and interest rates explode higher, they can be a powerful force that will give you one of the greatest opportunities of the century to boost your income.

First, let's see what the government has done with interest rates, and the consequences. Then, I'll tell you about the opportunities.

The Interest-Rate Boomerang

In the early 2000s, starting January 3, 2001, the Federal Reserve lowered short-term interest rates 13 times, to 1 percent, and then sat on them at that level for 12 months. In the late 2000s, when ...