Since its founding, the Federal Reserve has had a hand in creating some of the largest bubbles in history. When the bank lowers interest rates, there is excess cash in the economy, making it relatively cheap for anyone to borrow. This creates malinvestment in the economy because while not everyone has profitable ideas, many more people can borrow, causing a bubble to form. Once the economy is deemed to be overheating, the bank raises interest rates. This forces the bubble to burst, and an economic downturn follows as a great deal of the malinvestment goes bust and people cannot borrow as cheaply anymore. To foster recovery, the Fed lowers rates again to boost investment, causing the entire cycle to repeat.

This is precisely what occurred when the technology bubble burst in 2001, followed by the housing bubble in 2008. In fact, these two events are very closely tied together, which becomes evident through analysis of the monetary policies of that period. It was precisely the response to the 2001 crash that fostered the housing bubble in the first place.