This could be a major problem. The Federal Reserve has to do something about it.
The Federal Reserve
The Federal Reserve System was established in 1913 and became the nation's Central bank. One thing it did was control interest rates.
We have told banks to stop lending people so much money for the stock market.Everything will be okay.
Will it .....?
When interest rates increase, banks borrowed less money because they would have more to pay back. When Interest rates decreased, banks can borrow more because it is easier to pay back.
Thank you kind sir.I'll get that back to you as soon as possible.
Here's your money Pay it back by the end of the month.
How much longer can we do this?
In the late 1920's, stock were costing more than they were worth. Financial experts noticed this and called for the Federal Reserve to raise interest rates so banks would borrow less money and the public would have less money to spend on stocks.
I knew something like this would happen.
Hey I can't pay back that loan that I spent on stocks.
Your not the only one. Pay it back when you can.
The Federal Reserve ended up just telling banks to stop lending people money to spend on stocks.
There was no punishment if banks didn't stop lending people money, so the continued to do it.
When the stock market crashed, people could not pay back the loans they had and many suffered with a lot of debt.