At the heart of the credit crisis in 2007/2008 was the US housing market. The almost one way growth of housing prices led many to discount the possibility of declining prices. Rising prices fed consumption in the form of home equity loans and home equity lines of credit. It also drove consumers to spend not

Ever since the great financial crisis even the most ardent capitalist has had his faith in laissez faire economics shaken.

  Can the stock market rise when the economy is faltering? As long as monetary conditions are exceptionally loose, the answer is yes. But there are limitations.

While the Fed declared that it would continue its purchases of US treasuries under so-called QE2 until the end of June, it also waffled and said that it would maintain its balance sheet going forward until inflation forced their hand to tighten. Breakevens rose, gold rose, stocks rose, US treasuries hardly budged.

With the Fed buying MBS and UST’s all the last 3 years, how much of a rate hike could the Fed make before it was itself insolvent?