Interest rates have a big influence on stock markets because of three factors.

Central banks and interest rates: There is an intrinsic interest rate in any market that matches demand for credit with savings.

How Banks Create Money out of Thin Air: Most money in the economy is held in the form of deposits with banks rather than in the form ...

Who caused the global financial crisis? Was it the banks? The shadow banking system? The rating agencies? Or fraudulent mortgage originators? The were all actors in the tragedy, but the producer, director and lead role was played by the Fed.

To protect ourselves from future banking panics we need to understand the underlying causes. Panics are normally precipitated by an insolvency crisis, which then escalates into a liquidity crisis as depositors rush to withdraw their funds.

Ben Bernanke and I have little in common, but we share the view that any form of recovery is dependent on confidence. Where we differ is in how to restore confidence.

An excellent CNBC interview with Jeremy Grantham where he explains the game the Fed is playing: over-pricing bonds so that investors are forced back into stocks, even when dangerously over-valued.

Negative yield curves have proved to be reliable predictors of economic recession over the past 50 years. Research by Jonathan Wright, a research economist at the Federal Reserve, questioned whether this relationship still held. But his questions were answered by the GFC in 2007/2008.