As Markets continue to hit new decade lows, many sacred economic theories are now proving to be complete myths. The inability to shelf these mythical economic theories is perpetuating the crisis.

The first myth that needs to be shattered: Lower Interest Rates by the Fed as a response to every financial crisis.

For nearly fifteen years now, or longer, every financial crisis has been met with the same Fed response: low interest rates.

The result: More bubbles, increasing financial instability, and the now ludicrous situation whereby savers no longer have the ability to receive any kind of normal risk-free interest on their capital.

What should be done: Raise interest rates to a more rational level so that savers can generate modest income, risk-free, off of their savings and not have to resort to speculative ventures and ponzi schemes, ala Madoff, to generate passive income.

Of course there is the irrational fear that raising interest rates would further depress the housing market, as if housing was truly the cause of this financial crisis.

However, even considering the largely imaginary negatives associated with higher rates, one needs to look at the flipside of higher interest rates. Higher risk-free rates will vastly increase the passive income of savers, and this money will find itself recycled back into the economy in a myriad of ways, thereby boosting the economy. Increased passive income via higher rates will also prove to be a boon to the psychology of most individuals as they see their investments in savings grow every month, instead of shrink.

So higher interest rates will undoubtedly have a positive effect on the economy and there is ample evidence that countries do just fine, and grow spectacularly, even with abnormally high interest rates, e.g. Brazil.

So why the continued emphasis on low interest rates? Three basic reasons: A mistaken view of the history of the Great Depression, a basic inability of most in power to fight tradition/status quo, and, most importantly politics. Without the interest rate lever (which should be determined by the Market) the Fed has little to do as an institution.