This is one of a series of excerpts exclusive to WND from WND senior staff reporter Jerome R. Corsi's new book "America for Sale: Fighting the New World Order, Surviving a Global Depression, and Preserving USA Sovereignty," available from WND Books.

The precipitating cause of the economic panic of 2009 was the bursting of the U.S. mortgage bubble, which grew following a series of interest rate policy decisions from the Federal Reserve under Chairman Alan Greenspan following the 9/11 terrorist attacks against the World Trade Center and the Pentagon.

Federal Funds Rate 2000 – 2008

The federal funds rate is the rate at which depository institutions lend balances to the Federal Reserve and other depository institutions overnight.

Federal fund rates are set by the Federal Open Market Committee, or FOMC, that meets in eight regularly scheduled meetings each year and consists of the seven members of the board of governors of the Federal Reserve System, along with the president of the Federal Reserve Bank of New York, and four of the remaining eleven Federal Reserve Bank presidents, who serve one-year terms on a rotating basis.

There are no rules for how the FOMC must set federal fund rates, but since February 2000, the FOMC issues a statement shortly after each meeting, reporting on the committee's assessment of the risks of attaining the long-run goals of price stability and economic growth.

The fed funds rate is the principal tool the Federal Reserve uses to implement monetary policy. The term "monetary policy" refers to the actions taken by a central bank, the Federal Reserve in the United States, to influence availability and cost of money, as well as the availability and cost of credit.

(Story continues below)

Many interest rates, including mortgage rates, key off the federal funds rate, such that increases in the federal funds rates typically lead to increases in mortgage rates and decreases in the federal funds rates lead to decreases in mortgage interest rates.

Federal Reserve Chairman Alan Greenspan, by keeping federal funds rates at rates as low as 1 percent in 2003 and under 2 percent following the 9/11 attacks until December 2004, created the interest rate conditions needed for the mortgage market to bubble.

Lower interest rates stimulated not just the subprime housing market, but the housing market as a whole. With mortgages more affordable, home prices across the nation began to rise.

By 2006, housing values in many parts of the country had nearly doubled, such that a home valued at $100,000 when George W. Bush took office on January 20, 2001, was suddenly a $200,000 home by sometime in 2005 or 2006. Similarly a $500,000 home bubbled to being a $1 million home and a $1 million home was suddenly valued at $2 million.

This is what we mean by a "housing bubble" – in a short period of time homes in markets across the nation dramatically increased in value. The housing bubble occurred not only because home prices doubled over a short period of time, it occurred because people were willing and ready to believe these price increases of this magnitude were real and permanent.

Interest Rates at 1 Percent

A necessary condition for the housing bubble to be created was historically low interest rates which made home financing easier because homeowners could still afford monthly payments on larger value houses as long as interest rates remained low.

Federal fund rates had not been in the 1 percent range since Eisenhower was president in the 1950s. Low mortgage rates alone were not enough to create the housing bubble, but low mortgage rates contributed to the perfect storm that became the housing bubble we experienced from 2001 through 2006. The chart below helps illustrate how the mortgage bubble developed and burst. The chart lists the monthly Federal Funds Rate from the beginning of President George W. Bush’s administration, in January 2001, through the beginning of President Barack Obama’s administration, in January 2009.

The first months of the Bush presidency were pre-occupied by an economic slowdown that occurred in the final year of the Clinton administration. A major initiative of Bush's first year in office was to get a $1.35 trillion tax cut signed into law on June 7, 2001. Federal funds reached a peak at 6.54 percent the year before, in July 2000.

Beginning in late summer 2000, while Clinton was yet in office, the Fed began cutting fed funds. On September 11, 2001, the day of the terrorist attacks on the World Trade Center and the Pentagon, fed funds were at 2.09 percent, nearly 4.50 points below the July 2000 peak.

The stock market hit a 2001 peak on May 21, 2001, with the Dow Jones Industrial Average, or DJIA, closing at 11,372.92. Still, through that summer, the Dow dropped dramatically.

Then came the terrorist attacks on 9/11 and the economy shut down in shock. When the stock market re-opened, on September 17, 2001, six days after the terrorist attack, the DJIA fell to 8,920.70, down 684.81 points, the largest dollar loss in history, a 7.13 percentage drop on the Dow in one day.

Greenspan, who was Federal Reserve chairman at this time, is fairly direct in his 2007 autobiography, "The Age of Turbulence," when he admits he was puzzled by the course the 2001 recession was taking.

Gross Domestic Product, or GDP, defined as the measure of all goods and services produced by the economy, remained steady throughout what was shaping up to be a "shallow recession." Greenspan typically attributed the lowering of interest rates before the 9/11 to "global forces."

Even before 9/11, Greenspan noted that the lower interest rates had "ignited a sharp rise in home prices in many parts of the world." He specifically commented that in the United States "homes had increased in value so much that households, feeling flush seemed more willing to spend."

Part of the willingness to spend came from banks aggressively marketing home equity loans or to refinance homes in a way that encouraged homeowners to take cash out of their home equity buildup, such that the windfall in rapidly rising home equity values could be spent now. Home equity loans and cash taken out of homes in refinancing was often spent on typical consumer purchases, including family vacations, while others used the cash to pay bills, including credit card bills, in the expanding consumer debt of a lifestyle suddenly made affordable by the housing bubble.

After 9/11, Greenspan and the Federal Reserve began cutting interest rates aggressively in an effort to jump-start a badly shocked U.S. economy back into robust activity.

"For a full year and a half after September 11, 2001, we were in limbo," Greenspan wrote. "The economy managed to expand, but its growth was uncertain and weak. Businesses and investors felt besieged."

Greenspan is open about his policy during this time. "The Fed's response to all this uncertainty was to maintain our program of aggressively lowering short-term interest rates," he wrote.

Under Greenspan's direction the FOMC extended a series of seven cuts made in early 2001 to lower the fed funds rates down to around 1.25 percent by the end of 2002, a figure Greenspan admits "most of us would have considered unfathomably low a decade before."

Greenspan admits that the Fed was aware maintaining these low interest rates "might foster a bubble, an inflationary boom of some sort, which we would subsequently have to address," but he claimed the Fed was worried the economic slowdown after 9/11 might cause deflation, an international worry since the deflation that plagued the Great Depression of the 1930s.

U.S. consumer spending, the engine of the world economy, revived in this low interest rate environment and the GDP continued to grow. Unfortunately, this was the beginning of the real estate bubble.

"In many parts of the United States, residential real estate, energized by the fall in mortgage rates, began to see values surge," Greenspan admitted in his autobiography. "The market prices of existing homes rose 7.5 percent a year in 2000, 2001, and 2002, more than double the rate of just a few years before."

He noted that not only did construction of new homes rise to "record levels," but also historic numbers of existing homes changed hands. "This boom provided a big lift in morale," he argued, "even if your house was not for sale, you could look down the block and see other people's homes going for what seemed like astonishing prices, which meant your home was worth more too."

Greenspan also was keeping a sharp eye on the stock market. On October 9, 2002, the DJIA closed at a low of 7,286.27, after falling 215.22 points. The market had declined 38 percent, 4,436.71 points, since January 14, 2000. The Fed held fed funds rates at or near 1 percent through June 2004, an historically unprecedented three years' stretch of rates this low. On October 12, 2002, the stock market gained 378.28 points, closing once again above the 8,000 benchmark, at 8,255.28. From there, the DJIA climbed steadily for the next five years, reaching an all-time high of 14,164.53, on October 9, 2007.

As 2007 came to a close, Greenspan was a hero on Wall Street. Investors who had made billions of dollars hailed Greenspan's low interest policy as the key to engineering an unprecedented surge of wealth on Wall Street. As 2007 progressed, those of us who were warning that the economy had peaked and the real estate bubble had already burst were being received as prophets of doom whose ill tidings risked spoiling the party.

As 2008 began, many still optimistic pundits were predicting the DJIA would climb past 15,000 without much difficulty. Unfortunately, such optimism was unfounded. In December 2008, few realized this month would later be identified as the official start of the most severe economic downturn in U.S. history since the Great Depression of the 1930s.

Related offers:

"America for Sale: Fighting the New World Order, Surviving a Global Depression, and Preserving USA Sovereignty."

Learn how to survive – and even prosper – during difficult economic times. Get Jerome Corsi's Red Alert today!

Rediscovering Gold in the 21st Century: The Complete Guide to the Next Gold Rush

Previous stories:

Excerpt: The hit from big debt

World bids farewell to U.S. dollar

U.N. calls for replacement of U.S. dollar

Related commentaries:

America, brace for inflation

Will government bailouts spell end of dollar?

In the eye of an economic storm

Government: Leave the market alone!

2006: The new 'commodity of exchange'