NEW YORK (TheStreet) -- When I was a lad, I first heard the term "ivory tower" in the lyrics of a 1956 song by that title: "Come down, come down from your ivory tower."
The Federal Reserve has been in its own ivory tower for more than a decade, as the housing bubble inflated and then popped while Fed policy helped cause of the "Great Credit Crunch."
The term "ivory tower" has been around for millennia, going back to biblical times, but the definition I refer to came from the 19th century. A group of intellectuals engaged in pursuits disconnected from the practicalities of everyday life were in their ivory tower.
In today's world, the Fed's ivory tower of "trial and error" has created monetary policies that just don't work on Main Street, USA.
The middle class is shrinking, according to the Pew Research Center. Since the end of 2007, more people are feeling poorer, even after the end of the Great Recession. The number of people who say they are in the middle class is now 44%, down from 53%. Former professionals are stocking store shelves, and retirees are struggling with rising costs. Many people have accepted part-time jobs when they seek full-time jobs.
Last week, Fed Chair Janet Yellen came down from her ivory tower to give a speech and answer questions at the Economic Club of New York. She told her audience of intellectuals and media folks that low inflation is a larger threat to the U.S. economy than rising prices.
Say what? Consumers, taxpayers and homeowners on Main Street have been suffering for years due to the rising cost of living, and paying more for food, fuel, insurance premiums and health care while earnings decline.
The Fed cut the federal funds rate to 0% to 0.25% in mid-December 2008. This helped the banking system, to the detriment of the savers, consumers and small businesses on Main Street that are the lifeblood of the U.S. economy.
Savers have earned next to 0% on money market funds and bank deposits, even after U.S. Treasury yields began to rise. Instead of spending interest earnings, they must dip into their balances. Most of these Americans never invested in the stock market and never will!
Many banks are now offering consumers credit card promotional rates as low as 0%. I seem to receive new proposals every day. The latest came from Discover. One offer is for 18 months at 0%, with a 3% upfront fee. After 18 months, the rate pops to 16.99% and adjusts with the prime rate. A second offer gives you a rate of 4.99% for 24 months without an upfront fee. Why do the regulators allow banks to rip off consumers?
Back in April 2008, I accepted reasonable proposals from two big banks simultaneously. Both allowed you to borrow your entire credit line at 2.99% without an expiration date or rate adjustment. I still have these loans outstanding.
Banks say they want to lend to small businesses. In December 2008, the prime rate was lowered to 3.25%, 300 basis points above the federal funds rate. Small business lines of credit began to be offered at 5.25%, or a reasonable 200 basis points above the prime. If banks want to lend, why have they raised this rate to 9.25%, or 600 basis points over the funds rate? Many small businesses can't afford this unjustified rate rise.
Main Street would be better off today if the federal funds rate never went below 3%, and if the Federal Open Market Committee refrained from the ridiculous quantitative easing programs that obviously never filtered down to consumers or small businesses. As the old song goes, "Come down, come down from your ivory tower."
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.