By Dennis Miller
The Federal Reserve is, of course, a bank. So after it has a meeting, it issues a statement outlining the discussion – a "bank statement." Hmm... Now that I think about it, that must be where the acronym "BS" comes from.
Notwithstanding what we read and hear, when Congress established the Federal Reserve as a central bank 100 years ago, its primary purpose was to protect the banking system. The Federal Reverse shifted risk from the private sector to the public, and through the slow devaluation of the dollar, the cost of this shift fell on the average Joe rather than on banking tycoons. Today, an entire generation is paying for this system with a good portion of their life's savings.
I pride myself on explaining complex financial situations in everyday language. However, when it comes to the Federal Reserve, I readily admit that I am sometimes befuddled. I used to watch Alan Greenspan testify before Congress when he was Chairman of the Fed, and I often ended up asking myself, "What did he just say?" The Fed's code and doublespeak is Greek to me, as it is to most folks.
But I do know this: The carefully crafted reports and publications are designed to send messages and move markets in the direction the Fed wants. After the minutes of a recent Fed meeting prompted the Bloomberg headline Fed Signals Possible Slowing of QE Amid Debate Over Risks, it should come as no surprise that the dollar strengthened and gold and silver tanked. The Fed's message certainly had its desired effect!
Our colleague Vedran Vuk already decoded the message in a recent Casey Daily Dispatch, we know there may not be a reason to celebrate a return of the dollar's strength quite yet. Basically, the Fed is going to continue on its current course despite what newspaper headlines may suggest. (In addition to helping the Money Forever portfolio make some double-digit gains, Vedran has an extraordinary gift for explaining all things technical. We're lucky to have him as our resident message decoder.)
Let's take a quick look at what Vedran had to say, and then consider what it means for seniors and savers.
Despite the fancy headlines and the market reaction, Vedran concluded:
"There was a discussion of possible risks, but at the end of day, that's all it was, a simple discussion. Although several members expressed concerns in the discussion, when it came down to voting on the actual policy, only a single member dissented."
Despite the rhetoric, it's clear that not much is going to change in the foreseeable future. Just more BS from the Fed, without much being done to reduce spending.
Vedran went on to directly quote the minutes of the Fed's meeting:
"In 2014 and 2015, real GDP was projected to accelerate gradually, supported by an eventual lessening of fiscal policy restraint, increases in consumer and business sentiment, further improvements in credit availability and financial conditions, and accommodative monetary policy."
In his usual fashion, Vedran cuts through the BS:
"Umm... wait; what 'eventual lessening of fiscal policy restraint'? Essentially, the Fed is saying that as economic conditions improve, the American voter will stop complaining, and the government can finally get back to spending wheelbarrows of money. It's scary to think that these additional government spending plans are already reflected in the Fed's GDP projections…"
Now let's get this straight: The government will continue to devalue the dollar, keep interest rates artificially low, spend at rate that would put Caligula to shame, and simply hope that US citizens and the G20 nations don't get angry about it. And in the meantime, the Russians and Chinese are taking their new high-value dollars and buying gold hand over fist. Great plan!
Risky Business
Let's take another look at an excerpt on risk from the minutes:
"In general, after having been depressed for some time, investor appetite for risk had increased. A few participants commented that the Committee's accommodative policies were intended in part to promote a more balanced approach to risk-taking, but several others expressed concern about the potential for excessive risk-taking and adverse consequences for financial stability. Some participants mentioned the potential for a sharp increase in longer-term interest rates to adversely affect financial stability and indicated their interest in further work on this topic."
I'll let Vedran tell us what in the heck that means:
"So what does 'excessive risk-taking and adverse consequences for financial stability' mean? The next sentence on long-term interest rates offers a clue. Participants warn of a 'potential for a sharp increase in longer-term rates.' Sure, a sharp upward turn in rates would hurt just about everything, including the stock market, but the sectors that will get hurt the most are real estate and bonds."
Hang on a minute here. Back in 2007, we had nice, juicy 6% CD rates. My portfolio earned interest income equal to five times the amount of my Social Security check. Moreover, my money was at very little risk since CDs are FDIC insured. Today, if I were foolish enough to invest in CDs, my interest income would equal half of my Social Security check.
While I agree that a sharp increase in interest rates could be a problem, I sure wouldn't mind seeing them go up slowly. It would be nice to have interest rates three times higher than the rate of inflation – like they used to be. Now, I know we older folks are told we have to make sacrifices, but this is ridiculous.
Didn't this mess start with banks taking excessive risks by lending money to people who could not afford to pay it back? Isn't that where the phrase "toxic loans" came from? I'd say the first Troubled Assets Relief Program (TARP) that bailed out these banks was an excessive risk. To top it off, the banks then called in CDs, wiping out a source of safe investment income many retirees had come to depend on.
The Fed followed that up with Quantitative Easing (QE) that flooded the banks with money at the expense of seniors and savers. Meanwhile, our taxes are going up because politicians keep babbling, "We must do something about the deficit." Well, perhaps that's because they used our tax dollars to bail out the banking system.
Retirees are being attacked on three fronts: higher inflation, higher taxes, and lower yields, and I'm fed up.
Fed Up with the Fed
We recently conducted a survey on inflation and price increases with our friends at Casey Daily Dispatch. Regular readers already know that the Money Forever Reader Poll Inflation Rate is 8%. We covered this in a couple articles in March and provided a breakdown of where all readers see inflation; for now, note that if a retiree wants to earn 4% on his portfolio to supplement his Social Security income and 8% to keep up with inflation while holding 30% of his portfolio in cash (as we recommend), he must earn 17.1% on the other 70% of his portfolio. That's no small order.
So it turns out that the "excessive risk" has been transferred to seniors. To earn a 17.1% return, we have to take far more risks than we'd like. Instead of investing in safe instruments like CDs or long-term Treasuries that once offered good interest rates, we have to seek out riskier investments to make ends meet. Seniors can't risk a big blow to their portfolios, but ultra-conservative investing is no longer an option.
This is one of the reasons many seniors are turning to junk bonds. There was a time when retirees wouldn't touch a junk bond with a ten-foot pole, but now many feel forced into them. Too many seniors live in fear as they tap into their principal and drain their life savings. Others are cutting back on expenses and returning to work, often at far less glamorous jobs than they once had. It is not a pretty picture.
And yes, I find it maddening that "too big to fail" banks are once again paying out large bonuses to their executives at our expense. Goldman Sachs reinstated its annual Partners Dinner in New York City last Friday; while I'm not one to boo-hoo a good party, a blowout, black-tie gala sure seems in poor taste. I suspect the partygoers slept a lot better in their Champagne-induced comas than many baby boomers and retirees did that night. I can only imagine what that little affair cost.
The excessive risks banks took during the real estate boom have been successfully transferred onto the backs of the taxpayers, seniors, and savers. Each month the Federal Reserve meets and issues a BS report. They word it to fool the public, but thanks to Vedran we can decode their BS. I won't be fooled, and I refuse to let our readers be fooled either.
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Frankly, I'm tired of the BS from the Fed, Wall Street, bankers… you name it. Based on the number and tone of letters our readers send in, you are too. Do they really think our generation is that stupid? We've seen a thing or two in our time, and we know what's really going on.
OK, the rules have changed. Now we have to take risks in order to survive… and hopefully thrive. Nevertheless, we can manage those risks responsibly to earn the income we need to make sure our nest egg lasts and we sleep soundly at night. And that is exactly what we are doing.
That's why I started Miller's Money Forever: to give my generation the truth about our situation and the tools to take control of our retirement finances. I'd like you to consider taking charge of your retirement today with a no-obligation trial subscription to Miller's Money Forever. Please click here to learn more.
i cant say about old people that whether they were stupid or not, but i am very confident to say stupid, absolutely stupid and fully stupid to this new or young people, it is batter to say that to say them stupid is an insult of word "Stupid"
We found one short documentary or promo in 2007 and 2008, expressing their stupidity, and extreme picture yet to come and remains pending. Situations can not be captured by data or figures only, reality always far away from such statistics, and basic things, by nature it self, are normal, easy and simple, and never complex, until we turned them towards complexicity.
Supply and demand does not work when the game is rigged. The Kissinger "petrodollar recycling" scheme let the USA have a deficit without need for reform. The dollars sent to Saudi Arabia were lent back to the USA at low rates and the USA provided military protection to SA. The deficit (which should have been apparent and corrected by supply and demand) was covered up so no one would notice.
Later a trade deficit developed with China. They did not play so nice. The took the dollars (and enticed investors to buy stocks) to build more factories. Cheap Chinese goods meant many USA factories closed and USA employees in the manufacturing sector lost jobs. Then (to rig things so supply and demand could not work), the Chinese bought USA T bonds (just like petrodollar recycling). USA deficit but not apparent and not signaling the economy to change.
Now the Chinese are not buying T bonds. They are buying gold and the USA has the Federal Reserve buying the T bonds to cover things up. When a government prints too many dollars (or other currency) the currency loses value to inflation or hyperinflation. No examples in history exist where this did not happen.
We already have inflation (in spite of the government cpi propaganda to the contrary). Gasoline was about $1.80 when Obama became President. It was cheaper when Bush was sworn in as President. Food has similiarly risen in price over this period. And the printing is speeding up.
Of course the Free-trade crowd will tell you that China is only hurting themselves by playing that game. They conveniently overlook the fact that every first world country in history was protectionist in one way or another when it originally rose to the top of the heap. You can look at economic growth graphs and tell when neocons took over by looking at when the slowdown occurred and when big crashes became possible. For example, in South Korea something bad obviously happened in 1992 and when you look it up, that was their "liberalization" (in the Milton Friedman sense of the word) project.
The Fed and Ben are criminals ... Rigging the markets thru JP Morgan with buying cash futures and using a price management scheme on gold & silver paper market. The Federal Reserve should be abolished as it serves only the criminals in the banking system. Banks executives created the risk and now the public is paying and no bankers are in jail. WHY!
This goes along with the concept as a retiree i have lived too
long , so get ready to die. Obama care will help me along
with the severe rationing of health care coming in the future.
It is a joke to think the government cares about retirees at all.
We are just excess baggage.
USD "cash" is not a safe haven either.
Retirees are getting o.5% on their savings while their mothballed bucks are losing at least 8% to inflation. The poor (soon to be poorer) young taxpayers are subjected to the same dilution while facing sharply escalating taxes to cover the many trillions of dollars created by the Federal Reserve to cover the misdeeds of failed bankers.
For the average "Joe", the limit on taking cash out of the country without reporting is $10,000 while reportedly one third of the total global wealth resides in offshore protected secret accounts without scrutiny. Sure looks like the plan is to put the middle class in debt up to their eyeballs and into a perpetual dependence on the money lenders. Nothing new, it's been like this for centuries and will likely continue, just like global Cooling and Warming (or as recently called, Climate Change) and especially now with the prominent legislators Chris Dud and Burnme Frank out of office.
Just out of curiosity, how long do you believe we have had 8% inflation?
If the average annual household income for 120 million households is $45,000 or 5.4 trillion combined, about one half are net taxpayers and up to one third of the annual miscellaneous loot goes dixie with lots of it avoiding the tax-axe, what is the hidden impact of a yearly trillion dollar deficits? (5-15 %).
Inflation on packaded goods, by reducing weight while maintaining prices, and diverse stealth taxation all chip away at uncle Buck.
How long have we had 8 % inflation? Pick a number.
Ok. According to the Rule of 72, 8% inflation will double every 9 years. That means the $500 dishwasher I looked at today on average would have been $250 in 2004 and $125 in 1995, on average if it were an average good. An $8 book today would have been $2 in 1995 and a $4 bag of sugar would have been $1 at the same rate.
I can't think of any good that has seen 8% price increases per year, except possibly college education and hospital stays, and those are both traceable to changes in our society's belief in the importance of reasonable access to education and health rather than factors you normally associate with inflation.
Regarding the rest of what you wrote. I am not clear what your point is, but when you consider that 6 Waltons have more wealth than the bottom 40% of America combined, it is not clear what else you hope to squeeze out of the bottom half.
Inflation as represented by the CPI covers only a small portion of the escalating, true, cost of living (Inflation). The price of dishwashers and books are a very small part of the overall cost. Sugar goes up and down but has increased approximately 200%+ in the last ten years (15-20%/y +/-). The price of crude has tripled in the last ten years (15-20%/y +/-). In addition to the previously mentioned deficits, unfunded obligations by Towns, States and Federal add significantly to the cost and is one hell of a load for Uncle Buck. This will be my last reply on the subject.
Financial pundits should learn basic supply and demand before writing.
"Now let's get this straight: The government will continue to devalue the dollar, keep interest rates artificially low..."
Continue to devalue the dollar???? Have you seen our trade balance recently? In case you are wondering, it has been spiking, like everything else bad in this country, since 1980 when the Conservatives took over.
If you know the rules of supply and demand, then you know two things from our trade deficit. The first is that a strong dollar will tend to make the deficit worse because our exports will be more expensive and our imports will be cheaper. This pushes export quantities down and import quantities up. The second is you can see the most likely cause and effect direction. If changes to the strength of the dollar are causing changes to the trade balance, then when the dollar strengthens, you will see the trade balance widen. If the trade deficit is impacting the dollar, then you will know because if the trade balance widens, this requires a flow of dollars in the opposite direction to pay for the deficit, which in turn weakens the dollar as demand for foreign currencies in dollars to pay for increasing imports goes up and demand for dollars in foreign currencies to pay for the decreasing (relatively) exports goes down.
The math for this is actually very similar to what is taught in high school chemistry under the topic "Balancing chemical equations".
What's the difference between the wheelbarrow and the real value of the USAmerican dollars in it?
The wheelbarrow.
Facebook would not allow me to like this wonderfully informative article.