The US Economy Is Still In The High-Danger Zone
I hate being the bearer of bad news.
I remember the one and only time in my life I agreed to umpire a Little League game behind the plate. My youngest son was on the mound, and his older brother came to bat. The count went to 3-2, and I realized I had a huge knot in my stomach.
I said to myself, “God, please let him swing and hit the ball!” And he did. I don’t even recall where it went; I was just thankful I didn’t have to make a call that would have meant bad news for one of them.
Calling it the way you see it may be a good way to live your life, but it isn’t always fun.
I have been harping on the Federal Reserve policy of artificially keeping down interest rates since it started over five years ago.
Nothing has changed; in fact, you could make the case that things have gotten worse. Although there are rumors that the Fed may end QE in September or October of this year, I am not holding my breath. Right now, they are still flooding the banking system with billions of dollars per month, and finally the baby boomers—10,000 of whom are turning 65 every day now, for the next 16 years—are starting to understand what we already know.
Low Interest Rates Are Killing Savers…
In a recent Bloomberg article, Bill Gross of PIMCO (the world’s biggest bond fund) calls the minimal returns that savers and income investors have seen from bank deposits and fixed-income securities a “financial repression.”
“I hate to be gloomy,” said 69-year-old billionaire Gross, “but, yes, for the next 10 years, the oldsters, and I’m in that camp, are going to be disappointed in terms of the policy rate.”
Former President of the Atlanta Fed William Ford chimed in, saying that current low US Treasury yields reduce conservative investors’ income by at least $280 billion annually.
“The costs of low interest rates are being ignored,” Ford said. “It is killing savers, elderly savers who are living on life savings that have been conservatively invested.”
Can it get any more depressing?
Yes: according to the Department of Labor, due to lack of yield from savings and investments, workers 65 and older are the only group of Americans who are increasingly employed or looking for jobs.
… and Keep the US Economy from Recovering
In a March 10 article in Gold-Eagle, author Ian Gordon joins the critical voices. “This is unprecedented,” he writes; “there has never been a time that the entire world has been subjected to such dishonest money that can be created at the whim of unelected bureaucrats acting on behalf of their private shareholders.”
And legendary investor Jeremy Grantham told the Sydney Morning Herald that the US Federal Reserve is killing the recovery of the world’s biggest economy:
“My view of the economy is not principle-based. Higher interest rates would have increased the wealth of savers. Instead, they have become collateral damage of Bernanke’s policies. […]
There is no evidence at all that quantitative easing has boosted capital spending. We have always come roaring back from recessions, even after the mismanaged Great Depression. This time we are not. It’s anecdotal evidence, but we have never had such a limited recovery.”
As you can tell, I could keep going and going.
If it weren’t so sad, I would have been tempted to laugh when I read an RT article titled “’Too big to fail’ status gives US banks a ‘free pass’—Fed Study.”
According to the article (emphasis in original): “The new research shows ‘it is improper to ask the taxpayer to underwrite the non-commercial banking operations of a complex bank holding company,’ Dallas Fed President Richard Fisher told Reuters in an interview.”
Boy, are these folks slow on the uptake. I could have told them that even before the 2008 crash, and without spending millions of dollars on a high-falutin’ study.
The top 10 banks in America, says the article, now have combined assets of about $9.72 trillion (that’s compared to a total GDP of $15 trillion in 2012).
“The banks are still gambling with FDIC-insured money,” says Ted Kaufman, a former US Senator from Delaware. “The JPMorgan Chase ‘London Whale’ fiasco was just the latest proof that there has been no change in the casino speculation of Wall Street banks.”
“No one has gone to jail,” Kaufman predicted. “And no one will. There are many examples of criminal behavior during the meltdown, but not one megabank executive has been jailed. Without that deterrent, white-collar crime is not just profitable but inevitable.”
We all get the point—the Federal Reserve is bailing out the banking system. And to do so, it’s keeping interest rates suppressed, forcing American savers and income investors to put more money at risk than we should have to.
And that’s not going to change with the new Fed Chair Janet Yellen, who flat-out tells us that “the Fed still thinks rates should remain low to stimulate borrowing, spending, and economic growth. I think this extraordinary commitment is still needed and will be for some time, and I believe that view is widely held by my fellow policymakers at the Fed.”
Of course there is no evidence that any of the policies have actually worked… so we’re on our own to maintain and/or enhance our standard of living.
High Danger of Wildfires
I am generally considered a pretty positive guy, but even I have been wondering if this artificial propping up of the economy and stock markets will ever stop.
Last month, my wife Jo and I were staying in Arizona. A couple of days after a heavy rainstorm, we drove through Tonto National Forest. There was a Smokey the Bear cutout next to a meter with color-coded markings outlining the danger level of a forest fire, and it was at light yellow.
I’ve never seen it light yellow before, very close to the green that signals “all clear.” Late last summer, when we last visited, it was way over in the red with a high-danger signal.
Unfortunately our economy is still in the high-danger zone. I hope to live long enough to tell everyone that I see the threat moved back to Smokey pointing at light yellow. I just don’t see it, despite what we read in the mainstream press. As I said, calling them the way I see them is not always fun—but there is a silver lining…
Here’s One Big Positive for All of Us
Good friend Chuck Butler of EverBank writes a terrific report each day called the Daily Pfennig. In a recent issue he wrote:
“I do believe that quite a few people in their 50s and 60s are about to find out that the money they’ve set aside for retirement is too meager to support the standard of living they’d hoped for, and then the forecast for a retirement system crisis will become reality, and then it will be too late!”
Chuck would be the first to agree that none of us has to be in that group—that is, the people who wear their rose-colored glasses until it is too late to change anything. His readers and our subscribers are some of the best-informed people on the planet. We simply refuse to fall in the category of helpless citizens that are termed “collateral damage.”
Intelligent investors who can see the truth are inherently problem solvers. Tell us the rules, and we will figure out a way to survive. We’ll do much better than the masses who may not be as well informed or, worse yet, may be listening to those who don’t have their best interests at heart.
Personally, I have never felt as confident as I do today, even though the economy is in terrible shape. We have a plan in place—a solid diversification strategy coupled with position limits and stop losses—and I’m proud of our track record of great yield as well as our safety measures to limit risk.
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