Bernanke to Savers, Unemployed and Wall Street: Drop Dead.

RCM ^ | 09/18/2012 | John Tamny

[SeekAndFind]

In his essential 1982 book, The Economy In Mind, the late Warren Brookes relayed a story from 1979 in which a Keynesian economist from the United States was passing through customs at JFK Airport. When the customs officer processing his entry saw his profession, he commented, "I don't know whether I should let you back in, Professor, considering what you economists have done to this country."

The officers' words take on special meaning amid Fed Chairman Bernanke's latest attempt to revive the U.S. economy through monetary machinations. Blind to the horrors of his actions, this most self-unaware of economists is bringing major harm to the economy through his efforts to revive it. His actions are tautologically inimical to recovery because they work against the economic chances of the savers, workers, unemployed workers, and creative financiers whose enterprise would lead to it, if not for the Fed.

Savers are most important because without savings, there are no entrepreneurs. This can't be stressed enough. Amid downturns the last thing a wise central banker would ever do is distort the cost of credit to levels lower than what the market would otherwise bear. Bernanke's actions tell savers that they won't be compensated for restoring the capital base, and as a result they'll continue to hide.

Interest rates must be allowed to reach their natural level free of Fed distortion. If that means they rise, that's a positive signal; one telling savers that they'll be properly compensated for taking on more risk. Just as rent controls on apartments lead to scarcity of same, so do price controls on interest rates lead to credit scarcity no matter headline rates of interest.

If you love borrowers and borrowing, you must similarly love savers and saving. The Fed acts as though savers don't matter,

[DuncanWaring]

The job the Benbernank is most interested in saving is his own.

As he increases the supply of dollars towards infinity, the value of each one goes towards zero, and the stock market goes up because the values of the companies traded there hasn’t changed, but the unit of currency they are measured against has.

The Won will then use the artificially-boosted stock market to claim “All is well” in the economy.

[wita]

“Interest rates must be allowed to reach their natural level free of Fed distortion”.

I don’t think there are many people that don’t understand there is no place for savings that isn’t pretty dangerous right now.

...and under the mattress is a losing proposition by 3 or more percent.

...but, does anyone understand after many years of false interest rates what a jump to “normal” might do to payments on the national debt?

[MSF BU]

I think a lot of savings will go into real estate, precious metals, etc. I am doing some of that as well; visiting the coin store in about an hour to see what’s available. For me this has been a monthly visit for years. It’s not a bad idea to own your house, have some reliable real estate investments and accumulate gold and/or silver in some way.

[KarlInOhio]

I think a lot of savings will go into real estate

I believe this is what Bernanke wants. He is trying to reinflate the bubble enough so that banks can dump the foreclosures and bad loans they have on their books.

Right now my aim is debt payoff. Savings interest rates are 0.01% to 1.25% maximum except for some savings bonds that are over 5% (and at inflation + 3% I expect to hold those for the full 30 years). Debt is 2.5% minimum. I hope to be completely out of debt by the end of the year. It might make sense to buy some investment real estate, but I am not willing to buy anything now because I might be moving soon and I don't want to deal with rentals a long way away.

[desertfreedom765]

You need enough of the currency to pay your property taxes and other bills. Other than that, Real Estate, PM and other tangible assets are the way to go.

[MSF BU]

I had not thought of the foreclosure payoff angle, you might be right. Rather than pay off debt though, woulldn’t a better strategy be to hold off on paying down debt then pay with inflated dollars?