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Jim Cook

 

RUNAWAY SOCIAL SYMPATHY

Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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April 10, 2013

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A TAX ON U.S. SAVERS
By Lance Roberts

The destruction of principal since the turn of the century, which is far more disastrous than it appears when adjusted for inflation, has ended the dream of retirement for many individuals. Beginning in 2008 the Federal Reserve began a consistent, and generally unprecedented, series of monetary actions specifically designed to artificially suppress interest rates.  The belief is that by creating an artificially low interest rate environment, and boosting asset prices, that will in turn spur economic growth and consumption.

It is hard to believe that it was just 5 short years ago that the 10-year treasury was yielding above 4%.  That was a return high enough to offset the rate of inflation.  Today, with the Fed keeping overnight lending rates at effectively zero – savings accounts are yielding roughly the same.  This has in turn forced “savers,” by design, to move money out of the safety of personal savings accounts to chase higher rates of return.  Unfortunately, the drive for higher rates of return has sent individuals buying the most risky of yielding assets driving yields on “junk bonds” to record lows.  This will, as it always has in the past, end badly.

However, the decline in personal savings rates is not solely due to the artificial suppression of interest rates.  The Fed’s monetary programs have led to a rising cost of living, particularly in food and energy, which has chipped away at the purchasing power parity of the dollar.  Economic growth, savings and incomes have all declined as the Fed has continually driven rates lower.  Lower interest rates have not been the boon of economic prosperity as advertised.  What history does show is that higher levels of personal savings are necessary to support productive investment which leads to economic growth rates.

What the manipulation of interest rates has historically led to is speculative bubbles.  Whether it was the “tech bubble,” the “credit bubble” or the “housing bubble” the driver of each can be directly linked back to the Fed’s monetary policy actions.  With the Fed now going “all in” with current monetary easing programs it is highly likely that the next asset bubble is already well into formation – the resolution of which is not likely to be any kinder than the past two.