Monday, February 13, 2012

The Fed's Plan to Bankrupt You and Me

Saving for retirement?  The Fed has just promised to set you back.  According to Forbes magazine, in a statement after last week's Federal Open Market Committee meeting, they announced plans to devalue the dollar by 33% over the next 20 years.  That means if you intend to retire in 20 years (or live 20 years after retiring this year), you need to get well over 40% yield on your money just to grow your savings a little.  Under their plan, a dollar in 2032 will buy at least 33% less in 2032 than this year.

That's if they don't exceed their 2% inflation goal, and they are wildly wrong at that number.  The real inflation rate is closer to 12%, if you include food and energy, and calculate the number the way it was originally calculated.   This is something I write about regularly, here for example.  Borepatch did the same today.  Why do they want 2% inflation?  Quoth the oracles:
“The Federal Open Market Committee (FOMC) judges that inflation at the rate of 2 percent (as measured by the annual change in the price index for personal consumption expenditures, or PCE) is most consistent over the longer run with the Federal Reserve’s mandate for price stability and maximum employment. Over time, a higher inflation rate would reduce the public’s ability to make accurate longer-term economic and financial decisions. On the other hand, a lower inflation rate would be associated with an elevated probability of falling into deflation, which means prices and perhaps wages, on average, are falling–a phenomenon associated with very weak economic conditions. Having at least a small level of inflation makes it less likely that the economy will experience harmful deflation if economic conditions weaken. The FOMC implements monetary policy to help maintain an inflation rate of 2 percent over the medium term.”
This inflation rate has already sapped most of the value out of the dollar.  Over at Washington's Blog, there are a couple of plots of the decrease in the value of the dollar.  We've done it here, too, and you can see some charts I constructed in my article: could we return to a gold standard in the US.  
By coincidence, I'm reading Robert Kiyosaki's latest book "Unfair Advantage" and this is one of his main topics.  The "debt is money" system is set up to destroy savers.  He says if you're going to save, don't save dollars: save gold and silver.  The only asset in the last decade to come close to matching the yields we need is the precious metals.  Forget the idea of buying and holding stocks in a 401k.  That ship wrecked and is in pieces on the rocks. 

Savings?  Give me a break!  The Banks that run America (Goldman Sachs, JP Morgan) have demanded an end to zero interest.  They want negative interest!  They demand that you pay them for the privilege of buying bonds. Forget getting a return on investment.  In the quote of the day,  commenter Chuck Bone on that Zerohedge article says,
In Soviet America, government debt earns interest from you!


  1. Yep, 0bama said he wanted fundamental change, and he's working his damnedest to do it!
    Middle class? Oh, you mean the new "Serf Class"!
    Although focused on the housing bubble, one of my favorite blogs, has been discussing the economy in general, and how it's being manipulated.
    I liquidated my 401(k) plans as soon as I hit 59-1/2, and could do it with no penalty. I'd rather have my money in junk silver, or the trio of "copper, lead, and brass", than in a 401(k)!

  2. Getting out of the 401k is a smart thing to do if your account doesn't allow you to put money where you'd like to. You will loose company matching funds, so add that to the yield you'd need to achieve. But it's pretty unlikely you'd get a yield greater than the real inflation rate in a 401k.

  3. These were 401(k) plans from previous employers. My current employer matches up to 4%, so that's what I'm signed up for.
    I have my investments in the precious metals market at the present time, and while it's not skyrocketing, it's showing more gains than any of their other funds. I'm seriously considering retiring next summer when I turn 62, and going to work for them as a contractor. A couple of the other guys I used to work there with are doing that. This is a company that recently came out of Chapter 11, and we all worked there before.

  4. If you're investing for retirement rather than simply saving, wouldn't you expect the price of your assets to generally rise with inflation (as varied by gain/loss)? Obviously it would wipe out savings accounts over the long term, but I don't think anything should be in a savings account for longer than a few years anyway except for an emergency fund.

  5. That's the common view, sort of "a rising tide lifts all boats". The problem is that you can't grow any wealth. If you're 30 now and looking to retire in 35 years or so, you can't put your entire pay away. You put aside a portion and expect it to grow with compound interest - or going along with an Index fund in the stock market.

    The problem is that it doesn't seem to. The market doesn't seem to keep pace with the devaluation of the dollar. The Dow has been in the 12,800 region for a while now, and breathless commentators say it hasn't been that high since (don't remember - say 2005?) The problem is that $12,800 today is worth less than $12,800 in 2005, by a substantial amount. I know the official currency destruction rate - sorry, official inflation rate - is only around 3%, but the actual inflation rate is quite a bit higher. If the inflation since then has been a total of 10% - less than 3% per year - today's Dow is worth 12,800 -1280 or $11,520. If you left money in the market, you've lost wealth through inflation. BTW, I think inflation has been closer to 10% per year.

    I wrote about some of this here.

  6. I don't believe that the market has regained the value it had prior to the crash; any perceived rise is almost certainly heavily buoyed by inflation. That said, over the even longer haul - say those 35 years that I'm looking at as a 29 year old - one would still normally expect the market to correct and achieve the ~8% average annual growth benchmark gurus are fond of assuming. It seems like it ought to persist unless things are well and truly broken - certainly a real possibility.

    Is there a financial equivalent to the RKBA saying about how if it's time to bury your guns, it's already time to dig them up again? There should be.

  7. Over the long term, I think the stock market is going to be dismal, with negative real returns as far as I can see. I base that on post which came from a post Donald Sensing had up.

    Simply put, too many people trying to sell stocks to live on post-retirement. The amount to be sold appears to be about three times the world market up to now. Not a recipe for a rising tide.

    Hate to be such a downer...