The View From 1776

Fed Feeds Distortion

Bernanke’s press conference announcement again booted the stock and bond markets, but did nothing to boost employment.

Posted by .(JavaScript must be enabled to view this email address) on 01/25 at 10:14 PM
  1. The action of the Fed appears to indicate that inflation will not be significant factor in the near future (something that should warm the cockles of the Austrians and others [Thomas] who have been predicting imminent and disastrous inflation rates for the last five years).

    It is true that retirees will see a lower return on their savings, but this is because the bank interest rate on savings deposits generally tracks the inflation rate.

    There is no free lunch.

    If your savings account is not producing much interest income, at least you can be comforted by the fact that the value of your money is also not decreasing at a rapid rate.

    conversely, if your account is kicking out 10% interest, you can be assured that the buying power of your principal is also declining rapidly, due to an increased rate of inflation.

    (I am sure Bob S. will want to chime in here!)
    Posted by .(JavaScript must be enabled to view this email address)  on  01/27  at  03:56 PM
  2. Mr. Jay:

    You can find not a single piece of evidence that the interest rate on savings accounts simply tracks inflation.

    Interest, the price of money, is impacted by large numbers of factors and is the product of hundreds of millions of decisions by individuals in a free market. It's true that, when the Fed isn't artificially depressing interest rates, all interest rates tend to rise to offset inflation. Increases in interest rates also reflect, among other things, increased demand for credit and risk factors.

    Interest rates, when not artificially pegged by the Fed, always contain a spread over the rate of inflation (current or expected). The CPI most recently has been around 3%. Interest rtes paid on most savings accounts is less than that figure, making most standard savings media a losing game. To offset the Fed's manipulation requires a saver to take far more credit risk than normal.
    Posted by .(JavaScript must be enabled to view this email address)  on  01/27  at  07:20 PM
  3. J. Jay,

    As to me
    Posted by .(JavaScript must be enabled to view this email address)  on  01/29  at  12:08 PM
  4. J. Jay,

    I realize I have already taken you to task over the
    Posted by .(JavaScript must be enabled to view this email address)  on  01/31  at  07:42 AM
  5. J. Jay,

    A few articles back (see
    Posted by .(JavaScript must be enabled to view this email address)  on  01/31  at  07:44 AM
  6. Hi Bob,

    I greatly appreciate the effort you have made in your lengthy analysis, although I can't say (predictably) that I have been won over to your point of view on the several topics you have touched on. Thanks, also, for your quasi selection of a candidate (any GOP-er but Paul), and I will await further clarification of your choice as the field is winnowed. (I hope Thomas will see fit to put in his oar.)

    On my main point, I would respond to both you and Thomas, that I remain convinced (until you can point out a year where my proposed rule does not apply), that when your bank CD is offering a high rate of interest, you will also find that the inflation rate is also high.

    And, finally, to your question of whether I am doing better now than 3 years ago, I can heartily say, Yes!" Three years ago at the pit of the Bush economic crash, my retirement savings had lost about a third of their value. Slowly, they have recovered so that they are now back to where they were, or even slightly ahead. 3 years ago at the bottom of the crash, the country was losing half a million jobs per month. Fortunately, that trend has been reversed and we have been adding jobs for many consecutive months and the unemployment rate is falling, albeit too slowly.
    Posted by .(JavaScript must be enabled to view this email address)  on  02/03  at  01:06 AM
  7. J. Jay,

    So typical of you (and liberal-socialists generally). Poor guy can diddle the jigsaw pieces, but can
    Posted by .(JavaScript must be enabled to view this email address)  on  02/04  at  02:02 PM
  8. PS "Pit" of this recession was summer of 2009, after Obama failed to prevent double-digit joblessness, had pushed through Tarp, was even then pushing expensively useless bail-outs, and was well on his way to driving up national debt to inconcievable levels. That makes it (at least) as much an Obama recessionary nadir as it was Bush's; and a more honest appraisal gives far more credit to Congress (mainly Democrats) for its role in creating the entitlement mortgage mess. Bush's role in creating the 2008-2012 recession (no, I don't buy it ended in 2009) was mostly from playing along with a Democrat Congress in the mistaken belief Democrats would be restrained more by 'bipartisanship' than confrontation. He and Republicans also contributed in minor ways to porkulus and 'feel-good' programs like prescription-drug hand-outs. But, theirs were not what triggered the recession except they abetted the mainly Democrat debt-incursion and market-destabilization. I do not absolve Republicans from this behavior, but let's, at least, tar all the players proportionately.
    Posted by .(JavaScript must be enabled to view this email address)  on  02/04  at  02:35 PM
  9. I neglected to provide links backing up the AEI 15.6% jobless claim for my post #7, as is my practice. I was unable to locate the full report I referenced earlier, but the AEI report below references the U6 (shadow) BLS rate rarely mentioned in press. This is because BLS makes it available, but rarely mentions it in press releases; and the MSM is all too happy to oblige by rarely bringing it up (unless a Republican is running things, in which case they will gladly if it embarrasses). A chart showing the rates is provided at John Williams
    Posted by .(JavaScript must be enabled to view this email address)  on  02/06  at  08:31 AM
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