Federal Reserve and Big Banks Are Going to Crush the Dollar … and American Savers
The Fed’s EXPLICIT Goal Is to Devalue the Dollar by 33% … and NEGATIVE Yield Bonds Are Coming
The Federal Reserve’s explicit goal is to devalue the dollar by 33%.
As Forbes’ Charles Kadlec notes:
The Federal Reserve Open Market Committee (FOMC) has made it official: After its latest two day meeting, it announced its goal to devalue the dollar by 33% over the next 20 years. The debauch of the dollar will be even greater if the Fed exceeds its goal of a 2 percent per year increase in the price level.
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The Fed has announced a course of action that will steal — there is no better word for it — nearly 10 percent of the value of American’s hard earned savings over the next 4 years.
While that is stunning, it is actually par for the course for the Fed:
Here’s a chart of the trade weighted US Dollar from 1973-2009.
And here’s a bonus chart showing the decline in the dollar’s purchasing power from 1913 to 2005:
The giant banks – through their treasury borrowing committee headed by JP Morgan and Goldman Sachs – are also demanding the issuance of negative yield bonds.
In other words, the too big to fail banks want Americans to pay to have the luxury of holding their money in bonds.
American savers – and especially those living on fixed incomes and pensions – are going to get creamed.
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February 15th, 2012 at 1:51 am
“its goal to devalue the dollar by 33% over the next 20 years…”
How about this for sick: according to the first chart, the dollar has devalued the same amount over the last decade, so devaluing 33% over the next 20 years would actually be an improvement.
February 15th, 2012 at 2:35 am
Savers the world over have had an extremely raw deal for… well… for a very long time. I’ve tried saving and it sucks. Saving is only useful if it allows you to borrow and invest.
You may as well join the party because the learning machine that runs the world (banks) has decided that it will not allow 2008 to happen again, where for a few months it was a good idea to hold cash.
What will turn the tide in favor of savers? Not a change policy at the FED or anywhere else. Only a true political and social revolution will do it. I have no idea what form that will take but I will try to remain vigilant.
February 15th, 2012 at 2:37 am
Without inflation workers would have little incentive to be productive – many would reach a plateau and coast for the rest of their careers figuring they were making enough money and companies seldom cut pay. Inflation is the stealth paycut for the Wally’s of the world.
It will be interesting to see if the Fed can keep the rate of inflation at 2%. Gasoline was $0.25 a gallon in 1973 (I remember because it doubled the next year when I turned 16 – I’ve been bitter about that for 37 years). Gas is $4 now, so it’s doubled 4 times in 37 years or using the rule of 72, appreciated 8% a year for 37 years. I have trouble believing that inflation has only been 3% a year over that period. Of course, using the inflation calculation methodology of the Fed, since cars get twice the fuel mileage they used to get, the real rate of gasoline inflation is only 4%.
February 15th, 2012 at 2:46 am
Actually, it’s much worse than 33% because the consumer price index on which that is targeted, conviently doesn’t include gas and food prices. These are certain to rise in price much more than 50%.
February 15th, 2012 at 4:59 am
Fed is powerless. They will lose control as they have many times. People think the Fed controls everything when rates went from 1 to 15 back to 1.
The 2 percent inflation target is just an illusory goal and one they will fail to achieve. I expect deflation to come roaring back.
February 15th, 2012 at 5:46 am
Inflation makes the value of the dollar go down, deflation makes it go up. Note that the value of the dollar went up during the Depression, how’d that work out for us?
Average American has been getting “creamed” for years with stagnant wages, watching low-information jobs sent overseas, all the while the top 0.01% gets pay packages “relative to the top 10 of their peers”, which means they always get raises. This ain’t the Fed’s fault.
We wanted “stability” in the world through increased trade, how’s that working out for us?
February 15th, 2012 at 5:52 am
There are approximately three groups in America: workers, those on Social Security, those living from portfolios.
Workers wages tend to go up with inflation, so there’s no net harm. They benefit from the faster growing economy that Fed action produces.
Social Security is adjusted for inflation, so they’re not hurt
Those with portfolios tend to own stocks, which benefit from the faster growing economy that Fed action produces.
In other words, the vast majority benefit from the Fed’s actions and it’s a rare sort who is hurt.
Negative yield bonds? Many bonds are trading at negative yields. Look at the real yields of Treasury Inflation Protected Securities – they’re trading at negative yields for maturities over 10 years. Current treasury rules prohibit issuing negative yield bonds at auction – the treasury is forced to auction bonds at rates way above market. All the rule change would do is allow auctions to be held at market rates.
February 15th, 2012 at 6:56 am
Owners of bonds have NOT had a raw deal the past few years. What could you sell a 2000 issued 6% 30 yr $100 bond for? I’d imagine a lot more than $100. Bond investors have done much better than stock investors over the past 12 years. Thinking only about yields would be equivalent to an investor who switched from MSFT to AAPL complaining about the lack of a dividend. To ignore the capital appreciation of bond holdings is being intentionally misleading.
February 15th, 2012 at 8:54 am
Worker wages tend to go up with inflation? Really? Explain this, then. Please:
“The median household income adjusted for inflation fell to $49,445 in 2010, a 7 percent decrease from a peak in 1999. The last time American households earned less than a median of $50,000 was in 1996. Meanwhile, the nation’s poverty rate reached 15.1 percent in 2010, the highest level since 1993.”
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February 15th, 2012 at 9:07 am
“American savers – and especially those living on fixed incomes and pensions – are going to get creamed.”
Yes. Indeed. May they save less, and spend more–preferably on real investments in new industries that actually create jobs rather than pieces of paper representing an equity stake in an already established business.
Go back, and look at the graph of the dollar bill. Note that the gentlest slope of that graph is over the past 25 years. A 2% annual rate of inflation isn’t any steeper than that. Amazing, isn’t it, how we all managed to survive, and prosper quite nicely, over the preceding decades when the value of the dollar was much more volatile?
People who focus this unduly on the value of the dollar really don’t understand money in economic terms.
February 15th, 2012 at 9:18 am
Retirees and mom and pop savers are not bond strategists. Obama interest rates are nothing more than a redistribution of assets to buy votes as determined by the pols in charge. The saving class must not be a part of the grand reelection strategy.
Manipulated interest rates to subsidize the government spending orgy force many to seek more speculative instruments to get yield. And when speculating the inexperienced almost always do poorly, unless they are lucky.
February 15th, 2012 at 1:22 pm
@foosion;
“Current treasury rules prohibit issuing negative yield bonds at auction – the treasury is forced to auction bonds at rates way above market”
WHAT???? Are you telling me that my government hands over TIPS at below market value to the primary dealer, who then immediately sell it to an underfunded public employee pension fund – cashing in a fat profit for nothing???
February 15th, 2012 at 6:36 pm
This is just a dopey article.