by Ken Vincent, Featured Contributor
THERE IS NO arguing that the Fed is keeping the interest rate tamped down to near zero. Why?
Who gets hurt? Well for starters the seniors trying to live on a fixed income from investments. Every CD and bond that matures, having been earning 4 or 5 % now must be reinvested at 1% or less. Income drops. Spending must be curtailed and that doesn’t help a consumer based economy. After a certain point the seniors can cut no more and begin to consume their capital. More and more of them are now running out of capital and going on food stamps and other government subsidies. Many are also going back into the work force.
In addition to the seniors everyone trying to save for retirement or for college tuition gets hammered. Those retirement plans and savings plans are virtually stagnant. That means that in real dollars they are actually shrinking due to inflation. To compound the problem company and government retirement and pension plans are shrinking and under funded. Most of those have used projected earnings of 5 to 8% to keep them funded. Now that isn’t reality and more capital must be injected to keep them solvent and that isn’t happening in most cases.
So, who wins? The federal government wins. Raising the interest rate to the normal level of 4 or 5 % would cost the government some $50 billion per month in interest and they can’t handle that. The end result would be a further down grading of US credit and people wouldn’t get re-elected. The worst of all worlds in their minds.
Someone said to me that we should just trust the Fed, that they must know what they are doing. Are you kidding me? The Fed doesn’t have a clue. They can’t even keep their own house in order. The Fed is insolvent with a debt to equity ratio of 77×1. You or I would be declared bankrupt with a balance sheet like that.
So, we find ourselves in a quagmire of no good answers. Keep interest rates low and eventually that cost will further dampen growth? Let interest rates rise to a normal level and the government must finally admit publicly that it is bankrupt?
Ethics in government, the ultimate oxymoron.
