Friday, March 2, 2012

Ron Paul,Bernanke And the Core Economic Message Of Conservatism

UPDATE:Daily Pundit covers some of the same territory including the bernanke "buy stocks" arrogance AT THIS LINK
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Chris Smith  ("Smitty") The technical genius and editorial contributor to Stacy McCain's unique conservative site "The Other McCain" has posted an article, reproduced below with his kind permission, that is at the very core of what conservatism means in the economic sphere. I am of course very appreciative of not only the reproduction rights but the ability to add to the dissemination of such important facts.


In addition Smitty's post I add my comments  before it commences. At the end of his post I add my previous article on the subject which describes the actions of the Fed as "The greatest theft in history" as it relates to destroying the income earning ability of savers, especially older ones, to prop up the Obama economy whilst piling up debt.There is a comment from a reader of Smitty's post which expands on that aspect of Bernanke's low interest rate policy.

I am an agnostic on Ron Paul's suggestion that there is some sort of return to the gold and silver standard as I have concerns regarding the ability of a finite resource to support an expanding economy. I am not an agnostic about the concept that the market knows best, is best left alone within a fair play framework, that governments printing and borrowing money leads to debt and inflation and economic collapse.


I thought Bernanke's response that he was doing savers a
favor by giving the 0.25% when he stated, to paraphrase, "interest should be at
zero, but thanks to us (the Fed) it isn't, and savers should be grateful" was
terribly arrogant.



That aside, if instead of the Fed setting the interest
rates, the market did, then instead of being grateful for "above zero"
returns savers would receive a competitive market return.With the cost
of money being at market-not artificial Fed created rates, it would
reflect the real inflation rate and savers would be getting, say, Ron
Paul's "midway for the sake of argument" around 5% mark.


That would give savers an incentive to save and a genuine return above inflation Instead of being forced into the share market, which may lose them money given the short term window many have, or subject them to stress
as the market gyrates. The market returned zero last year BTW which
fits Bernanke's formula I presume.



Bernanke's end statement that lending is increasing is probably true
as if you keep throwing  fiat money into the economy it must have an
effect eventually. What he didn't say was that the national debt is
also increasing . No doubt the argument will be that when the economy
takes off he can start paying the debt off. But when has that happened on a
long term basis?


Paul And McCotter Grill Bernanke On Inflation, Which Is Unexpectedly Higher Than Bernanke Will Admit
Posted on | March 1, 2012 | 6 Comments and 3 Reactions
by Smitty
It is blatantly obvious to the most casual observer that Ron Paul’s insistence on honest, tangible cash removes him from consideration for President as much as his foreign policy. Paul is trying to make a serious legal tender argument, and Bernanke glibly deflects the question:
The wild, irrationally exuberant Thaddeus McCotter ejaculates almost spasmodically on the topic of people who have money in savings accounts currently being devoured by inflation:

A paraphrase:
Bernanke points out that people could have put their money in the stock market, and repeats the mantras that the economy is recovering, monetary policy is set for recovery, inflation is kept low and stable. McCotter replies that the Federal Reserve is investing public money stupidly. A hurt-sounding Bernanke replies that while the Federal Reserve may be incompetent, the Fed is all that we have.
The American Institute for Economic Research points out that, for those with sense, inflation is roughly 8%. This gets at Paul’s point in the clip above that our government, if not lying outright, at least is not communicating usefully about economic realities. Even the most rectal-sunshine-loving folks on the Left have got to be getting sick of this nonsense.
Comment;
It is outrageous to suggest people should have their savings in equities.  That is fine up to a point for younger people who already have an emergency cash reserve.  But people at or nearing retirement age should avoid volatile investments like equities in favor of more secure instruments like bonds and CDs.  Any financial adviser will tell you this.
Bernanke is advising seniors to take unwise risks, and penalizing savers who do not.
Neither CPI nor the AIER numbers measure inflation.  They are measuring prices, which can be an indicator or result of inflation.
Actual inflation would be the amount the money supply has increased beyond that necessary to replace worn out currency and keep pace with growth.  Why no one does these calculations is a mystery (it should be a core function of the Fed), but my guess is it is closer to 20% over the last two years.  It just hasn't shown up in prices yet because of the shell game the FRB is playing with "quantitative easing" (buying bonds with no money - I tried this on gasoline, it doesn't work at all).

MY PREVIOUS POST



In an article at Yahoo Finance from US News and world report by Philip Moeller entitled "Near Zero Interest Rates Challenge old Bond Portfolio Rules AT THIS LINK Moeller leads with the following;


"With the Federal Reserve publicly committed to keeping short-term interest rates near zero until the end of 2014, investment advisers are scrambling to find sources of retirement income for older clients."
For those who have worked and saved all their lives and retired in the expectation, after careful budgeting analysis, that their investments would return a moderate income from reasonable interest rates the Fed's low interest rate policy has meant a substantial drop in their life style. 


We are not talking about the rich, or even the moderately well, off to whom a drop in income would be a nuisance or the foregoing of some luxuries, but rather the average person with an average retirement savings whose lifestyle has been severely impacted.
Not only has there been a loss of income for these people who put their trust in honesty,thrift and America but they have been also hit by uncertainty and worry as they scramble to make up for the loss of income-if they chose that path.-again, from Moeller's report;
"We're not dramatically shifting because of the current interest-rate environment," he explains. Like many advisers, Meehan thinks the decline of interest rates during the past few years has provided bond investors with attractive capital gains. But with rates so low, he says, "bonds are more of a yield game at this juncture than about capital appreciation." And yields are so low that "yield-oriented investors are in a very perplexing situation."
"Most investors have spent virtually their entire investing lives in a period of falling yields and increasing bond values--bond heaven," says Marilyn Capelli Dimitroff, an adviser in Bloomfield Hills, Mich. "With rates near historic lows, the upside potential for returns in bonds is limited, and the downside risk, longer term, is large--the opposite of bond heaven."
Her clients' portfolios are generally composed of growth and stability portions, she says. The Fed's policy has "drastically reduced" income in clients' stability holdings. At the same time, the Fed's move has not altered clients' expectation for low volatility in fixed-income holdings. "As a result, we are more likely to increase allocations to equities than to chase yield [in fixed incomes] by extending maturities or compromising credit quality," she says."


Of course many retirees would avoid the market altogether thinking, perhaps justifiably, that although they might make a short term gain, possibly, the risk of a market collapse is highly possible as well what with the unstable international environment and the USA's debt crisis.
The Fed's low interest rate policy is in place to try and kick start economic activity. So far it has been a miserable failure with real unemployment at 15% and debt upon debt piling up to who knows what Grecian type of ending. This Obama administration supporting effort has come from the purses and toil of the elderly and all savers and is the biggest theft in world history.

 A cynic would consider that that result is obvious to those running the show but the savings generation will die off, perhaps some hastened to their ends by worry, and long term their votes will not be counted. 2012 gives them a chance to reverse the interference of the government in the natural workings of the market which is the only proper solution to any economic problems and to generating real growth which rewards all and penalizes none.
Ron Paul has some good plans for the Fed.
See also "Investor's Scramble as Fed Extends Low interest Rate Policy; 
AT THIS LINK



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