Saturday, February 18, 2012

Fed's Interest Rate Policy Is Utter Theft From Retirees/Savers To Prop Up Obama Admin.



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."
As can be seen, to chase higher yields through bonds leads to uncertainly as all the old paradigms are out the window. This uncertainty leads to worry and distress for older people and,if they have to seek out financial advisers in respect of investing in the complex bond markets, the possibility of fraud and the certainty of costs to have their saving managed.
This is compounded further by looking to the share market. Certainly a case can be made that in the period of low interest rates the market has gone up which would have compensated for the loss of interest income. But how many elderly could cope with the massive market ups and downs of recent years. What would their returns be after management fees? The market for 2011 finished up exactly where it started at years end and with fee deduction the investor would have been behind, with inflation chipping further away at their savings.
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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