Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Fed Destroyed US Boomers’ Retirement Dreams

Personal_Finance / Pensions & Retirement Oct 19, 2016 - 04:58 PM GMT

By: John_Mauldin

Personal_Finance

The more I think about where the “monetary policy community” of academic elites has brought us, the angrier I get. It’s been a long time since I’ve been this passionately upset about something.

Almost everything the Fed did to us since 2008 falls into two broad categories: interest rate repression and quantitative easing.


Here’s the federal funds rate from 2007 to 2016. The shaded area is what we now call the Great Recession.

The Federal Open Market Committee entered 2007 with the rate target at 5.25%. They started lowering it in August of that year—months before the economy went into recession. Why was that? Recession or not, many folks weren’t doing well. Even then, there was talk of banks having difficulty… though the worst was yet to come.

Look how fast rates fell. In July 2007, savers could buy Treasury bills, certificates of deposit, or other principal-protected savings instruments and enjoy a 5% or better risk-free yield. Longer-term fixed-income products offered even higher yields.

A year and a half later, the fed funds rate was bumping the zero bound, and savers could make nothing without taking on market risk. Very few wanted to do that at the time because iconic brands were blowing up everywhere.

The Fed ignored demographics

Here is the great irony and possibly the most harmful part of the Fed's monetary policy initiative. They wanted investors to move out on the risk curve. But did they bother to look at the demographics of this country?

We have a huge bulge of Boomers—retirees and near-retirees—who do not need to be moving out on the risk curve at this time in their lives. They need Steady-Eddie returns, and they need to be reducing their risk, not increasing it.

A sober look at the current economic environment reveals overvalued, overbought, and illiquid markets everywhere. Ultra-low and negative interest rates have created an environment of risk that is looking more and more like a bubble in search of a pin.

By reducing the incomes of retirees and terrifying near-retirees, the Fed successfully reduced economic activity. Hopefully, that was not their intent, but that is what happened.

If and when the economy bursts, it will take the retirement dreams of millions of Americans with it.

This policy error will affect hundreds of millions of people

From the Fed’s viewpoint, super-low interest rates were economic stimulus. With borrowing costs so low, we were all supposed to race out and buy stuff.

What did happen was the opposite of stimulus, at least for those who were not the direct beneficiaries of quantitative easing. That would be the people who actually wanted to be prudent and save and put money in fixed-income and certificates of deposits.

Remember when you could invest in a CD at 5% to 6%? What a quaint notion.

Companies should have expanded and hired more workers. Homebuilders should have been incentivized to build more McMansions in the suburbs, knowing that qualified buyers would appear like magic. What was supposed to happen was a normal recovery. What we got was the weakest recovery on record.

Not only that, the Fed destroyed the retirement hopes and dreams of tens of millions of my fellow US Boomers. When we include the effects of the destructive policies of the rest of the world’s central banks, the number becomes hundreds of millions.

The secure and protected world our central bankers live in is far removed from that of the American or European middle class retiree. The purity of their theory and the clarity of their economic thought is clearly far more important to them than people’s wellbeing.

Get a Bird’s-Eye View of the Economy with John Mauldin’s Thoughts from the Frontline

This wildly popular newsletter by celebrated economic commentator, John Mauldin, is a must-read for informed investors who want to go beyond the mainstream media hype and find out about the trends and traps to watch out for. Join hundreds of thousands of fans worldwide, as John uncovers macroeconomic truths in Thoughts from the Frontline. Get it free in your inbox every Monday.

John Mauldin Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in