Don’t Listen to This Professor’s Advice On Where to Invest Your Money

Email Print

When a public broadcasting agency posts an interview on its website with a so-called economist and investment advisor, first think this expert’s opinion is being planted.

The expert, Professor Zvi Bodie, a professor of management at Boston University who is panned as “the country’s foremost expert on pension finance,” advises readers to invest in US Treasury Series-I Savings Bonds. Mr. Bodie notes there is a limit of $10,000 per person per year that the public can purchase. His online article is entitled: “The One Safe Investment and Why You Never Hear About It.”

Before you jump online to purchase one of these Series I-bonds directly from the US Treasury Department, you might want to be enlightened a little further.

Says Mr. Bodie: “You can cash them in after one year. But if you cash them in before five years, you lose the last three months of interest. (If you cash in an I-Bond after 18 months, you get the first 15 months of interest).” Keep reading.

He goes on to say that I Bonds provide “the ultimate in long-run liquid financial security to residents of the U.S. An investor in these bonds cannot lose any money or any purchasing power for up to 30 years, despite either inflation or deflation. They provide a return at least equal to the rate of inflation and, often, have paid a ‘premium’ of interest above and beyond inflation.”

Ah, wait a minute Mr. Bodie. Investors “can’t lose?” You do admit in your article that the current premium (rate of return) on these Series I bond is zero, don’t you?

Ah, but he says the US Treasury Department resets these interest rates every six months and “IF” new I-bonds are issued that do offer a premium, you can sell your lame ones for new ones, he says. Hey, we have a great advisor here don’t we?

For all of you who are novice investors, if the rate of return on government issued securities rises, so will interest on all the trillions of dollars of debt that the US owes rise. (More about that below.) The only way the US side-stepped insolvency in its borrowing frenzy was to reduce the interest paid on the national debt. Raise the rate of return on government-issued bonds and the country commits financial hara kiri (a Japanese word for suicide). It ain’t gonna happen any time soon.

Mr. Bodie favorably compares the inflation-pegged Series-I savings bond to a six-month Treasury bill that currently pays less than 1/100th of 1%. Hey that is still 1/100th of 1% better than the existing Series I bond.

Says Mr. Bodie: “Since inflation is running at 1.8 percent right now and an I-Bond automatically pays you the inflation rate, the I-Bond would seem to be rather obviously the debt instrument of choice.” This sounds like Abbott & Costello in their “Who’s On First?” routine.

Mr. Bodie says investment firms don’t tell you about the Series-I Savings Bond because it cuts them out of the deal. They don’t get a cut in the form of a maintenance fee or other management fee. You buy these Series-I US Savings Bonds directly from the US Treasury Department online. (I’m not giving you the address of the online home page out of fear you will be duped into this offer.)

Could this wise investment sage simply be a shill for the US Government? If you listen to a bona fide economist, John Williams of, you will learn the real rate of inflation (calculated the way the US government used to come up with “consumer price index” in the 1980s) is 9.3%.

Does anybody dispute John Williams’ estimation of the real rate of inflation when Americans paid $1.35 per gallon for gasoline in 1980 and pay over $3.50 per gallon today? In 1980 a loaf of bread cost ~80cents. Today you can buy three slices of bread for that much money.

Even if one of these $10,000 investments were to yield 2-3% (the rate of inflation the government publishes), you would still be losing your shirt (~ minus 6-7% per year). In five years you would have lost more than a third of the purchasing power of your money. US savers have about $8-13 trillion in long-term savings accounts that are being eroded to the point of ruination of wealth via inflation.

Nor are other investments yielding the 6-10% that you need to maintain the purchasing power of your money. In fact, you need to go plead with your boss for a 6-10% raise every year just to tread water in this hidden inflationary economy.

Mr. Zvi Bodie refers “corporate pension sleight-of-hand and public pension mismanagement.” But I see his own hand moving quickly, hiding the peanut as he moves the shells every so swiftly in this shell game of government propaganda.

According to government sources, the US government spent ~$3.5 trillion and collected ~$2.5 trillion in tax revenues, for a shortfall of $1 trillion in fiscal year 2012. However, as economist John Williams points out, the government is not using “generally accepted accounting procedures” (GAAP accounting) and doesn’t include the amount it is contributing out of general revenues towards Social Security and Medicare.

According to Williams, when Medicare and Social Security are included on the expense side of the ledger, the Federal government spent $6.6 trillion and had a shortfall of $5.2 trillion in 2012!

That does not include off-budget military spending, nor does it include revenues the government brings in via illicit drug sales that it commandeers (the US military watches closely over the poppy fields in Afghanistan and then launders the money back to the US via US banks) and the stealth revenues it derives by having overseas oil nations overcharge for petroleum and then, in a quid quo pro arrangement, have these overseas oil-producing countries funnel some of their over-charges into buying US Treasury bills that make up for some of the shortfall in the US budget. This is a covert way of increasing federal revenues without appearing to raise taxes.

How long this charade is going to be maintained is unknown. But don’t take your family’s nest egg and put it into US Treasury-issued bonds, even if you are told these will be the “last to fail” or that they are backed “by the full faith and credit of the US government.”

Email Print