were not altogether sure what touched off MSNBCs
Dylan Ratigan yesterday.
We love it
when these guys lose their cool. This is not nearly as entertaining
as Jim Cramers tantrum imploring the Fed to open the
discount window in 2007, but pay attention to the content
the faces of the support staff behind him! Heh )
not 100% sure what Mr. Ratigan means by extraction.
profits, socialized risk is a theme you should be familiar
with here in The 5. Financial repression is another
we heard a lot about during the Symposium in Vancouver.
sounds more like a dental procedure, but from the context, we believe
he means a class of financial engineers intentionally stripping
the productive classes of their remaining assets.
our best guess considering his rant came two hours after the
Federal Reserve made its own extraction plans known to the world.
the Fed put savers on notice: Youre screwed for the next two
years. At least.
background: On Dec. 16, 2008, the Federal Reserve launched the first
round of quantitative easing, accompanied by a decision
to slash the federal funds rate to an unprecedented 0-0.25%. The
Fed statement said conditions would warrant these exceptionally
low levels for some time.
On March 18,
2009, the Fed sought to be more precise in its time horizon, promising
these exceptionally low levels for an extended
Every six weeks,
the same language has turned up in the Feds statements
an all-too-easy source of mockery for your 5 Min. editors.
the fun stopped. Now theres an actual date (well, year, anyway)
attached to the extended period. Boo.
currently anticipates that economic conditions including
low rates of resource utilization and a subdued outlook for inflation
over the medium run are likely to warrant exceptionally low
levels for the federal funds rate at least through mid-2013.
There you have
it: The Fed has acknowledged the economy is going to be jonesin
for at least two more years and will require the IV drip of near-zero
interest rates just to stay alive.
Feds decision, the yield on a 10-year Treasury note sank to
2.14%. Thats only 7 basis points away from the all-time panic
low reached a couple of days after that first QE declaration from
the Fed in December 2008.
More to the
point, the Fed has made it plain that savers will continue to be
this day onward, wrote former hedge fund manager Bruce Krasting
at his blog last night, every buy-and-hold investor who acquires
Treasury debt with maturities of less than five years is guaranteed
to lose money.
This is the
reality of something we discussed in Vancouver last month: Financial
repression. The Fed will keep interest rates artificially low so
the Treasury can keep its own debt service costs down.
Department blows through $3.8 trillion in a year on $2.2 trillion
revenue. But at the moment, barely 5% of that total goes toward
interest payments on the debt they issue to make up the difference.
Thats a sweet deal. Treasury officials would love to keep
the drip going for as long as possible.
Good for the
Treasury, not so good for you because it means you get still
more in the way of negative real interest rates. This
morning, a 5-year CD yields 2.25%. But consumer prices are running
at a 3.6% annual clip. So your CD is actually losing you 1.35% in
purchasing power before taxes.
To borrow a
phrase from the computer world, this isnt a bug: Its
a feature. The Fed is purposely forcing you out onto the risk
curve so that prudent savers will buy stocks and prop up the
2007 flashback, Alan Greenspan accidentally gave away the game in
his Daily Show interview with Jon Stewart:
When you lower interest rates, it drives money to stocks and lowers
the return people get on savings. Greenspan: Yes, indeed. Stewart: So theyve made a choice We
would like to favor those who invest in the stock market and not
those who [save] Greenspan: Thats the way it comes out, but thats
not the way we think about it.
the segment in I.O.U.S.A. despite Greenspans own proclamations
in the film that without savings, there would be no future.
negative rate world, said David Franklin of Sprott Private
Wealth during the Symposium in Vancouver, speculation must
be part of your portfolio. And gold is the safest among those
gold is powering to new highs again. The spot price crested
$1,800 briefly today, later pulling back to $1,777. Only 72 hours
ago did the price break through $1,700 for the first time.