It’s madness, I tell you, madness! A friend of mine has $2 million with Chase earning a “preferred” interest rate of 0.7%. Why would anyone leave their money with a bank for a ridiculous seven tenths of one percent interest? This is not unusual. Most older and wealthy people still favor bonds and CDs for safety. Safety? Are you kidding me? Inflation is running more than ten times what they are getting in interest. My friend does not grasp that his two million dollar deposit, even after the 0.7% interest he earned, is actually worth $1,879,902 in actual inflation-adjusted dollars. He LOST $120,098 to inflation. Actually he lost twice that much, because he locked his money up for two years (the $120,098 is a one year loss) in order to get the “preferred” rate of 0.7%. This is in the name of “safety.”
I pointed this out to him and also pointed out that gold has increased on average over 20% per year for the past 11 years. He is thinking about it. That usually means nothing will change. I just don’t understand the rationale of the masses. They just don’t get it and they don’t want to get it. The thought of our dollar losing value is too awful for them to admit to. So they float along, doing the same things that they always have done and refuse to see that the rules of safe investing have changed – forever!
The market reacted to the Fed statement regarding the purchase of bonds. Of course, gold was hammered. Here is what Jim Sinclair had to say about it:
Fed Notes Significant Downside Risk To Economic Outlook
September 21, 2011, at 2:22 pm
The key element in this statement is “significant downside risk to the economic outlook” followed by “introduction of operation Twist, an ineffective strategy that will lead back to QE.” This is basically pro-gold, anti-dollar regardless of how the market has reacted. That is an undeniable reality as the accordion shaped chop in the price of gold continues.
The third skier illustration is the final result of the “significant downside risk to the economic outlook” contained in today’s Fed statement.
(FED) FOMC Statement September 21, 2011
Written by Federal Reserve | Sep 21 11 18:23 GMT
Information received since the Federal Open Market Committee met in August indicates that economic growth remains slow. Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has been increasing at only a modest pace in recent months despite some recovery in sales of motor vehicles as supply-chain disruptions eased. Investment in nonresidential structures is still weak, and the housing sector remains depressed. However, business investment in equipment and software continues to expand. Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. Longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect some pickup in the pace of recovery over coming quarters but anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee’s dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.
To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to extend the average maturity of its holdings of securities. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.
To help support conditions in mortgage markets, the Committee will now reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition, the Committee will maintain its existing policy of rolling over maturing Treasury securities at auction.
The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent and 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.
The Committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability. It will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action were Richard W. Fisher, Narayana Kocherlakota, and Charles I. Plosser, who did not support additional policy accommodation at this time.
Link to full statement…
And then – there are comments by our friend, Andy Hoffman:
Well, the Fed’s statement is OUT, and it SUCKS!
As discussed in this morning’s RANT, there is NOTHING left in the Fed’s arsenal of MONEY-PRINTING TRICKS, and I mean NOTHING! All that is left is to manipulate markets, which is essentially what “OPERATION TWIST” means.
The Dow tanked on the news that the Fed will do EXACTLY what was expected, to flatten the yield curve into a 0% PANCAKE by buying long-term Treasury Bonds of essentially all maturities. Given that the 10-year T-Bond is now yielding an essentially ALL-TIME LOW rate of 1.8%, and that real estate markets continue to collapse month after month, why on Earth would ANYONE believe pushing rates even LOWER would change ANYTHING? Banks aren’t writing new mortgages AT ALL (pink slips are more like it), and the COLLAPSING economy and real estate markets are certainly not yielding increased mortgage demand!
This announcement will represent a major inflection point in public PERCEPTION about the Fed’s ability to manage the economy, as it represents MANIPULATION SATURATION to the nth degree, and doesn’t even make sense ON PAPER. Last week’s ridiculous Fed/BOE/ECB/BOJ/SNB joint effort to provide UNLIMITED PRINTED DOLLARS to essentially any bank that asks for them hasn’t improved bank stocks, or credit spreads, or ANYTHING! In fact, I see this morning Moody’s downgraded Citibank, Wells Fargo, and Bank of America BEFORE the Fed decision, even more telling in that Warren Buffett is a major shareholder of WFC and, of course, BAC!
Looking at my screen, I see that, as ALWAYS when any Fed decision is made, gold’s INITIAL REACTION was to soar and the Dow to plummet, until the Cartel of course came in minutes later to change that perception, per my forecast this morning. But even now, an hour later minutes later, the Dow is still down 125 points (with the PPT preparing a late afternoon Hail Mary, I’m sure), gold is only down $15, and silver is UP $0.20. Bank stocks are being PUMMELLED to their lows of the day, another telling sign. Not surprisingly, thanks to this de facto QE3 announcement, long-term Treasury bonds are rocketing to ALL-TIME HIGHS, as the American capital allocation system, once and for all, completely cannibalizes itself with Fed monetization.
The ONLY group that will benefit from QE3 are TBTF BANKS, which take free government money (such as the aforementioned joint dollar handout) and invest in Treasury Bonds, which the Fed purchases with more freshly printed money. Think about that, readers – with U.S. interest rates at ALL-TIME LOWS (close to ZERO for the 10-year note), the best the Fed can do is take them LOWER, an action that has PROVEN to have ZERO positive impact on REAL ECONOMIC ACTIVITY for the past three years. To the contrary, the added DEBT has caused a near government shutdown, downgrade of its credit rating, and record high gold prices.
Moreover, I love how this “Twist” monstrosity is characterized as selling short-term bonds to buy long-term, while in the SAME BREATH the Fed reiterated they will maintain Fed Funds at ZERO for the next two years through open market operations. Thus, what the Fed is REALLY doing is buying ALL Treasury bonds (plus selected mortgage securities), in an attempt to bring the entire yield curve to ZERO!
Which is exactly what the Japanese government did in 1990, resulting in essentially ALL-TIME lows in the Japanese economy and stock market in 2011, more than 20 years later. The big difference between Japan and the U.S., of course, is that Japan has SAVINGS, INDUSTRY, and a TRADE SURPLUS, the complete opposite of the United States!
To wrap this up (before the PPT comes in and attempts to take the Dow positive for the day, so the media and Wall Street shills will call the Fed announcement a success), what the Fed did today was announce ALL-OUT DEBT MONETIZATION. The benefit of the bond gains to the TBTF banks will be infinitesimal compared to the COLLAPSE in credit quality resulting from souring corporate and sovereign debts and soaring credit default swaps, no matter how much the Fed prints, or how large the ECB’s bastardized EFSF fund is capitalized at (initial proposals are $4 TRILLION).
I cannot emphasize enough how pathetic this ballyhooed announcement turned out to be, the product of two days of plotting nothing more than how to hold the system together for a few more months. I doubt the banking system will be able to survive that long, as now we have reached DEBT SATURATION, MANIPULATION SATURATION, and frankly, SATURATION of ANYTHING that could possibly be used by TPTB to kick the can down the road any longer.
I am more confident than EVER that the PRECIOUS METALS EXPLOSION is at hand, and once it starts sometime this Fall I would not be surprised to see gold and silver go “no offer” much, much quicker than people can imagine.
And once that point is reached, it will no longer be possible to PROTECT YOURSELF from imminent hyperinflation.