What Has the Federal Reserve Done For Us Lately?

Social SecurityThe Democrats and Republicans call their free campaign pitches “debates” these days; if they were labeled honestly, who would pay attention? Tuesday night, the Democrats were in full campaign mode, promoting free goodies in all directions. Free to the recipients, of course, meaning paid for by someone else.

That payer won’t be the government; it is already in massive deficit with accumulated debt for which it lacks any present means for repayment. So it must plan to mortgage the taxpayers’ future. But what future is that?

The  Federal Reserve has held interest rates so low for so long that just to name three, the retirement plans of the Teamsters’ Union, the UAW and the State of Illinois are presently in various degrees of insolvency as a result of years without the availability of decent returns from safe investments in interest-bearing securities. The same is widely true of others, particularly local governments who must fund pensions. Politicians and the media are very quiet about this enormous addition to the already enormous national debt that they do bring up regularly, if in perfunctory fashion.

This adds up to at least two generations of retirees holding an empty bag from their generous politicians. Present retirees who planned to rely on interest earnings from invested savings have been stiffed, after it was too late to change plans. And those trying to accumulate a nest egg presently are forced into the risky types of investments were they can lose what they need to save.

The government’s policies are not helping; the addition of large numbers of previously uninsured with Obamacare required a huge transfer of funds from Medicare to Obamcare at the expense of seniors. The Social Security Trustees have announced that there will be no pension increase for 2016 but we will bet that the rising cost of healthcare will result in an increase in the Medicare premiums often withheld from Social Security pensions. Net pensions may fall as a result.

The generation of retirees after those face the bleakest future: Great difficulty saving in a high tax, declining income environment plus declining Social Security and Medicare resources since both are in deficit now.

Thank you, Federal Reserve, for saving us!

The Fed has painted itself into a corner in its shift from just fattening the bankers to satisfying the politicians too. The  Fed is stuck. Raisin rates will increase the interest paid by large debtors (like government) that constantly roll over debts rather than repaying them. Most of those debtors can’t afford that cost increase, which will not be small. Higher rates will also depress credit for some borrowers who need to borrow. Some economists blame a similar move by the Fed for the onset of the Great Depression.

But if the Fed keeps the cheap money gravy train rolling, all the pensions plans that haven’t gone broke, will. And more bad loans will fail and ultimately, lenders and holders of their securities will go bust and if too much money is left in the economy, many see that as a primary contribution to inflation. The Fed has no attractive choices. It has done that to itself, so there is a certain justice but the astronomical cost of all of it coming down will be paid as always, by the citizens who elected the politicians who have brought it about. Deja vu …

The Federal Reserve is forcing retirees to bail out the younger generations. And the Fed is stuck It will be wrong to raise interest rates and wrong not to raise them. :

Advertisements

About Jack Curtis

Suspicious of government, doubtful of economics, fond of figure skating (but the off-ice part, not so much)
This entry was posted in Economics, Government, Politics and tagged , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s