Is the Federal Reserve ruining American Savers

[oilyfan]

Yes the increase in the money supply benefits people with debt, it hurts the savers. I believe part of the plan for the US is to devalue the dollar so that its massive debt takes less to pay off. Right now it is not as apparent because the doallr is still seen as a safe haven in the middle of the all the "crises" around, but at some point the dollar has to drop.

[afc wimbledon]

The only people that save are the chinese, this screws them. Yanks don't save, they spend spend spend!!!!

[afc wimbledon]

Originally Posted by macker

With US politicians spending trillions of dollars that they don't have they clearly don't seem to understand the problem that they have. The combination of massive spending and massive printing spells disasterous consequences for hard working, honest savers. Right now what the Federal Reserve is doing is ruining an entire class of people. How can a saver truly save when the Fed is destroying savings and there is no yield to be found as rates are being artifically suppressed. As the Fed continues to print money your only choice is to own real assets that may depreciate but likely not to the same degree.

The Fed claims to be on the sideline but ready to print more money but this is not the case and they are lying as they are in the market right now. All you have to do is look at the Feds own charts which don't lie.
http://research.stlouisfed.org/fred2/graph/?id=M2


Heard Paul Volcker and John (Jack) Bogle speaking on this today and I would feel a lot better about the outlook for the US and the markets in general if these two 80+ year old farts were in charge of things.

You have to seperate the long term from the short term in this, the policies that the US needs to follow in the long term, massive budget cuts plus tax raises to clear the deficit and reduce the debt will screw them in the short term by destroying an already shacky economy in a weak world market, in the short term keeping the money supply flowing and people spending money allows the economy to hopefullly streangthen with its associated increase in employment figures.

[macker]

Only problem is the short term results of printing money isn't working and money printing isn't creating actual jobs. Like an anti-depressant drug that is having side effects that are making the issues worse not only in the short term but more significantly in the long term. QE1, 2, 3 etc. will all be looked back upon as huge failures.....like a sump pump....

[afc wimbledon]

Originally Posted by macker

Only problem is the short term results of printing money isn't working and money printing isn't creating actual jobs. Like an anti-depressant drug that is having side effects that are making the issues worse not only in the short term but more significantly in the long term. QE1, 2, 3 etc. will all be looked back upon as huge failures.....like a sump pump....

The US economy has stabalised and seems mildly positive, so the stimulas appears to have worked, and in the long term it is just 10 percent on the overall debt, which while not insignificant, if it does save the US form a brutal depression is money well spent, certainly a hell of alot better spent than the same amount of money wasted in Iraq and Afghanistan.

Do not make the mistake of thinking that just because the US isn't booming then QE has failed, with the circumstances the world was/is in it was only ever going to prevent a depression.

[Slava]

Originally Posted by macker

^
You are ignoring standard deviation and beta and the consequences of risk on investments along with proper asset allocation. If you look at the returns of the 90 day Canada tresury bill rate of return since 1950 it has been 5.7% with a risk factor of 4. 5 year GIC rate of return since 1950 6.9% with a risk factor of 3.4 and DEX Long bond index over the same period of time 7.5% with a risk factor of 9.8.

What you are suggesting is that people should suck it up and give up on modern portfolio theory and managing risk in retirement time zone etc. and move up the ladder as the FED knows best and most people are better suited chasing the long term return of the S&P TSX Composite of 10.3% and just ignore the fact that the risk factor is 17.1. After the lost decade I am sure a lot of retirees will be happy to hear this strategy and won't worry about asset classes that have been removed from the pie. What about people that don't want to take on as much risk in their investments. Where should they park their money?

I really wish I had more time for this, but MPT is something that I disagree with entirely. I basically think its junk. The entire notion of putting a number on risk is a bad idea and I wouldn't put any faith in peoples ability to do so. Risk is one thing and one thing only, losing money.

Secondly, Standard Deviation is almost as useless. No one is worried about the upside volatility, but its measured in just the same as downside.

Anyway, I don't have time to run through all of this at this point...as much as I would love to!

[macker]

Originally Posted by afc wimbledon

The only people that save are the chinese, this screws them. Yanks don't save, they spend spend spend!!!!

On the surface but if you dig down deeper you will find that China has somewhat turned their attention from Green to Yellow and become the worlds biggest producer of Gold and backed off on buying US Treasuries so they do continue to save, just in different asset classes. China's central bank has been instructed to increase gold reserves beyond Fort Knox levels.

Likely the reason the Fed has had to continue to print print print is because of the Chinease backing off on buying and they were/are the biggest buyer. It is a cell/phone cable company type relationship between the US and China and if the US isn't careful they could just end up printing themselves into the corner.

[macker]

Originally Posted by Slava

I really wish I had more time for this, but MPT is something that I disagree with entirely. I basically think its junk. The entire notion of putting a number on risk is a bad idea and I wouldn't put any faith in peoples ability to do so. Risk is one thing and one thing only, losing money.

Secondly, Standard Deviation is almost as useless. No one is worried about the upside volatility, but its measured in just the same as downside.

Anyway, I don't have time to run through all of this at this point...as much as I would love to!

Not wanting to derail the thread but I agree that there are limitations to SD as a measure of risk. In the real world of investing, returns do not follow a classic "normal distrubution," but instead more closely approximate a lognormal distrubution. The most important criticism of SD as a measure of risk is that is assigns equal importance to returns both above and below the mean, wheras clearly only events occuring below the mean are of importance to any measurement of investment risk. Saying this SD and Beta are the measurements most commonly used and are even found on Andex charts ect so they do have some merit and should be considered when looking at risk. I also do not agree 100% with modern portfolio theory but more along the lines of a hybrid of this theory, something along the lines outlined by William Bernstein in the Intelligent Asset Allocator. Asset Allocation is the only factor affecting your investments that you can actually influence.

The point I was getting at is when you say that the Fed is gently directing people to take on more risk like it is a good thing without considering the risk that people would be taking on is too simplistic and not considering those people who can't afford to take on that much risk depending on where they are in their investment timeline. Where do they hide at this time? Ironically, based on history I outlined above, things are different now and fixed-income is no longer the safe asset class that it once was not to mention the low rates we are currently seeing. Increased risk of default and historically low interest rates mean you need to keep a closer eye on your bond holdings. What does a conservative portfolio consist of today?

[Brotato]

Originally Posted by macker

What does a conservative portfolio consist of today?

• Gold
• Cash
• Cans of beans
• Shotgun
• Ammo
• Reinforced underground bunker.

[Hack&Lube]

I dabbled in economics and finance in University but this is not my profession and I am the furthest thing from an expert. I don't believe in MPT but I do believe that it is each individual's perogative to invest wisely and manage their investments wisely. There is risk around every corner but that's life. I'm not suggesting people effectively gamble their lives away with high-risk investments or throw everything into portfolios or rely on fund managers to make their decisions for them.

I would personally never want my money to sit idle, but I'm fairly conservative in how I use it as well but I do want to be hands on with it and proactive with it. It's a nice thought that people could be having their savings remain at a stable value, but money won't make itself and if it sits idle in low-interest accounts, it will just lose value slowly with depreciation

[afc wimbledon]

Originally Posted by Brotato

• Gold
• Cash
• Cans of beans
• Large can of febreze
• Shotgun
• Ammo
• Reinforced underground bunker.

fyp

[seattleflamer]

Originally Posted by Hack&Lube

having their savings remain at a stable value, but money won't make itself and if it sits idle in low-interest accounts, it will just lose value slowly with depreciation.

And that's the thing, if you look at the 1980's during the "golden years" of savings. You had interest bearing accounts in the double digits. But do you really believe you were ahead after you factored in inflation and taxes?

Though, on the other hand, imagine getting and keeping that 30 year treasury from the early 80s with a 13% or 14% nominal rate.

Those years were an anomoly just like this time around, I sure wouldn't go long on any recently issued gov't or corporate debt. It is a matter of when rates will go up.

[Slava]

You could invest in numerous bonds, bond mandates, bond indexes and make money. Frankly speaking though the amount of risk is somewhat dependent on perspective. I think the financial services industry has done a horrible job in this regard; risk is no volatility despite people putting that theory out there. The thought of high risk/high reward is so prevalent and yet for quite sometime now studies have shown that it's not the case. That issue is entirely based on MPT and the ridiculous notion of purely efficient markets.

Standard deviation is a joke and has no place in assesing risk. I have no idea why someone would bother calculating the beta of a stock either. Yes, I've taken the courses and know how to do this...yes, to get the piece of paper I had to learn why you might do this!

In reality though these things are meaningless. The big daddy of them all though is the risk number that some profess to calculate. Its laughable at best, and to actual investors does nothing positive. Instead it gives investors a false sense of security by saying the company is somehow safer. I hate to say it, but investors have some pretty obvious ways to make money on their investments. It means doing a lot of homework and a lot of reading. They can either do it themselves or have someone do it for them, but there really isn't a substitute in my opinion. Basing investment decisions on some arbitrary concept or a number that boils risk down on some scale like this is a recipe for trouble.

[mikey_the_redneck]

Originally Posted by Brotato

• Gold
• Cash
• Cans of beans
• Shotgun
• Ammo
• Reinforced underground bunker.

Pffft, you know nothing.

It's the 3-G's

-Guns
-Gas
-Gold

[SebC]

Originally Posted by freedogger

This hidden banker tax is manifested in many ways. One of the worst ways we pay the tax is in a regressive form of inflation. Governments like the hidden tax of inflation because it softens the discipline of having to balance the books. Central bankers like inflation too. It creates the appearance of a false prosperity and allows them to prop up the collateral supporting the private banking system. When Bernanke says he wants to target a 2% inflation rate he is truly saying he wants to confiscate nearly 25% of your cash every decade.

If you had a fixed money supply, as technology/capital makes productivity go up, the nominal price of goods goes down, which means people are deterred from spending (since everything gets cheaper the longer you wait to buy it), and then the economy crashes.

Having the ability to print money and control interest rates to control inflation but setting a target rate of 0, you run the risk that you'll miss and go into deflation... and again, that's bad.

Small, controlled inflation is the way to go. You can beat inflation by investing.

[Tinordi]

most concerning about deflation is that there are no levers to pull to counteract it

[oilyfan]

Originally Posted by Tinordi

most concerning about deflation is that there are no levers to pull to counteract it

Printing money?

[Rathji]

Originally Posted by mikey_the_redneck

Pffft, you know nothing.

It's the 3-G's

-Guns
-Gas
-Gold

I think the 3 P's win out.

Porn
Power
Paper (Tissue that is)

[macker]

Originally Posted by Slava

You could invest in numerous bonds, bond mandates, bond indexes and make money. Frankly speaking though the amount of risk is somewhat dependent on perspective. I think the financial services industry has done a horrible job in this regard; risk is no volatility despite people putting that theory out there. The thought of high risk/high reward is so prevalent and yet for quite sometime now studies have shown that it's not the case. That issue is entirely based on MPT and the ridiculous notion of purely efficient markets.

Standard deviation is a joke and has no place in assesing risk. I have no idea why someone would bother calculating the beta of a stock either. Yes, I've taken the courses and know how to do this...yes, to get the piece of paper I had to learn why you might do this!

In reality though these things are meaningless. The big daddy of them all though is the risk number that some profess to calculate. Its laughable at best, and to actual investors does nothing positive. Instead it gives investors a false sense of security by saying the company is somehow safer. I hate to say it, but investors have some pretty obvious ways to make money on their investments. It means doing a lot of homework and a lot of reading. They can either do it themselves or have someone do it for them, but there really isn't a substitute in my opinion. Basing investment decisions on some arbitrary concept or a number that boils risk down on some scale like this is a recipe for trouble.

http://www.investopedia.com/articles...#axzz1l9D0QXbr

[macker]

Originally Posted by Tinordi

most concerning about deflation is that there are no levers to pull to counteract it

I think inflation will return in a big way at some point with the significant amounts of liquidity in the financial system thanks to the central banks buying bonds and at the moment much of that is sitting on US banks balance sheets waiting to be loaned out. Once it is loaned out there will be inflation.

Debt-laden governments encourage higher inflation, as that makes paying back what they owe easier. The higher the inflation the easier it is to pay back debts because revenue will be pushed up by the higher inflation while the amount owed stays the same. Monetizing debts = inflation.