“Mr. Bernanke, on the way out, don’t let the door hit ya, where the good Lord split ya!” That’s what I’ve imagined my former coworker Charley—a brilliant Alabamian who was proud to be called a redneck—might have said as the former Fed chairman stepped down.
In case you missed it, here’s Bernanke’s highlight reel:
- The Federal Reserve jumped in and bailed out “too big to fail” banks that made bad business decisions.
- The Fed continued to buy Treasury bonds in order to keep interest rates down.
- The Fed openly acknowledged that their policies force seniors to put their life savings at risk.
- Around 25% more baby boomers and Generation Xers will not have enough money because of Fed policies.
- The Fed is creating a stock market bubble that will eventually burst.
- Bankers are making record profits and paid out record bonuses for 2013.
- Bernanke left behind a 100-year money supply that is continuing to double annually.
During his tenure, Bernanke essentially acted as the chairman of a corporation owned by banks and bankers. I’ve touched on the difference between the Fed’s published goals and how it actually behaves before. The party line: the Fed is a government agency acting in our best interest. Mr. Bernanke is just one of many chairmen who have continued to foster that illusion.
In Code Red, authors John Mauldin and Jonathan Tepper pull the curtain on Zero Interest Rate Policy (ZIRP) to reveal a merciless wizard. Basically, the Federal Reserve has deliberately driven interest rates so low that safe government bonds and government-backed CDs offer interest rates that do not keep up with inflation—which translates into true negative yield for investors. Historically, these fixed-income investments made up the majority of retirees’ investment portfolios.
In the words of the authors:
“When real rates are negative, cash is trash. Negative real rates act like a tax on savings. Inflation eats away at your money, and is, in effect, a tax by the (unelected!) central bankers on your hard-earned money. Leaving money in the bank when real rates are negative guarantees that you will lose purchasing power. Negative real rates force savers and investors to seek out riskier and riskier investments merely to tread water. It almost guarantees people don’t save and stop spending.
