Bernanke Thinks QE Is Good For Savers...(Here's Why He's Wrong)
I hate needles just about as much as I hate being in hospitals….
This week unfortunately I got a large dose of the latter. With my mom undergoing open heart surgery, I found myself trapped in waiting room hell for over 16 hours, the first day alone.
A few days out, and Mom is already doing much better – so far so good.
Unfortunately, the same can’t be said for the health of the U.S. dollar. Regardless of who won Wednesday’s debate, let’s take a look at what happened earlier this week…
Spending 16 hours in a hospital gave me plenty of time to reflect. But, along with a firsthand look at the marvel of modern medicine (and surgical capabilities) the hospital also had one heck of a strong wifi signal!
Needless to say, I’ve had more than enough time to keep a close eye on the markets – precious metals and energy got a solid bump from what could only be described as the “Ben Bernanke effect.” Let’s discuss.
The Federal Reserve Chairman gave a lunchtime speech to the Economic Club of Indiana and made more than a few, let’s say, interesting comments.
Before we get into the meat of this article I want one thing to be very clear – DRH isn’t meant to be a sounding board about Bernanke’s antics. The reason that we’re covering this story (and any relevant story for that matter) is because of its effect on the value of the U.S. dollar.
Being the world reserve currency, the U.S. dollar plays an important role in your resource portfolio. A weak dollar puts wind at your back (increasing the value of precious metals, energy and commodities) whereas a strong dollar evens the playing field a bit and creates opportunity for traditional savings.
With the advent of QE3 there’s a lot of dollar tinkering going on lately. Indeed, it’s something that many folks may not understand. Today I’ll make sure you have the must-know facts about the Fed Chairman’s recent comments – and, more importantly, show you the inherent opportunity…
Does Bernanke Think We’re Dumb?
“I’m a baseball fan,” Ben Bernanke told the economic club, “and I was excited to be invited to a recent batting practice of the playoff-bound Washington Nationals.”
“I was introduced to one of the team’s star players,” he says “but before I could press my questions on some fine points of baseball strategy, he asked, ‘So, what’s the scoop on quantitative easing?’ So, for that player, for club members and guests here today, and for anyone else curious about the Federal Reserve and monetary policy, I will ask and answer five questions”
Of the five questions that Bernanke answered for the layman, one in particular holds a lot of importance to us: “How Does the Fed’s Monetary Policy Affect Savers and Investors?”
So, without further ado, let’s see what the Chairman has to say about a topic that we’ve labeled the “war on savers.”
Although you don’t need to read the extent of the following, here’s Bernanke’s full answer:
The concern about possible inflation is a concern about the future. One concern in the here and now is about the effect of low interest rates on savers and investors. My colleagues and I know that people who rely on investments that pay a fixed interest rate, such as certificates of deposit, are receiving very low returns, a situation that has involved significant hardship for some.
However, I would encourage you to remember that the current low levels of interest rates, while in the first instance a reflection of the Federal Reserve’s monetary policy, are in a larger sense the result of the recent financial crisis, the worst shock to this nation’s financial system since the 1930s. Interest rates are low throughout the developed world, except in countries experiencing fiscal crises, as central banks and other policymakers try to cope with continuing financial strains and weak economic conditions.
A second observation is that savers often wear many economic hats. Many savers are also homeowners; indeed, a family’s home may be its most important financial asset. Many savers are working, or would like to be. Some savers own businesses, and–through pension funds and 401(k) accounts–they often own stocks and other assets. The crisis and recession have led to very low interest rates, it is true, but these events have also destroyed jobs, hamstrung economic growth, and led to sharp declines in the values of many homes and businesses. What can be done to address all of these concerns simultaneously? The best and most comprehensive solution is to find ways to a stronger economy. Only a strong economy can create higher asset values and sustainably good returns for savers. And only a strong economy will allow people who need jobs to find them. Without a job, it is difficult to save for retirement or to buy a home or to pay for an education, irrespective of the current level of interest rates.
The way for the Fed to support a return to a strong economy is by maintaining monetary accommodation, which requires low interest rates for a time. If, in contrast, the Fed were to raise rates now, before the economic recovery is fully entrenched, house prices might resume declines, the values of businesses large and small would drop, and, critically, unemployment would likely start to rise again. Such outcomes would ultimately not be good for savers or anyone else.
I apologize if you had to slog through that word vomit. But it should be overtly evident that I’m not cherry picking the Chairman’s comments. Instead, I’ve shared the question he posited and his full response…. his full, idiotic response.
Through the fluff and spin you can see that Bernanke thinks his plan actually helps savers. Heck, a headline from CNN clears that up for us: “Bernanke: Stimulus helps savers, too”
You see, in these pages we’ve never said Bernanke is waging a war on home owners, or waging a war on stock buyers. Nope. We simply said Bernanke and the Fed’s monetary policy is going to make it very hard for anyone to put cash in the bank and expect it to hold or gain value. You know: “saving.”
But in the paragraphs above you can see that Ben doesn’t grasp that simple concept. Instead he extrapolates and twists it, wringing out any last ounce of sanity. He even goes as far as to redefine “saving” for us! (Thanks for the lesson, Ben.)
Indeed, by making this speech so defiantly bold – making it seem like QE3 is good for savers Bernanke has done nothing more than show his hand.
Bernanke doesn’t believe in traditional savings anymore, his comments prove that. Instead he believes in propping up the housing market (and stock market?) at the expense of the U.S. dollar and traditional savers.
Maybe unwitting baseball players (and Indiana’s economists?) believe this mumbo jumbo is good for our well-being, but I sure as heck don’t.
Bernanke made a classic mistake. When you make bonehead policy decisions, don’t try to candy coat what’s happening with fluff and mirrors. But that’s exactly what he did. He really was trying to say QE3 is good for savers – what a crock!
But, by showing his hand he only made it easier for in-the-know investors, like us, to protect our savings/wealth. Indeed, war has been declared and traditional saving is dead.
Now’s the time to move on to greener pastures. Precious metals and dividend paying resource companies are a great place to start…
Keep your boots muddy,
Original article appears on Daily Resource Hunter