While we wait for tomorrow's employment report, there was another big story today --- the Fed treatment of savers.
Fed Chair Bernanke testified before the House Budget Committee, responding to some illuminating questions from Committee Chair Paul Ryan (R. WI). Joe Weisenthal, who is usually on the track of the biggest story, anticipated this one yesterday:
DEAR SAVERS AND RETIREES: Stop Whining About Those Lousy Rates You're Getting From The Bank
Here is Joe's conclusion:
And while we sympathize with people not getting returns on their money, the fact of the matter is that the big problem we have right now is that people have too much debt, not an abundance of cash that's just sitting there not returning anything.
The bottom line is this: Yes, it sucks that pensioners and garden-variety savers aren't getting returns, but it also sucks for everyone in the U.S. right now, because the economic outlook seems to be so mediocre. Welcome to the club!
Until growth and inflation return to anything that looks robust, savers will have to be stuck with the same garbage returns boat the rest of us are in.
The confirmation came in Congressional testimony by Fed Chair Ben Bernanke and the ensuing questions.
There is a lot of buzz about the role of the Fed and also the leadership of Bernanke. The leading Republican candidates all want to fire Bernanke, and some of them even want to abolish the Fed. Some of the GOP House Budget Committee members have joined the criticism.
Here at "A Dash" I focus on investments, not politics. Years ago some readers called me a "Bush apologist" and a blatant "supply sider." I have tried to explain that I do not have a partisan perspective, but an investment perspective. I want to find the best investments no matter who is in power. My perspective changes with the evidence.
With that in mind, let me suggest a few propositions for your consideration. If these are not obvious, I recommend more research.
- Bernanke is a Republican, with a conservative background. This is typical for Fed Chairs.
- If President Bush had been re-elected, the current GOP fiscal argument would be different. There would be support for stimulus, including both tax cuts or spending. If you do not believe this, look back in history to the end of the Bush administration.
- If President Bush had been re-elected, the GOP monetary story would be different. They would be screaming for easy money, as both parties have always done, including past GOP administrations, and including Bush senior.
- Paul Ryan is an ambitious and aspiring VP candidate who has a theme that resonates --- balancing the budget. It is an effective political argument -- for the party out of power.
Meanwhile, the Fed is doing a good job of ignoring politics and focusing on the economy.
Investment Conclusion
I continue my plea: Look beyond politics. Most recently, look beyond the popular ploy of making a villain out of the Fed.
The Fed has a dual mandate including both price stability and employment. Here is the official statement:
The Congress established two key objectives for monetary policy--maximum employment and stable prices--in the Federal Reserve Act. These objectives are sometimes referred to as the Federal Reserve's dual mandate.
There are many who have criticized the US approach suggesting that there should be only a single mandate - price stability.
So let us all be clear about this -- very clear.
The Fed has no Third Mandate. There is no interest rate guarantee for savers!
It is difficult enough to balance economic growth and price stability. The idea that the Fed should be judged by a third criterion -- maintaining interest rates for savers -- is misguided, politically biased, displaying favoritism for one group, and basically wrong.
More importantly, it is not going to happen. Our investment decisions should be based upon reality, not the wishful thinking of those with a partisan agenda.
I understand the plight of savers and senior citizens. I work with such investors every day, helping them find a combination of a bond ladder, dividend stocks, and enhanced yield. Those who do not have a job at all face a more difficult problem. Until we have a stronger economic recovery, we are all in this together.
