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Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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Fed Actions and Their Effects on CD Rates

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With the major new actions announced by the Fed yesterday, we may see another round of deposit rate cuts. To get an idea about what to expect, I thought it would be interesting to see how CD rates have changed after past Fed accommodations. I would like to think that CD rates are near a bottom, but as we learned over the last 4 years, rates can keep falling.

I looked at 5 top 5-year CD rates right before the Fed meeting and about a month after the meeting. I included the 4 FOMC meetings since 2009 in which the Fed announced either quantitative easing (QE1 and QE2) or a change to its low-rate guidance. The low-rate guidance is the language in the FOMC statement in which they say "exceptionally low levels for the federal funds rate at least through late 20??."

In all 4 cases, the CD rates fell. Below are the 4 Fed meetings and how the average 5-year CD rate from the top 5 CDs changed before and after the meetings:

The good news is that we didn't see any big drop for all of the rates. However, some institutions did have big rate cuts. For example, in January 2012 when the Fed changed its guidance from mid-2013 to late-2014, Melrose Credit Union slashed its 5-year CD yield from 2.68% to 2.27% within a week of the change.

No one wants to lock into today's low CD rates, but for money that you want to keep 100% safe, there are no good options. You can also keep that money completely liquid in a savings or checking account. However, if rates stay low or keep falling, CDs could provide you with more interest. I remember in February 2009 I posted on Third Federal's 4.00% 6-year CD. One commenter said he thought 6-year CDs were "crazy". That 6-year CD looks pretty good today.

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Comments
67 comments.
Comment #1 by Anonymous posted on
Anonymous
Who knows what will happen to the CD rates.  The 30 year treasury is currently up to 3.10%

2
Comment #2 by Anonymous3.14 (anonymous) posted on
Anonymous3.14
I totally understand why the Fed is doing what they are, even though it's playing havoc with savers like me. I have a longer-term CD at 3% that will mature in mid-2015. I THOUGHT I might be able to squeeze by, in that by 2015 things would finally be going up. Guess I was wrong (unless the Fed goes back on their word -- a possibility -- though remote -- if things really start to improve in 2013 or 2014). I have no idea what I'll do in 2015. At that time (2015) one would think rates would slowly begin to move up again so I don't know if I'd want to commit to a 5- or 7- year CD to lock in terrible rates (ie, 1%). There's not as much work for me anymore, though I have been an avid saver, so I do have quite a bit in savings... and this means even small interest rate changes affect me quite a bit. Sigh. I thought I could "ride out" this cycle and hoped that by 2015 rates would be back up again. I refuse to do the stock market or other riskier investments. I realize that with greater risk CAN come greater reward, but I like the safety of CDs. In the end, we'll have to see what happens in 2015, but needless to say, I was conflicted with the Fed's statement (truthfully if I was in their shoes, I probably would've done the same, but boy it's going to hurt me). I can only hope things will improve before then, necessitating the need to make "modifications" to their policy in the coming years...

 

8
Comment #3 by Anonymous posted on
Anonymous
By mid 2015 the national debt will be over $20 Trillions and any move upward in the rates, will bankrupt the nation.

Draw your own conclusion, but the savers are cooked.

13
Comment #5 by Anonymous posted on
Anonymous
Wow I was scared to lock in some 5 year 3% CD's little over a couple a years ago. What to do What to do What to do?

4
Comment #7 by Anonymous posted on
Anonymous
Yeah... and there's this guy in Antigua named Allen Stanford, offering unbeatable CD rates...

 

2
Comment #8 by Anonymous posted on
Anonymous
#7...........Not anymore. He's in jail.

2
Comment #10 by Anonymous posted on
Anonymous
Anonymous 3.14, you're deluding yourself. So-called "safe" CD's are actually among the "riskiest" investments you can make today, guaranteeing you real losses going forward. Unless the future proves radically different than the past, hiding in cash will simply ensure erosion of your assets.

2
Comment #11 by Anonymous posted on
Anonymous
.

.

Folks,

 

Many of the bonds (and Bond ETFs) and falling, and have fallen recently.  Naturally the yields for these are rising, and have risen. 

Generally there is a high correlation between short/ultra-short term bond yields and money market, CD, Certificate yields. I am optimistic that actually the rates will rise if the bonds (and bond ETFs) keep falling.

ETFs like MINT, BIL, PVI are good indicators.

 

Yours Truly,

Anonymous

1
Comment #12 by Anonymous posted on
Anonymous
I THINK MARKET-LINKED CDS ARE A GOOD CHOICE.  AT LEAST THE PRINCIPAL IS FDIC INSURED.

1
Comment #15 by Anonymous posted on
Anonymous
.

.

 

Dear #12,

 

Indeed ... Market Linked CDs are another alternative.  As you correctly pointed out the principal has FDIC insurance, but not the interest.  Also many of them have "death put".

I buy some of the Notes as well.  Of course neither the principal nor the interest (if any) is FDIC insured for the Notes.  Recently I bought a few from Barclay's and Morgan Stanley (CUSIP# 6174822F0 has a 9% conditional yield tied to Russell 2000, and can be called after 5 years.)

 

Yours Truly,

Anonymous

1
Comment #16 by Anonymous posted on
Anonymous
Here we go again!

Ignorant or deceitful people here recommending foreign currency based. FDIC insured CDs.

They forget to tell you about the currency risks that most of us don't want to get into.

4
Comment #28 by Anonymous posted on
Anonymous
#16.........These are US dollar CDs by the way. So who is the ignorant one now?  

1
Comment #17 by Anonymous posted on
Anonymous
It's going to be tough now, CDs are ridiculously low and the stock market has run like crazy. ****ed if you do ****ed if you don't.

2
Comment #18 by Anonymous posted on
Anonymous
i saved for 40 yrs so that i could retire with decent income and try to help my grandchildren with college.Tat has all been destroyed by BEN BERNANKE who rewards the bankers and wall street who caused the problem in the first place with their greed . It is a disgrace that the savers the people who did the right thing bear the brunt of this fiscal disaster. its 5 years  of no int this the biggest crime in US HISTORY SHAME ON YOU FEDERAL RESERVE

12
Comment #19 by Anonymous posted on
Anonymous
.

.


Folks,
 

I know ... many are skeptical about using Structured CDs/Notes.

And no ... I of course have nothing against the skeptics.  If the skpetics are wary of non-FDIC insured products and wish to avoid them, then surely I understand and appreciate it.

But, if a few folks here are using any of the Structured CDs/Notes, then please let me know where you find them?  I'll give a link of the broker I use that shows some of the new issues that are available on primary market.  ( The complete "Statutory Prospectuse" is available for each that described the product fully.)

https://fixedincome.fidelity.com/ftgw/fi/FICorpNotesDisplay?name=PPN


Yours Truly,

Anonymous

1
Comment #20 by Shorebreak posted on
Shorebreak
There is too much noise right now, politically and economically, to get a good handle on what to do going forward. I intend to keep some ammo (cash) handy on the sidelines in money market, savings and checking accounts. Who knows, there might be some bottom fishing opportunities in good dividend paying equities around that time. Meanwhile, I still have some certificates paying reasonable yields out to 2019. After the election, and the first of the year, I think the picture should get a little clearer. I'm not comfortable jumping into a 5-year CD yielding 2%, which I can get locally at BBVA Compass Bank. If that goes down in a few weeks, "C'est la vie". Perhaps the only good thing to come of this Bernanke fiasco is that my federal income tax (no state income tax) will probably be the lowest it's been in decades.

3
Comment #21 by Anonymous posted on
Anonymous
.

.

Dear # 18,
 

What you wrote makes no sense.


>> i saved for 40 yrs so that i could retire with decent income

>> and try to help my grandchildren with college.

Nope ... You saved for 40 years based on a mere hope. What (perhaps) you hoped was that you will get some reasonable interest rate.  Your mistake (if any) was that your failed to consider the possibility that you might get interest that is close to zero, and make provision for such a possibility.  I do not believe FOMC is to blame for your failure.  I guess if you would have considered such a possibility, you might have saveed not merely for 40 years, but for even more years maybe 41, 42, 43, 44, 45 ... ?


>> Tat has all been destroyed by BEN BERNANKE who rewards the bankers

>> and wall street who caused the problem in the first place with their greed

Err ... It takes two to tango ... One greedy banker is insufficient to make a subprime loan.  It also takes an equally greedy/silly prospective home-onwer who is willing to take the loan that is clearly beyond his/her/their means. ... No?

How exatly is the Chairman rewarding the Wall Street?  ( And I assume that in this Wall Street of yours you include those 10s of thousands of small investors who invest in S&P 500 based index fund via their 401(k)s and other retirement plans. )

Yours Truly,

Anonymous

 

2
Comment #22 by Anonymous posted on
Anonymous
I've been listening to some of the comments on CNBC TV today and one of the commenters suggested Ben Bernanke wants to form another housing bubble, that the dollar will go down, gold will go up, oil and gasoline will go through the roof, and the Euro will rise rather than fall.  Food will go up also.

To that I will add if heating oil and gasoline go up as is expected if the dollar goes down in value, I will have to turn the thermostat down and also drive less --- plan my shopping rather than just going when I feel like it.   That in all probability will mean I will spend less at the shopping mall and conserve resources to pay the higher food, gas and heating oil bills. 

Bernanke thinks people are going to spend when in reality many will simply hunker down, make do with less and wait it out.

This reader thinks he has a mental problem because when the policies he puts in place don't work, he does more of the same --- rather than try something new.   That something new might be to let rates rise rather than fall!.

6
Comment #23 by Anonymous posted on
Anonymous
Who do you think is benefiting the most from the bailouts and the money printing by the fed?  Do you think it is the many small investors that have their 401k money in the S&Ps, the same ones that will pay higher costs or is it the wealthy investor that has a lot of money in the stock market. I read that the median amount that the average investor has in the market is $10,000.00 I'm not saying that is true or not but it is something to think about, more wealth being transferred to the wealthy.

1
Comment #26 by Anonymous posted on
Anonymous
.

.




Anonymous/Paoli,

 

>> I think the reason so many of us are upset with Bernanke

>> is because it is very obvious he is grabbing at flies in the air with his QE3's etc.

He? His? ... No ... no ... no. 

Actually it is the FOMC that has set the policy.  Not merely the chairman.  As you know there are many others on the FOMC besides the Chairman.  So are you upset at them as well?

 

How about President Bush (a Republican) who appointed Chairman Bernanke the first time around?  And how about President Obama (a Democrat), who re-appinted the Chairman a second time?  Are you upset at them also?

 

And of course are you also upset at the voters who elected President Bush, and then the President Obama?  In-other-words the majority of the Americans?

 

It is rather easy to criticize one individual when in fact the blame lies with the majority of the Americans.
 

Yours Truly,

Anonymous

 

 

 

1
Comment #27 by Anonymous/Paoli (anonymous) posted on
Anonymous/Paoli
#26  Have you ever heard the expression "The buck stops here!"  Yes, you are certainly right about how the nightmare got started and everyone involved with it.  The FOMC is certainly important in this but BERNANKE, at this time, happens to be the one steering the ship into the dangerous waters!  Even when certain ones in the FOMC have been against what he is doing, he still seems to get the votes to go ahead with his actions.  So as far as I, and it seems, many others feel, Bernanke is the one who has to take the most responsibility for what is happening.  Playing these games of going back in time and trying to make all the others take responsibility isn't going to resolve the problem.  Pres. Bush is no longer in office so it is useless to play the "Bush did it" game!  Bernanke is the one in control so yes, I will continue to blame him for his irresponsible actions.  He wants us to take out loans and spend but he makes a situation where even people who have money are frightened to spend.  Businesses are not hiring because they have no idea if they can sell their products much less pay more salaries.  Is all this Bernanke's fault?  No, it isn't but what he is using the Fed to do is certainly not helping the destruction in our economy!   Bernanke is certainly at the forefront of the saver's suffering!

4
Comment #29 by grace maclean (anonymous) posted on
grace maclean
i'm 71 and in the same boat as all of you, but i'll survive, just as you will.  

What distresses more than my low cd rates is the tone of many of

the comments here. Where did you get the notion that you're somehow

entitled to higher cd rates?  You're not. They are what they are.

Live with it and stop ****ing.

P.S. When was the last time you thanked Ken for everything he does

 on your behalf without any compensation?

4
Comment #31 by Anonymous posted on
Anonymous
#29...........I agree with everything you said, except the part regarding Ken's compensation.  I don't know Ken but I can assure you that if Ken isn't compensated for this site then it is by choice & not because he can't derive any income from it. 

1
Comment #36 by Anonymous posted on
Anonymous
#29:True, we aren't entitled to higher CD rates, rates should be decided by the market and that I can live with. What I don't agree with is a group of individuals who have decided to create new money to buy our own bonds to try and artificially lower rates even further......causing me to pay higher prices because they want to manipulate the stock market.

5
Comment #30 by Anonymous posted on
Anonymous
.

.

Dear Anonymous/Paoli,

 

>> Have you ever heard the expression "The buck stops here!" 

Actually I have.  How about you, dear Paoili?  Do you know what "here" is?  No? ... Well it is the desk of the President (Truman).  Not the Chairman - mind you.

So feel welcome to pass the buck on from you to your Congress (wo)man, Senator, and President.  Nowehre in the chain you'll find the desk of the Chairman.  Sorry.

 

>> The best economists in our society do not even agree on

>> what to do.  Sooo we have to lash out at someone.

I see ... Someone ... So why not the gal (guy) you see in the mirror? After you're done lash out at your fellow voter neighbors and voter relatives.

Learn to take personal responsibility. 

According to you even the "best' economists in our society do not have an agreement, then what do you expect to do?  Lash out at someone? ...  Really? ... Yup ... As I suggested before, start with the gal (guy) in the mirror!

 

Yours Truly,

Anonymous

1
Comment #32 by Anonymous posted on
Anonymous
Folks, quit complaining and listen to the wisom of Uncle Ben.  This is what he said yesterday:

"My colleagues and I are very much aware that holders of interest- bearing assets, such as certificates of deposit, are receiving very low returns. But low interest rates also support the value of many other assets that Americans own, such as homes and businesses large and small. Indeed, in general, healthy investment returns cannot be sustained in a weak economy, and of course it is difficult to save for retirement or other goals without the income from a job. Thus, while low interest rates do impose some costs, Americans will ultimately benefit most from the healthy and growing economy that low interest rates help promote."

In other words, the savers need to take the bitter pill for the greater good.

1
Comment #33 by Anonymous posted on
Anonymous
YES, BUT WHY THE MIDDLE CLASS.

1
Comment #34 by Anonymous posted on
Anonymous
#33.......I would have thought the answer was obvious. Because if you do this to the upper class, they will lawyer up, spend money on lobbyists & influence groups to the extent where it'll never come to pass. Therefore pretty pointless. If you did this to the lower classes they would take to the streets & destroy private & public property. Therefore too dangerous. The middle class is much safer. Because they will complain & cry about it & post here.................but ultimately do nothing. Therefore, it is the logical target. :)

3
Comment #35 by Anonymous posted on
Anonymous
.

.

Dear # 32,

As you well know, our congree did not give a triple mandate to FOMC.  There is no such thing like "a) Maximum Employment, b) Price Stability, and c) High Interest for Savers".

Therefore, it is pointless to expect the FOMC to rescue the so called "savers". As long as the cogress does not change the mandate, the FOMC cannot (and in my opinion must not) concern itself with "savers" at all while setting the policy.

FOMC is there to try to achieve its dual mandate - nothing more nothing less.  If the policy of FOMC is not causing any (shall I say) discomfort to savers, then they better know the right course of action.  They got to elect a congress that will change the FOMC's mandate!

Did I hear you say "It is not possible for us - savers - to elect congress like that"?

If yes, then ask yourself why not?   Is it because there is a small (I daresay insignificant) minority of savers around, and a very vast majority of the frustrated, needy, and hungry unemplyed who are going to vote for sure keeping in mind their unemployed condition?

So, it is easy to blame FOMC, but that's not the right place where blame should go so long as the existing dual mandate stands unchanged.

Yours Truly,

Anonymous



 


1
Comment #37 by Anonymous posted on
Anonymous
Kudos to #25,  I had a good laugh!   Right on target!   Sounds like a perfect skit for Jay Leno to do!

1
Comment #38 by Anonymous posted on
Anonymous
I think there is a reason that that the savers are being punished.  Risk taking is the fundamental driver of a vibrant free market economy.  Savers are not risk takers by definition.  By punishing the savers, they are hoping that some of them will resort to risk taking, there by helping the economy. This is like forcing men to go to war. Some of them will die, but the nation will be better off. 

1
Comment #39 by Shorebreak posted on
Shorebreak
Re: Anonymous - #38, Friday, September 14, 2012 - 8:03 PM

"By punishing the savers, they are hoping that some of them will resort to risk taking, there by helping the economy."

Please provide some examples where that theory has worked. Thank you.

P.S. I trust that no ad hominen critcsm will follow.

3
Comment #40 by Anonymous posted on
Anonymous
Dear Shorebreak, the theory works.  Your profile picture indicates that you are not smart enough to understand the theory.... lol (I hope you get it)

1
Comment #41 by Shorebreak posted on
Shorebreak
Re: Anonymous - #40, Friday, September 14, 2012 - 8:40 PM

Dear Shorebreak, the theory works.  Your profile picture indicates that you are not smart enough to understand the theory.... lol (I hope you get it)

I see you disregarded my P.S. request. Somehow I expected you to.  When you don't have the facts at hand just resort to "ad hominen" attacks on the poster. Never mind, you can't back your claim up.

1
Comment #42 by Anonymous posted on
Anonymous
Somehow everything started to taste bitter, the artificial sugar in my coke, the artificial coloring in my food and everything else purchased with artifical money.

It feel like an artificial person living in an artificial country.

3
Comment #49 by Wil posted on
Wil
#42: Splendid! I, for one, enjoyed your comment.

#35: Central banks around the world have only one mandate, and that is the stability of currency. Our FOMC is the exception, having its dual mandate. Many people have questioned whether this dual mandate is a good idea. What if one mandate can only be accomplished at the expense of the other? Who decides which mandate has priority? A chairman and board of a central bank, of which there is no mention in the U.S. Constitution, who answer to none but themselves. Aside from the principle of the dual mandate, has quantitative easing been effective? Unemployment has relentlessly remained above 8% (and that's not counting the people who have given up looking for a job and the underemployed), notwithstanding the increasing money supply. And you cannot claim that unemployment would have been even worse without it -- it is impossible know what might have happened had the past been different. The Obama Administration's talk about "jobs saved" nothing but b***s*** because it's claiming certitude about future contingent events; again, nobody knows whether those "jobs saved" would have been lost had there been no stimulus. The only thing we know for certain is that the quantitative easing and stimulus failed to achieve its stated purpose, the lowering of unemployment.

#38: You are probably right. The stock market is loving this, for now. But I have little doubt that at soon as large numbers of individual investors "come to party" that the so-called "smart money" will get out, and then the "little guys" will be left "holding the bag." The bond market isn't liking this at all . . . the "bond ghouls" are worried, and rightfully so, about future inflation and mounting public debt. I think what makes Bernanke's lastest statement so shocking is that the planned easing is limitless, until his unemployment goal is reached. What happens if doing more of the same, but this time without limit, fails to accomplish its purpose? A massive "hangover" after the "party." This policy is potentially dangerous, and people should be questioning its wisdom. Furthermore, why do this now, as opposed to several months ago when the evidence was mounting that an already weak economy was faltering? Is the answer to this question political?

4
Comment #43 by Anonymous posted on
Anonymous
.

.

Dear # 38,

 
Your assertions are illogical.
 

>> I think there is a reason that that the savers are being punished. 

No.  The savers are not being punished.  It is just that the unemployed are being helped. ( Or another way to describe it is that FOMC is trying to do what we - via congress - have asked it to do. )
 

>> Risk taking is the fundamental driver of a vibrant free market economy.

>> Savers are not risk takers by definition.

Again no.  A vibrant free market economy in essence gives freedom of choice to all.  Some might choose to take bigger risk (maybe via a hedge fund similar to what Governor Romny ran), some may choose to take moderate risk by using an Index Fund, some might choose even a lesser risk my using only FDIC/NCUA insured account, and some might choose guarantee of US Treasury and buy T-Bill, T-Notes and T-Bonds.


>> By punishing the savers, they are hoping that some of them

>> will resort to risk taking, there by helping the economy.

They?  Who?

 
>> By punishing the savers, they are hoping that some of them

>> will resort to risk taking, there by helping the economy.

 
How exactly will the risk taking will help the economy? Are you implying that when someone will leave the guarentee of (say) T-Note of US Treasury, and take on a risky FDIC insured CD it will help ecomony?  ( For those who are wondering how FDIC insured CD can be considered risky?  ... Well know this that FDIC afterall is merely an entity that provides insurance.  And insurance is finite (250,000k) and it can run out.  As against that the guarentee of US Treasury is not finite and it does not run out.  US Treasury of course can make good on every T-Bill, T-Note, T-Bond it issues. ) 

BTW know this, that Banks and CUs do need deposits that they receive in their CDs and Certificants.  A vibrant free market economy actually welcomes all sorts of people extreme risk takers, and extreme risk averse, and everyone in between.


>> This is like forcing men to go to war. Some of them

>> will die, but the nation will be better off.

Once more time NO.  We do have a draft.  Nobody is forcing anybody to (say) use stocks.  If you wish to stash your holdings in Gold, noone will stop you.  If you wish to buy Second (or Third or ...) Home , and stash your cash in Real Estate, you are free to do that.  If you'd rather take the currency notes and stuff them in pillow ... well ... noone will prevent you from doing that either.

Your writing about "them" punishing "savers" is quite paranoid actually.


Yours Truly,

Anonymous

1
Comment #44 by Anonymous posted on
Anonymous
They may not be physically forcing you into stocks but their intentions are clear.... they want you in riskier assets and  they are trying to force you,financially.  Ben Bernanke and the fed saving the country....one millionaire at a time.....hahaha

1
Comment #45 by Anonymous posted on
Anonymous
those of you who are against savers are wrong. this is not any longer a free mkt but one rigged by the FED RESERVE under big BEN, we all invest stocks bonds savers etc but we expect free mkt cond for all not int ratrs rigged by the fed to help a few at the expense of millions of savors this is a free country and all mkts should be free and based on supply and demand not by a FED who prints phony money to suppress and force down rates THIS IS A VIOLATION OF THE FREE MKT SHAME ON YOU FED AND SHAME ON ALL OF YOU WHO AGREE THAT A RIGGED MKT IS THE AMERICAN WAY<

4
Comment #46 by Anonymous posted on
Anonymous
To the extent that one believes that the markets are rigged or manupulated, one can easily argue that the markets have always been rigged or manipulated. When I was in high school interest rates, CD rates shot up to 14-15% in short order. You think that was natural & unmanipulated? We all know that the FED under Paul Volcker engineered that move to check rising inflation & slow the economy down. This manipulation action in 1980-81 led to the recession in 1982, a recession that I don't remember much about, but one that a lot of people consider to be the worst one since WW2.................until the one in 2008.

So my point is that you can argue whether it us wise for the FED to do this or that & that is fine, but the truth is that it's always mesed with & manipulated rates. It just so happens that for the past several years or more it has been driving them down & that's why everyone is ****ed. If it were artificially raising them everyone here would have a silly grin on their face. Well, that's just tough. Live with it or figure out another way of making the returns you need ............or feel you deserve.

1
Comment #47 by Anonymous posted on
Anonymous
Reply to comment #43

>>the unemployed are being helped at the expense of the employed and the savers.  I am not saying that it is right or wrong.  That is a deep philosophical question.

>>In theory, a vibrant free market economy in essence gives freedom of choice to all.  However, sometimes, the system doesn't work well (like now) and the FED try to fix it by forcing you to change your choices.

>> They - the FED (since we are talking about manipulating the interest rates).

 
>> when more people leave the guarentee of US Treasury bills/notes/bonds as well as FDIC insured CDs and take on riskier assets like stocks and real-estate, it will help the ecomony.

>> This is like forcing men to go to war -- I was just giving a theoretical example.

>> I know that the FED and the goverment have good intentions.  They are doing whatever they think will help the overall economy.  Unfortunately, the savers (most of the readers of this blog) happen to be the losers in this manipulation of the free market. I think it is fair for us to feel that we are being punished.

 

1
Comment #48 by Anonymous posted on
Anonymous
.

.

Dear # 44,

Your writing is not just paronoid, but also smells of some sort of grand conspiracy!

>> They may not be physically forcing you into stocks but their intentions are clear

They? Who?  If by chance you mean FOMC, then the intetion is clear indeed, and it isto help achoeve the "maximum employment" mandate.



>> they want you in riskier assets and  they are trying to force you,financially.  

Again who is this "they"?  And also who is this "you"? 

If by "you" if you indicate me i.e. "yours truly", then rest assured nobody is forcing me do anything, especially not financially.  If by "you" what you are indicating are "savers" then I'd urge you to restrain yourself, and try not to speak for all of the "savers".  There are young savers typically teens from age 12 to 17 who save their allowance, and buy certain expensive things when savings grow.  Surely "they" are not trying to force "young savers" to do stock investing. Are they?  And then there are adult savers who barely make it enough, but still try to save small sum for rent, food, healthcare and even education.  I don't think "they" are forcing such savers to use "derivatives, options and futures", Are they?  And then there are reireets who have stashed their savings (rather wisely) in EE Bonds, Real Estate, So are "they" forcing such savers to start selling their EE Bonds and begin using Hedge Funds?

>> Ben Bernanke and the fed saving the country....one millionaire at a time.....hahaha

Muhaa ... Actually it is the FOMC charged with dual mandate by our congress that is trying hard to meet the mandate of "maximum employment".

Yours Truly,

Anonymous



 

1
Comment #50 by Anonymous posted on
Anonymous
 #48 can't figure out who I mean by they and you, what a nitwit. hahaha

 

I remember when Greenspan saved the country, how did that work out, genius?

1
Comment #51 by Anonymous posted on
Anonymous
.

.

Dear #47,

>> the unemployed are being helped at the expense of the employed and
>> the savers.  I am not saying that it is right or wrong. 
>> That is a deep philosophical question.

Really?  How?  What "expense" is this?  Is it some sort of tax or fees?  Is anyone forcing the employed or savers to increase (say) the number of times they visit the restaurant, and so that perhaps the restaurant will hire additional help?  Better specificy how in your opinion are the unemplyed being helped at expense of employed and savers?

>> In theory, a vibrant free market economy in essence gives freedom of
>> choice to all.  However, sometimes, the system doesn't work well
>> (like now) and the FED try to fix it by forcing you to change your choices.

No.  Actually the system is always working.  Always there are some winners and some losers.  What about the period of 2004 to 2007?  Was the system working?  Sure it was.  How about now?  Sure ... it keeps working.  The winners and losers often change, and extent of profit and loss changes. But the system, per say, was and is working.  FOMC is not forcing you do anything.  If you keep renewing the CDs, is there any way for FOMC to intervene?


>> They - the FED (since we are talking about manipulating the interest rates).

Manipulating?  No.  Wrong word.  Right word is "setting".  Word manipulation can be used about what Barclay's did to LIBOR, surely not what FOMC is doing to the rate.

 
>> when more people leave the guarentee of US Treasury bills/notes/bonds
>> as well as FDIC insured CDs and take on riskier assets like stocks
>> and real-estate, it will help the ecomony.

How?  Hypothetically (say) I use the proceeds from my CD to buy (say) the stock of Apple.  Does my action of not renewing the CD help eccnomy?  Does my action of buying Apple stock help economy, and mind you when I buy Apple stock, I always buy it from a willing seller, so consider what effect this transaction has on the seller of Apple stock?  

Pretty much same thing when it comes to real estate.  If I were to buy a house, then is there a possibility that the seller will turn right around and use the proceeds of the sell to purchase whole lot of T-Notes, and T-Bonds?

Merely saying it will help economy is insufficient.  Make a case as to how exactly?


>> This is like forcing men to go to war -- I was just giving a theoretical example.

Sure ... It was merely a theoretical example, albit an inapplicable one.  Because "draft" is vastly different.


>> I know that the FED and the goverment have good intentions. 

All right ... That's progress.  ( A few messages before I read something like "intentions are clear", just wasn't specified if the intentions were good or bad. )


>> They are doing whatever they think will help the overall economy.
>>  Unfortunately, the savers (most of the readers of this blog) happen
>> to be the losers in this manipulation of the free market. I think
>> it is fair for us to feel that we are being punished.

No. Absolutely not.  If the so called "savers" had NCUA insured account that had (say) $1000 in it, then any action by FOMC is not going to result in any kind of loss.   Make a case about how the $1000 NCUA insured account can turn into $999 account because of any sort of action by the FOMC.  ( And before you bring into play the inflation, know this that the inflation affects everyone - poor, rich, 99%, 1%, employed and unemployed. Higher inflation can decrease the purchasing power of the money, however it does not decrease the numaric value of $1000 to $999, which can be construed as loss. )

Yours Truly,

Anonymous

1
Comment #52 by Anonymous posted on
Anonymous
.

.

Dear Wil,

>> #35: Central banks around the world have only one mandate,
>> and that is the stability of currency.

True.


>> Our FOMC is the exception, having its dual mandate.
>> Many people have questioned whether
>> this dual mandate is a good idea.

We or perhaps our fore-fathers/mothers elected the congress that gave such a dual mandate to our central bank.  Many people might have questioed, but I'm afraid that's still is an insignificant minority (remember Dr Paul).

>> What if one mandate can only be accomplished at the expense
>> of the other? Who decides which mandate has priority? A chairman
>> and board of a central bank, of which there is no mention in
>> the U.S. Constitution, who answer to none but themselves.

Again that's correct, and once again our congress did what it thought was right.  Now when/if a significant majority starts believing that thre needs to be change, then it will happen.  Auding the FEDs is an idea propsed by Dr Paul, but how many support Dr Paul?  ... An insignificant minority.


>> Aside from the principle of the dual mandate, has quantitative
>> easing been effective? Unemployment has relentlessly remained
>> above 8% (and that's not counting the people who have given up
>> looking for a job and the underemployed), notwithstanding the
>> increasing money supply.

I suspect you and I both know that that it is impossible to say for sure what possibly was avoided.  Absent the QE series would we have seen numbers in double digits?  Perhaps.  But then we will never know. Will we?

Of course noone knows the future, therefore success or lack thereof, of any action (or inaction) by any entity is impossible to judge when it comes to was avoided, and by the same token it is (almost) always to attribute what was achieved to action (or inaction) by a different entity. 

How about this?  Obama Administration bailed out Auto Industry.  However they did not save any auto related jobs.  Those jobs were saved because of consumer demand for the American auto, and the (so called) American perceviarance and igenuity (and everything else American).

Yours Truly,

Anonymous

1
Comment #54 by Wil posted on
Wil
#52: Your response doesn't refute anything I said above. I do appreciate that you acknowledged what I said as true in writing your response. And I don't actually disagree with the substance of your response. But at what point does an "insignificant minority" become a "significant" one? Should even "insignificant minorities" be allowed to be heard? What if the "insignificant minority" is right? What if the dual mandate isn't a good idea, or isn't now a good idea (assuming it was so in the past)? Even "insignificant minorities" can make valuable contributions to public discourse and, if their ideas have merit, they won't remain "insignificant." Furthermore, even Cassandra was a minority of one, but her unheeded warnings were nevetheless supposed to be true. Perhaps those who disagree with the direction of FOMC policy are today's "Cassandras." Disregard them at your own peril.

As for my pointing out the lack of certitude about the hypothetical outcome of a past that didn't happen, it is still true. I am not the one making positive claims about what would have happened had a past action not taken place. Am I wrong for pointing out that those who make such claims do so without basis in fact? That those who do so are merely confusing the issue (and the public)?

Oh, and about the bailouts of GM and Chrysler: the circumvention of bankruptcy law, by placing the unfortunate bondholders at or near "the end of the line," was utterly unprecedented, and arguably an abuse of power. Those bondholders were coerced by government manipulation into yielding their rightful place in line. What about their property rights?

2
Comment #53 by Anonymous posted on
Anonymous
To all of you who think that the savers are not entitled to better rates, please explain, why the debtors and the mortgagees are entitled to better rates for them and why?

Without the savers, the banks will need more borrowed money to comply to the present asset requirements in order for a bank to lend out money. In other words, the savers help the borrowers, but not the way around as per Bernanke’s logic.

 

7
Comment #55 by Wil posted on
Wil
Correction: "Shouldn't even "insignificant minorities" be allowed to be heard?"

Addition: By the way, it isn't just supporters of Rep. Ron Paul who are questioning the actions of Bernanke and the Fed. Have you watched Fox Business News or CNBC lately? More than an "insignificant" number of people are getting worried about future inflation and the possibility of a future debt crisis? And I would hardly call the bond market an insignificant minority.

2
Comment #56 by Paoli2 posted on
Paoli2
Wil:  Oh! Oh!  You said the "F" word on here. ("Fox News") I wonder if that gets you deleted. :)  Seriously tho, it seems Fox News is the only place we can go to hear all the things we are not supposed to know.  The Savers have something even more serious to worry about than even low interest rates.  If we can't stop our currancy from being devalued and our ratings from being lowered, few of us will have enough money worth anything to be able to survive.  I remember some years ago when panic about "hard times" was ringing in books and tv that I started hoarding can foods etc.  Well now I live in a small apartment and don't have any room to store anything!  Now that is something to be concerned about!  

1
Comment #57 by Wil posted on
Wil
Paoli2: If there's going to be a deletion, then we will get deleted together! But I'm confident that won't happen. Look on the bright side, your small apartment that doesn't have room to store anything has got to be less work to clean!!! And you won't have to worry about becoming a packrat.

1
Comment #58 by Anonymous posted on
Anonymous
.

.

Dear Wil,

>> I do appreciate that you acknowledged what I said
>> as true in writing your response.

Err ... The "true" applied to only a small part.  Not the whole thing.



>> And I don't actually disagree with the substance of your response.

Great!


>> But at what point does an "insignificant minority"
>> become a "significant" one? Should even "insignificant minorities"
>> be allowed to be heard? What if the "insignificant minority"

No idea about exactly what point, but I guess it will be a point when their opinions are not merely heard, but such opinions begin to cause some changes.  Extreme views (like Dr Paul's) so far are merely heard, and are mostly ignored by the vast majority.


>> What if the dual mandate isn't a good idea, or isn't now a
>> good idea (assuming it was so in the past)? Even "insignificant minorities"
>> can make valuable contributions to public discourse and, if their
>> ideas have merit, they won't remain "insignificant."

The dual mandate of course was given by our duly elected congress, and for all these years the subsequent duly elected congresses have not done anything to change it, therefore it seems reasonable that the idea of dual mandate continues to be popular enough that no change as deemed necessary.  .. No?

>> Furthermore, even Cassandra was a minority of one,
>> but her unheeded warnings were nevetheless supposed to
>> be true. Perhaps those who disagree with the direction
>> of FOMC policy are today's "Cassandras." Disregard them
>> at your own peril.

Maybe.  However once again, as long as the insignificant minority stays that way, no change is possible.  Afterall our democracy is governed by the majority.

>> As for my pointing out the lack of certitude about
>> the hypothetical outcome of a past that didn't happen,
>> it is still true. I am not the one making positive claims
>> about what would have happened had a past action not taken
>> place. Am I wrong for pointing out that those who make
>> such claims do so without basis in fact? That those who
>> do so are merely confusing the issue (and the public)?

I suspect you are wrong.  Those who are doing it are offering clarification almost at each step.  However such matters are quite complex, so it is not always that the clarification will be sufficient to resolve all the confusion for everyone.  Some will (perhaps) remain confused, for some (or most) aspects.

>> Oh, and about the bailouts of GM and Chrysler: the
>> circumvention of bankruptcy law, by placing the unfortunate
>> bondholders at or near "the end of the line," was utterly
>> unprecedented, and arguably an abuse of power. Those
>> bondholders were coerced by government manipulation into
>> yielding their rightful place in line. What about their
>> property rights?

Indeed .. what about it?  So who were these bond holders?  Were they most likey the Auto Workers who would have lost their jobs?  Were they most likely the workers at the Auto Part Suppliers who would have lost their jobs also?  ( Don't think so.)

Are you in effect implying that this particulat action resulted in loss of millions to the "Wall Street" types who would have been the bond holders, and perhaos helped those low-wage millions who otherwise would have lost their jobs?

Or are you implying that this ation somehow punished the so called "savers"?

Or something else?

Anyhow one thing should be clear that the auto bailout had no connection to the FOMC ... Right?

Yours Truly,

Anonymous

1
Comment #61 by Wil posted on
Wil
#58: How do you know, in advance, that an allegedly "insignificant minority's" view won't begin to cause change unless it is allowed a hearing in the first place? How do you know whether questioning the current efficacy of the dual mandate isn't worthwhile, given conditions that exist today, just because a duly-elected Congress hasn't deemed it worth changing in the past? Don't changes in circumstances require changes in policy? Do you really want to say that the dual mandate is exactly right, in every circustance and environment, for all time? My guess is, in all fairness, that you think it is right policy for now. Well, some of us have an honest difference in opinion, and think it may be time for a change in that policy. Of course you are right that Congress makes the laws, and that our republic is generally governed by the majority (within the parameters of constitutional protections for the rights of individuals). That doesn't mean that the majority is always right. When Neville Chamberlain proclaimed, after appeasing Hitler in 1938, that peace had been achieved in our time the majority agreed with him. In 1939, his country, and others, were at war! Can it not be that all of this quantitative easing is proving ineffective with respect to its stated purpose? Isn't the unemployment rate still above 8%?

If those who are making positive claims about the hypothetical outcome of a past that didn't happen are doing so in order to offer "clarifications" along the way, then why is it that previous administrations didn't include "jobs saved" in their commentaries on the unemployment rate? I do not recall Bush, or Clinton, or Bush Sr., or Reagan, or even Carter for that matter ever making such statements. Or, is it just that I have a failing memory?

The identity of the bondholders is irrelevant. They were bondholders, bankruptcy law puts bondholders at the head of the line, and bankruptcy law was circumvented in the GM and Chrysler bailouts. Whether the bondholders were "Wall Street types" doesn't terminate their property rights under existing law. Or is it that you do not believe in equal justice for all before the law? What litmus test must someone pass in order to be entitled to legal protection of his property rights in your "democracy"? By the way, I did not imply that the GM and Chrysler bailouts "punished" the so-called savers - you were the one who brought up the bailouts in the first place!

2
Comment #59 by Anonymous posted on
Anonymous
Here's another perspective, focusing on the actual results of Federal Reserve actions, rather than on the predicted results of those actions, that combines many/most of the issues raised in virtually all of the posts above:

 

(1)  I believe that most will agree that to date, Federal Reserve actions since 2008-2009 (QE1, QE2, QE3, etc.) have lowered interest rates substantially, but have not had any substantive impact in fostering economic recovery and lowering unemployment.  Thus, the logically justifiable criticism that the Fed repeats the same basic action over and over again, with the same results (or lack thereof) each time it takes such action.

 

(2)  I believe that most will agree that the interest that the goverment pays on all newly issued government securities contributes toward increasing the national debt.  Thus, the result that over time, the cumulative sum of the interest being paid to service the national debt, and as importantly, the rate of growth of the national debt, is substantially lower in a low interest rate environment than it would be if interest rates were at their historic norms.

 

In its communications justifying its actions, the Federal Reserve focuses on (1) above, and PREDICTS that over time, its actions will foster economic recovery and lower unemployment.

 

However, the results of the Federal Reserve's actions are IMMEDIATELY (and predictably) realized per (2) above [low interest to be paid on newly issued government securities].

 

Logically then, it appears that one could argue that:

 (a) if the objectives of (2) above [low interest to be paid on newly issued government securities] (immediate, predictable, and assured results) have been deemed, either explicitly or implicitly, by government "leaders" to be equally or more important/critical than the objectives of (1) above [fostering economic recovery and lowering unemployment] (predicted but not assured results); then

 (b) the Federal Reserve, justifying its actions as supporting the objectives of (1) [fostering economic recovery and lowering unemployment] is serving as the governmental administrative mechanism in actualizing the objectives of (2) above [low interest to be paid on newly issued government securities]; and

 (c) movement toward a higher interest rate environment will not occur to any substantive extent even with economic recovery and lower unemployment until the necessity to fulfill the objectives of (2) above [low interest to be paid on newly issued government securities] is no longer a dominant issue/factor.

 

Based on a myriad of economic and political factors, as well as the economic and political trends of the past several decades, I am not optimistic that resolution is achievable, nor am I able to envision any clear or even circuitous path, let alone the necessary details of any such path, toward resolution.

 

1
Comment #62 by Wil posted on
Wil
#59: Very nice deductive reasoning, and well said.

2
Comment #60 by Anonymous posted on
Anonymous
.

.

Dear # 53,

>> To all of you who think that the savers are not entitled
>> to better rates, please explain, why the debtors and the
>> mortgagees are entitled to better rates for them and why?

In free market economy such as ours, there are no entitlements at all in this aspect.  There are no entitlements for the so called "savers", and there are no entitlements for so called "borrowers" either.  It is just that Banks/CUs openly advertize their CD/Certificate rates, and equally openly advertize their ARM/Fixed mortgage rates.  Noone forces the savers/debtors to accept those advertized rates at all.  Savers are free to not open the CDs/certificates, and borrowers are free not to take out a mortgage loan.  ( I of course am exluding the Government, and Charitable institutes, and including only the commericial entities. )

>> Without the savers, the banks will need more
>> borrowed money to comply to the present asset
>> requirements in order for a bank to lend out money.
>> In other words, the savers help the borrowers, but
>> not the way around as per Bernanke’s logic.

The system of Banks accepting the funds from "savers", and then lending it at higher rates to the "borrowers" is around for decades.  Dr Bernanke became the Chairman of FOMC just recenly. So it is  silly to assume that this is Chairman's logic.

The savers do not help borrowers directly.  The savers actually are directly helping themselves (unless they are doing a little charity on the side) by finding high/higher rates for their assets.  On the other hand the borrowers are also helping themselves directly by finding low/lower rates for their mortgages.  In between the commerical entities are trying to help themselves by offering lowest possible rates for depositors and highest possibles rates for the borrowers.

Have you studied "economy" even just a little bit?  The basis of "economy" (excluding charitable/government organization) is always selfishness. Commericial entities are in it for profits.  Saver types of individuals are in it for higher rates.  Borrower types of individuals are in it for lower rates.

Yours Truly,

Anonymous

2
Comment #63 by Anonymous posted on
Anonymous
.

.

Dear # 53,

>> (1)  I believe that most will agree that to date,
>> Federal Reserve actions since 2008-2009 (QE1, QE2, QE3, etc.)
>> have lowered interest rates substantially, but have not
>> had any substantive impact in fostering economic recovery
>> and lowering unemployment.  Thus, the logically justifiable
>> criticism that the Fed repeats the same basic action over
>> and over again, with the same results (or lack thereof)
>> each time it takes such action.

Actually no.  The economy, as measured by "Case-Schiller" is improving/has improved. The economy, as measured by the profits at Ford/GM/Chrysler/Auto-Dearships is improving/has improved.  The employment tends to be lag all of this, so it is quite logical to assume that the improved housing market will create more and more construction jobs. It is also logical to assume that improved auto sales will create more and more auto related jobs. 

Now coming to FOMC's action.  Is it that thousands and thousands home buyers are finding it a bit easier to take out mortgage  because of lower rates?  Yes, I think so.  Is it also that thousands and thousands of prospective auto owners are finding it easier to borrow to purchase new/used vehicles?  Sure, I think so.  So, do we have a logical connection between actions of FOMC and the employment?  Definitely ... I think we do!


There is no doubt that each newly issued debt instrument by our government contributes towards increasing of our national debt.  However we (USA) have a clear advantage in this aspect because our Dollars are world's reserve currency.  What was the immediate result when we lost our AAA rating?  Did our T-Notes, T-Bond lose significant value?  ... No!  The result surprisingly was just the opposite!  The value of our T-Notes and T-Bonds increased.  In effect more and more entities were happy to buy our debt at lower and lower interest rates.  ( Compare our 10 year debt instument to that of UK or Germany, and see how much are we paying and how much are they paying in interest. )

So increase in the debt is an undeniable issue, but in the bigger picture it is better that we save the unemployed in near/immediate future, and pay down the debt in middle/long-term future.


Yours Truly,

Anonymous

1
Comment #64 by Paoli2 posted on
Paoli2
From what I was informed by more than one bank manager, the banks no longer need the depositor's funds since they can get so much at such a low rate from the Fed.  They only want the depositor's money if they can get enough people who also want loans.  It's the problem with their not having enough people to take out loans even at these low rates which keep the banks from giving us higher savings rates.  This is not the way Bernanke expected it to work and even tho it isn't working, he and his Fed cohorts are still doing the same destruction practices!  In a sane society if something proves unworkable, they try new ways.  Bernanke's record seems to be stuck on "Q"!

3
Comment #65 by Anonymous posted on
Anonymous
.

.

Dear # Wil,

I do not know that aspect, and in fact I was clear enough to state that noone knows the future. 


How about this:

1. If at all the insignificant minority of the so called "savers" becomes a significant majority which can effect some change, then we will know about it.

2. If ever the duly elected congress removes the "max employment" from the dual mandate of FOMC and makes it a single mandate only, then we'll know about it.

3. If ever the duly elected congress changes the dual mandate and add on "Save the Savers" mandate, then also we will know about it.

Until then, you (and everyone else who is so inclined) keep exercising your 1st amendment right of expressing your views about the nagatives of dual mandate, and the significant majority can and will promptly keep ignoring your extreme views!

... Does it sound like a plan?

Yours Truly,

Anonymous

1
Comment #66 by Wil posted on
Wil
#65: It seems that the only remaining point to answer is the dual mandate. As to your plan, no problem. Time will tell whether our elected representatives in Congress find that the country's best interest would be served by changing the dual mandate. All I did in the first place was question whether the dual mandate wouldn't lead to the possibility of opposing objectives. It seemed, because your dismissal as "insignificant" (and now "extreme") of such views, that you didn't want to hear a viewpoint that differed from your own. But it seems to me that if every other central bank in the world, except ours, has only a single mandate, then the view that it might possibly be a good idea for the same to be true for our central bank as well is hardly extreme, except in your mind. By the way, if the majority of which you claim to be a part will promptly ignore my "extreme" views, then why did you keep answering me? Clearly you were not ignoring my views.

Okay, I'm signing off now. You have been a worthy sparring partner, but I have already spent more time than I should have in this exchange. Go in peace.

P.S. Since you have responded multiple times, and not just to my comments, why not assume a User ID? It would make it easier for readers to know when the same person is responding to multiple posts than having to guess about it.

2
Comment #67 by Anonymous posted on
Anonymous
Paoli2 - #64

I was told the same thing by a bank's chairman that "the banks no longer need the depositor's funds since they can get all they want at a low rate from the Fed".  I fired back asking him where did he think the fed was getting the funds to support the banks.  I went on to tell him he wasn't running a successful bank if he relied on the fed for money.  And furthermore that he should resign from the board for being so incompetent.  He was lost for words and left the room.  Made my day.....

1
Comment #68 by Anonymous posted on
Anonymous
.

.

Dear Wil,

>> It seems that the only remaining point to answer is the dual mandate.

Actually, there is more.  (e.g. Has lowering of interest made it a little easier for prospective homeowners to buy homes, which perhaps has helped create/retain some construction jobs?)

>> As to your plan, no problem. Time will tell whether our elected
>> representatives in Congress find that the country's best interest
>> would be served by changing the dual mandate.
>> All I did in the first place was question whether the
>> dual mandate wouldn't lead to the possibility of opposing objectives.

Exactly.  Neither, you now I know the answer.  My opinions is that a competing dual mandate offers central bank large flexibility in either directions. Having such flexibility is helful rather than harmful.


>> It seemed, because your dismissal as "insignificant"
>> (and now "extreme") of such views, that you didn't want to
>> hear a viewpoint that differed from your own.

No no ... I must first hear it, so that I can ignore it later.


>> But it seems to  me that if every other central bank in the
>> world, except ours, has only a single mandate, then the view
>> that it might possibly be a good idea for the same to be
>> true for our central bank as well is hardly extreme, except in your mind.

Again no.  Not merely in my mind.  Judging by the dismal support Dr Paul could cobble together, it is obvious that such minority/extreme views do not have much of a traction (at least not in 2012).  You, and other like minded persons are of course free to cobble together more people (if you so choose) and see how far you go in 2016, 2020 etc.

>> By the way, if the majority of which you claim to be a part
>> will promptly ignore my "extreme" views, then why did you
>> keep answering me? Clearly you were not ignoring my views.

As I mentioned earlier, I must hear what the minority/extreme views are first, so that I can ignore them later.  ( How can I ignore something that I have not heard in the first place? )

Why did I answer? ... Judging by your messge/questions, I decided that it it worthy of a reply/answer.  ( BTW responding to message does not mean that its gist will be retined, and not ignored. )

Yours Truly,

Anonymous

1
Comment #69 by Wil posted on
Wil
#68: Okay, l let my curiosity in seeing what you would say next get the better of me. I agree with your second sentence (about neither one of us knowing the future), and I'll give your explanation about hearing views other than your own the benefit of the doubt. But your claim that anyone questioning the dual mandate is "extreme" is another matter. You cite Rep. Ron Paul's dismal performance in the 2012 Republican primaries as proof. Is it not possible that the reasons for Ron Paul's dismal perforance are his isolationism in foreign policy and his social progressivism in domestic policy (in a party whose membership favors social conservatism), rather than his views on fiscal and monetary policy. I wouldn't vote for Ron Paul either, but I don't think that expecting the Fed to focus on currency stability is at all extreme.

The first thing you wrote this time was whether the lowering of interest rates made it a little easier for prospective homeowners to buy homes, which has helped to create/retain some construction jobs. Probably so . . . but wasn't it low interest rates for an extended period of time that contributed to last decade's real estate bubble, and the consequent collapse of 2008? What will these new homeowners do when they have to make their monthly mortgage payments while at the same time facing the rise in prices of the food they eat, and the energy they use to light and heat their homes and drive their cars, all because the Fed's objectives are twofold, while at the same time their wages remain the same because of high unemployment? I can predict the answer: they'll clamor for a bailout at the expense of taxpayers.

In closing, I really hope that you are right, and that my concerns are alarmist, because I, too, think that our elected officials would rather do nothing than risk doing something that might cost them their reelection. In the absence of leadership on the part of elected officials, perhaps the Fed's actions are the only thing that can be done. But with interest rates being at 0.0-0.25% for an extended period of time, and being in a third round of quantitative easing, the Fed is likely "running out of bullets." Time will tell.

2
Comment #70 by Anonymous posted on
Anonymous
.

.

Dear Wil,

Yes, it is quite possible that dismal performace of Dr Paul is not merely because of his view of the FEDs, but also because of his other views including foreign policy, gold standard etc.  So, for the time being let us keep Dr Paul's dismal performace aside and focus on what has congress done since it created FOMC and gave it the dual mandate.

How many times has the congress brought on floor a bill (either in the house, or in the senate) that attempts to change this mandate?  How many times has there been a bill (either in the house, or in the senate) that attempts to put some limits on the powers it delegated to the FOMC?  Answers to these will demonstrate how much the congress (wo)men and senators have chosen to ignore this matter.  Now compare this to numerous bills that were brought on the floor to repel Affordable Care Act aka Obamacare.

The apathy shown towards this topic by the lawmakers is grand, thereofore it quite reasonable to assume that change of mandate to FOMC, limiting the powers of FOMC, auditing the FOMC has little or traction. Will these ideas ever gain significant traction in the future, or will they contine to be fringe idea as they are today? ... Noone knows ... We will have to wait and watch.

What will happen as a result of current continued low interested and simultaneous rise in food (not to mention commodities, especially energy) costs and mostly stagnent wages?  ... Again noone knows for sure.  We will find out in three/four years.  ( And of course someone will have the bragging rights to say: "I told you so in 2012!" )

I do not believe FOMC is running out of bullets.  Unlike the state governments, our federal government need not balance the budget.  It has capability to keep issuing debt that others are eager to buy.  There is no other reserve currency on the horizon, except our grrenback.  ( Euro once had some potenial, but it has faded. ) So actually I am optimistic, despite the unresolved debt crisis in Europe, and despite the upcoming fiscal cliff, and desite the US losing its AAA rating.

Yours Truly,

Anonymous

1
Comment #71 by Wil posted on
Wil
I'm glad you're optimistic, but I still see an official unemployment rate above 8% after nearly four years of easing monetary policy and, as you correctly noted, oil and other commodities are priced in increasingly devalued dollars. And being sanguine about S. & P.'s downgrade of the U.S.'s credit rating is premature; the "other shoe,' namely a downgrade by Moody's, has yet to drop (pardon the pun). We also don't know how much longer "others" will remain eager to buy U.S. government debt. The ratio of debt to GDP is rising so rapidly that we might not have much warning as to when it reaches an inflection point whereupon treasuries will sink in value. This should also be a concern with regard to national security, as all China would have to do to seriously harm the U.S., if it chose to do so, is to suddenly sell off its holdings of U.S. government debt. Personally, I don't think that is a likely scenario, but the very fact that it is possible exposes a potential vulnerability. Finally, just because Congress isn't likely, given its past history, to change the mandate and/or powers of the FOMC doesn't mean that the FOMC's decision, driven by its dual mandate, to initiate a QE3 will succeed in accomplishing its objective. Meanwhile, the risk that interest rates will remain low for too long - that the FOMC won't be nimble enough to engineer a "soft landing" - is becoming increasingly more probable (the lower the interest rates are, the greater the distance to be traversed to reach the historic "neutral" rate of about 4%, the less likely it is that the FOMC will act quickly enough). I see a very real danger of "stagflation" - it has happened before, and it can happen again, assuming that we aren't on the verge of it already. You say we will see in four years. I just hope that in four years we don't wake up and find that we are living in a latter-day "Weimar Republic."

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Comment #72 by Wil posted on
Wil
By the way, while I was writing my last response, the Wall Street Journal Report, hosted by Paul Gigot, was on TV. Gigot had three financial journalists on his program, and while they didn't bring up the dual mandate, all three thought that this QE3 would prove ineffective, and that by it Bernanke has effectively admitted that the previous rounds of quantitative easing didn't work, and that (especially because it will be limitless) the potential consequences are dangerous. Saturday morning Steve Forbes, likewise, criticized the easing policy, particularly because with "free money" readily available, there would be no incentive for the federal government to exercize discipline with regard to government spending and debt. There would also be no incentive for potential homebuyers to take the "plunge" now, as Bernanke has told them that he's going to keep easing month after month for the foreseeable future. Friday evening Neil Cavuto was outright lambasting Bernanke, although his criticism seemed mostly about suspecting that this new round of quantitative easing is politically motivated. Perhaps my concerns aren't as far out on the fringe as you think.

Two things have to happen in order for the easing policy to work: banks have to start lending, and potential homebuyers have to start applying for loans. Neither has happened over the past four years because of uncertainty about whether it is profitable to do so on both sides of the loan. This lack of an appetite for risk is the result of uncertainty due to government policy; i.e., whether taxes will rise, the cost of "Obamacare," new regulations and bureaucracies, escalating government debt, etc. Until these uncertainties are resolved, monetary policy alone will not bring about the conditions necessary for quantitative easing to succeed. If that is the case, the Fed is embarking on course of action that is pointless, and with possibly unwelcome consequences.

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Comment #73 by Anonymous posted on
Anonymous
Wil -72  For the banks to start lending more and people to buy more housing, there is one thing missing.  It's called INCOME.  People can't buy a home if they don't have steady INCOME.  That means there needs to be higher savings rates and JOBS.  Both create INCOME.

Enought said

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Comment #74 by Anonymous posted on
Anonymous
I'm sorry, but apart from "venting", what's the point to this long winded pseudo-economic discussion again? I've been reminded on several occasions that this place is called Depositaccounts. I fail to see how any of this tepid attempt at an intellectual discussion is helping anyone get an extra 0.01%. 

 

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Comment #76 by Anonymous/Paoli (anonymous) posted on
Anonymous/Paoli
#74:  It's not Ken's or our fault that we can't share higher interest rates with each other.  So what do you suppose we do?  Shut down the Blog/Forum until rates go up?  I think we can still share valuable info about our financial experiences like #75 is doing.  It's important to know what others are facing when trying to get loans.  DepositsOnline is not just about CD, imo.  It gives other important info to us and helps us learn from each other.  Just my opinion.

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Comment #77 by Anonymous posted on
Anonymous
Paoli #76  I agree with you 100%.  While we can't change the interest rates, we sure can spread our experiences about what's going on in other cities and states across the US from real people and not just  the news media.  Knowledge is power.

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Comment #78 by Anonymous posted on
Anonymous
 #76......I was referring to the 20 or so back & forth posts prior to #75.

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Comment #80 by Anonymous/Paoli (anonymous) posted on
Anonymous/Paoli
#78  I can understand if it can be frustrating to have to scroll through 20 or more posts going back and forth about the same political subject.  However, when it comes to Bernanke and the Fed, it is basically still on a financial topic and not really off-topic.  

I would prefere it if we had a way to start new threads on a particular topic in the Blog so those of us who want to give our opinion about a political/financial subject can join in and others like yourself can be free to post on threads without such a subject.  Since, at this time, we have no means to do this, it all gets mixed up together with other finance subjects.  This leaves us the choice to scroll through all the posts we are not interested in or just find a subject more to our interest.

 

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Comment #79 by Anonymous posted on
Anonymous
Paoli...........I disagree. I think that the vast majority here believe this place is about CDs only. Because anytime anyone tries to suggest anything other than an FDIC insured item, (i.e. CDs) they get immediately slammed for "trying to sell" something or trying to scam someone etc etc. 

#77........A lot of knowledge, when applied properly, is powerful. A bit of knowledge gathered here & there is just a bit of knowledge & is pretty much useless. Any attempt to use a little knowledge often runs smack into someone who has real knowledge. Hence the reason why so many people here lost money in stocks................a little knowledge. 

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Comment #81 by Anonymous/Paoli (anonymous) posted on
Anonymous/Paoli
#79  It is not the fact that some of you seem to prefere and push other vehicles like stocks, gold etc that gets you slammed.  It is, imo, the fact that you do it in such a way as to make those of us who prefere our CDs seem like idiots and we are called a lot of negative names for not agreeing with you.  From day One since I came here, I got the opinion Ken set it up to help us find the best CDs and it really did it's job.  It's not Ken's fault that interest rates have crashed and now he can't find better paying CDs.  I have not seen one post from Ken advising us to buy gold, bonds, mutual funds or stocks.  I think he wants us to do what is best for our own interests and gives us the benefit of being intelligent enough to know what WE feel is best for our intentions.  Why don't you ask Ken if he will set up another  Blog maybe called "Diversified Investments" and you can be free to talk about anything you want and we can be free of being called names for prefering CDs.

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Comment #84 by Anonymous posted on
Anonymous
#81, #82.........Coming here is "community service" for me. It's like the pro athlete who gets busted for doing drugs, who then has to go to high scholls & talk about how bad drugs are & how it ruined their life. Same thing for me. Years ago when I worked as a broker at the largest brokerage in the US, I selfishly sold some investments to seniors that didn't keep up with inflation, but made me a good commission...............so now I have to come here & try to prevent people from investing in items that don't keep pace with inflation. :)

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Comment #82 by Anonymous posted on
Anonymous
Anonymous -78  If you don't like what you see, just go away.  No one is forcing you to logon and view the comments.  It's your choice.

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Comment #83 by Anonymous posted on
Anonymous
>>>>>> Anonymous/Paoli: It's not Ken's or our fault that we can't share higher interest rates with each other.  So what do you suppose we do?

Oh, why don't you lash out at someone?

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Comment #86 by Paoli2 posted on
Paoli2
#83 I suggest we continue to do as we are.  Why do you want me to lash out at anyone?  I'm sure you will give a reason to before too long if you keep posting.  Have a nice rainy day.

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Comment #85 by Anonymous posted on
Anonymous
I meant high schools, of course

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