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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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Future of the Fed and Interest Rates in President Obama's Second Term

POSTED ON BY

With President Obama winning re-election, it's unlikely that we'll see any changes at the Federal Reserve and the FOMC. Fed Chairman Bernanke is expected to serve out his term, but when his term ends in January 2014, it has been reported that he will probably turn down a third term even if President Obama wants him to stay. If Chairman Bernanke does leave, his replacement will likely be Janet Yellen who is currently Vice Chair of the Board of Governors at the Federal Reserve. According to this Bloomberg article:

And where is Yellen today? Possibly in line to succeed Bernanke, whose second four-year stint as chairman ends in January 2014. “In a second Obama term, were Bernanke to leave, Janet Yellen would be at the top of the short list for Fed chair,” says Mark Calabria, director of financial regulation studies at the Cato Institute.

Don't expect Yellen to be any better than Chairman Bernanke for savers. According to the Bloomberg article:

Count Yellen as a dove. She says the Fed can help create jobs with accommodative monetary policy and should tolerate somewhat more inflation to achieve that end.

In this Reuters graphic of the Fed, Yellen is shown to be more of an inflation dove than Chairman Bernanke.

The best hope for savers is that the economy does improve enough for the Fed to start tightening its monetary policy which will eventually lead to higher interest rates. I'm afraid I don't see any other path for higher rates in the next 5 years. In fact, it could be much longer. One economist says history "suggests interest rates may continue falling until 2022". It's possible that other factors could force higher rates especially for the longer-term maturities. However, I think the chance of that happening is low. Long-term CD rates may be very low, but those rates are still higher than savings account rates. That doesn't mean all money should be put into long-term CDs, but keeping a CD ladder going is still reasonable in my opinion. CD ladders have a long history of providing a sound strategy for the low-risk part of one's portfolio.


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Comments
34 comments.
Comment #1 by Anonymous posted on
Anonymous
We (savers) are doomed! The monkeys are now running the zoo for 4-8 years or maybe even more.

This is the end of CD investing as we have known it for the last 30 years.

Goodbye deposit accounts website...so sad.  Thank you for helping us over the last few years.

16
Comment #3 by Anonymous posted on
Anonymous
#1  "The Inmates are running the Asylum" is the way I see it.  However, abandoning this forum is not an option for me.  It is my one link to what is going on in the world of zero rates.  I am sure Ken will always dig up something for us no matter what happens.

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Comment #37 by Anonymous posted on
Anonymous
#3, #35, #36  =  Paoli (and pushing yet another petition)

2
Comment #4 by Anonymous posted on
Anonymous
#1.........What do you mean "monkeys"? Is that some sort of a racial comment? :)

6
Comment #5 by Maecl posted on
Maecl
#4 Having an opinion on policy isn't racist.  Bernanke looks white to me.  Savers and those of us who depend on income from interest and dividends are having a hard time and we come in all colors.

14
Comment #7 by Anonymous posted on
Anonymous
#4..........A :) means that is is spoken in jest, or as in a joke. Please take some of that 0.50% interest you are earning & sign up for Internet 101.

2
Comment #2 by 51hh posted on
51hh
It is bad, but not that bad.  Even for degradation, it will degrade slowly and gracefully. 

Just remember, there are always some good deals; one way or another.  For example, low-rate refinancing, selected RCAs; but not the stock market for a while:-)

9
Comment #6 by Anonymous posted on
Anonymous
Apparently we are in the minority, the majority of voters got what they wanted.  So goes the country.

9
Comment #8 by Anonymous posted on
Anonymous
I, too, am saddened by these low rates, as I depend a lot on the income from my savings.  However, I don't base everything in my life on MONEY.  I am happy with the election results from last night.

8
Comment #9 by Anonymous posted on
Anonymous
#8 - you got what you deserve! I hope you will be as happy eating dog food for the next four years.

13
Comment #10 by Anonymous posted on
Anonymous
Yellen obviously will be at the top of Obama's list to succeed Bernanke. The question remains will she be confirmed by the Senate? Expect CD yields to be no higher than 2%, if that, for the next decade. Insured deposit accounts and Treasuries will be just a small part of ones portfolio for safety. Otherwise, a diversified group of equities, mutual funds, ETFs, corporate bonds, REITs, precious metals, etc. will form the bulk of one's financial assets. I can't envision interest rates rising due to the damage it would do to the credit markets, government borrowing and the fragile housing market. Find the best deposit deals on this site and go on with life.

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Comment #11 by Anonymous posted on
Anonymous
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Readers and Mr Tumin,

First of all - Congratulation to our President and his team (including Vice-Present Biden, Chairman Bernanke and others) for doing a great job over last few years.  Now you have approval of the majority of those who voted to carry on the policies of last few years for 4 more years !!!

Next - For all these years I have appreciated the open-ness that Chairman has brought to the Federal Open Market Commitee, when compared to relative opaque-ness of his predecessor ex-Chariman Greenspan.  I am appreciative of the policies the Chairman has implemented to try hard to satisfy the dual manadate.  I hope that the the Charimain will keep implementing the policies till his term comes to an end.

Yours Truly,

Anonymous

3
Comment #12 by Kaight posted on
Kaight
Most savers are well aware Bernanke has been a catastrophe for us.  But please be aware:

Janet Yellen, from San Francisco, as Fed chair would be Bernanke on steroids when it comes to doing us harm.  "You ain't seen nothin' yet" is the phrase that comes to mind.

Some savers likely believe things could not be much worse.  If Yellen gets in, we'll all be bemoaning the loss of Bernanke.  Yellen would be poison. 

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Comment #13 by Anonymous posted on
Anonymous
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Dear Kaight - #12,,

 

>> Most savers are well aware Bernanke has been a catastrophe for us.

Surely I'm in minority, as I do not know how the Chairman first appointed by President Bush, a republican, has been a catastrophe for us.

I have a feeling that whatever you term as "catastrophe" was perhaps what happened because of the irresponsible Americans who borrowed beyond their means and could not pay, and what happened as a result in 2007/2008.  If that's the "catastrophe" you mean then in fact I must appreciate the response the FOMC has given to try to fulfil the dual mandate that we - the people - via congress - have chraged them with.

Your Truly,

Anonymous

5
Comment #15 by Maecl posted on
Maecl
#13 The problem began in 1977 with the Community Reinvestment Act.  So, we are really talking about an irresponsible government that help create the irresponsible lenders, who loaned money to the irresponsible borrowers.

4
Comment #14 by Anonymous posted on
Anonymous
If interest is zero, and inflation is 2%, our money shrinks in buying power by 2%/yr.  Not good for the recovery.

10
Comment #16 by Anonymous posted on
Anonymous
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Dear Maecl - #15,


Err ... you gave a laundry list of the irresponsibleparties.  But I'm afraid you did not mention a major irresponsibleparty involved.  The irresponsibl voters, who over generations have elected their irresponsible public servants to run their governments/administrations.  No?

Your Truly,

Anonymous

8
Comment #18 by Maecl posted on
Maecl
#16 Yes I totally agree.

3
Comment #17 by lou posted on
lou
Just wanted to add my two cents and reiterate how much I appreciate this site and all the great work Ken does. I am a loyal reader and will continue to peruse the site everday. Without deposit accounts, I would be much poorer. Thanks, Ken

22
Comment #19 by Anonymous posted on
Anonymous
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Maecl - #18,


I'm glad that you agree.  This means that the blame - if any - surely is shared by the successive generations of the voters (including the guy in the mirror) !
 

The readers of this site have tried to blame the Chairman, when in fact Chairman is merely a public servant doing his job.  It is the "public" who indirectly apppoints the various servants in various different branches of the Administration.  Therefore taking the personal responsibility is something that is called for, rather than blaming the Chariman who was first brought in by a Republican, and then was re-appointed by a Democrant.

 
Unfortunately Mr Tumin here only sporadically (that's my opinion of course) discourages the "flame" posts that go against the Chairman, when in fact he knows all too well that it is not one person, but a whole commitee that is responsible for the policy.



Me?  As a member of public, I rather like the job that my servants are doing!

 
Yours Truly,

Anonymous

2
Comment #21 by Maecl posted on
Maecl
#19  I vote, but I don't see into the future.   As an average voter, I don't understand economics and monetary policy.  Printing money, borrowing, and spending more than you bring in is what I understand.  I see it and I feel it's effects.  I want smaller government and I want them to stop all their regulations.

6
Comment #27 by Anonymous posted on
Anonymous
#19, your comment, "(including the guy in the mirror)" is absolutely wrong.  Unless it is your face you see in the mirror.  Your subsequent posts are also questionable.

2
Comment #20 by Anonymous posted on
Anonymous
Very unfortunate that we will continue to have wall street connected crony dealing financial team running the show for another 4 years.  It would be wonderful if Bernanke leaves but they would have to replace him with someone who is competent.  That may be asking a lot.

4
Comment #22 by Anonymous posted on
Anonymous
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.

Dear Maecl - #21,

 
>> As an average voter, I don't understand economics and monetary policy.

Hmm .. Well then I must say that if you have the time/interest/inclination then do try hard to understand the economcs, (and the monetary policy and also the fiscal policy).  All these aspects (I believe) are quite imporant for most voters.

 

>> As an average voter, I don't understand economics and monetary policy.

I surely will encourage the average to rise above the average, and become better informed.

 

>> I want smaller government and I want them to stop all their regulations.

Sure.  And you and everyone who cared to vote had their chance of expressing it by electing those who represent your some of your views the best.  Now that the majority has elected their represetatives, it is time for all of us to come together and work toward making our financial lives better. 

And perhaps for those of who who find their views are in minority, to work to turn their minority into majority in next four years. Right?  ... And maybe perhaps to accept gratiously the majority decision than being a sour loser. :-)

Yours Truly,

Anonymous

2
Comment #23 by Maecl posted on
Maecl
#22  I thought you were looking for a dialogue, but I guess you want to gloat. Classy

5
Comment #24 by Anonymous posted on
Anonymous
.

.

Maecl - #23,

Well ... you are free to think whatever you want, and you are equally free to make any guesses that you must.

So my guess about you ... sour loser !!! 

Yours Truly,

Anonymous

2
Comment #25 by Anonymous posted on
Anonymous
BS!!! NOTHING, NOTHING in life lasts forever! When the banks want them to go up they will!

3
Comment #26 by Anonymous posted on
Anonymous
Your right.  The banks are busting at the seams with money.  No need to raise interest rates for depositors.

1
Comment #29 by Truthseeker (anonymous) posted on
Truthseeker
The days of the honest saver, scrupulously putting away money for a "rainy day", and accepting low returns on investment, in exchange for safety, have been over for several years. Rates will continue to be manipulated downward by whoever runs the Fed (with the support of whoever became President) because the ruling elite, in the USA, are all big debtors. And, most voters are debtors also.

The big banks, for example, owe trillions to depositors, and those deposits are backed by highly questionable assets, like mortgage bonds. That's why the Fed is buying mortgage bonds to prop up their value which would, otherwise, be falling fast. In the end, there is only one possible end result from all the money printing. High levels of inflation. That does not mean that interest rates will rise. It does mean that the cost of living, now being reported with high levels of inaccuracy, will continue to rise sharply, regardless of the fake numbers reported by the Department of Labor's CPI index. The biggest rise in the cost of living, and the deepest fall in the buying power value of the Federal Reserve Note, however, will come very suddenly, in a matter of weeks or months.

The dollar will probably go from being worth, perhaps, 70 cents of its current value, to 15-20 cents, almost overnight, as foreign central banks diversify their reserves into gold or another reserve currency. This would have already happened, if not for the distraction provided by the European Debt Crisis. That has given the dollar a reprieve but it is not, and will not, be used gainfully. This is not my "tin foil hat" theory. One of the most respected think-tanks in the world, the "Council for Foreign Relations" discusses the inevitable change in currency flows, if the USA stays on its current course, in an article found at http://www.cfr.org/financial-crises/dangerous-us-government-debt/p22408 That is why I now save in hard metal bullion based "currencies" that don't need a government fiat to have exchange value.

2
Comment #30 by Truthseeker (anonymous) posted on
Truthseeker
I should note that I don't mean it is going to start a few weeks or months from now. I am talking about a few weeks or months from the time the implosion begins. Hopefully, the process won't begin in earnest for a few years, which will give us time to prepare.

1
Comment #31 by Anonymous posted on
Anonymous
Truthseeker............Yes we know it's not going to happen riht now. I have you down for & am holding you to a 2018 prediction for the dollar's demise & the end of life as we know it. :) 

1
Comment #32 by Anonymous posted on
Anonymous
Truthseeker.........By the way, when is your book on the dollars' demise coming out? Will you be accepting "fiat currency" as payment ................or will I need to scrounge around for some palladium or platinum in order to pay you for it? Or some junk silver perhaps? :)

1
Comment #33 by Truthseeker (anonymous) posted on
Truthseeker
Anonymous 32,

Why not just take the trouble to read the scholarly paper published by the Council for Foreign Relations, instead of making snide comments.

Anonymous 31,

It will not be an "end to life as we know it", especially since the USA is still the sole superpower in the world, and will continue to be for the foreseeable future. One might say that the "end" of a way of life, however, has already happened to us savers.

It is a bit naive to believe that the present US debt-based currency system can survive trillions of dollars worth of garbage assets on the balance sheet of its central bank. But, the change I am talking about is simply a reversion of the currency system to a sounder base, not the end of the world.

America will be a leading world power for at least decades, if not centuries longer. Historically, for example, the Roman Empire weathered a severe currency crisis which occupied a large part of the 3rd century. Yet, it continued for hundreds of years afterwards. After debasing the denarius to almost no silver, in order to pay for countless wars, foreign adventures of other kinds, and public giveaway programs, the rest of the world, including people inside the Empire itself, were refusing to accept the debased Roman coinage in spite of the fact that refusal to do so was a violation of law.

The Romans were eventually forced to return to silver, and did so with the monetary reforms of Emperor Diocletion. He created a new coin called the argentus, which replaced the debased denarius, and was mostly silver, like the old denarius had once been. But, this change occurred AFTER very heavy inflation caused considerable civil unrest in Rome and Italy itself.

2
Comment #34 by Truthseeker (anonymous) posted on
Truthseeker
Oh, yes, $32. Of course, I would accept fiat currency, at this point in time, because I can still trade it in, quite easily, for hard currencies. I am talking about savings, not what I use or accept to pay bills or receive payments from my customers.

1
Comment #35 by Anonymous posted on
Anonymous
Truthseeker:  What you are giving us is a scenario for a nation of people supported by the government and all of us probably living in government camps especially those of us who lost our homes and are now back to paying for rent.  This is a gruesome picture you give us if it is true and one hopeless for our children.  Did you happen to hear the manic Rush Limbaugh screaming on Greta Van Sustern's show last night?  He seems to think doomsday is already hear for Americans since Obama got in again.  Is there no one out there with any faith left in our country?  And don't forget about the Fiscal Cliff?  If they allow us to go over it, doomsday may get here a lot sooner than your predictions.  I don't think we need a Savers Petition any longer.  What we need is a Petition to force those so called politicians to quit sitting on their hands and DO their jobs!  Have a good day while you still can!

1
Comment #36 by Anonymous posted on
Anonymous
NOTE:  For anyone interested, Change.org has a Petition concerning the FISCAL CLIFF.  This is all  I will post about it.  Thanks.

1
Comment #38 by Anonymous posted on
Anonymous
.

.

Dear Truthseeker (anonymous) - #29,
 

>> In the end, there is only one possible end result from all the money printing.

End?  End of what? ...

US has a unique position the world.  Our currency is world's reserve currency.  There is no other currency quite like ours.  When Euro came into existence, there was a hope (speculation?) that it will slowly erode the unique position of the greenback.  But as it turns out there is a fear (speculation?) that maybe Euro will come to an end.

So ... Assuming that we are at the (so called) end, what do you believe the hard-metals cited by you will be priced in?  Yen? Renminbi? Mark? Pound? Rand? Real? Rupee? Ruble? ... What? 

... Or are you specilating that you'll conduct a barter?  Few Tons of Copper in exchange for a few kilos of Gold, or something like that?

Nope.  End of greenback (within what we know) appears more like fiction than a cetainty that you are making it out.


Yours Truly.

Anonymous

1
Comment #39 by Anonymous posted on
Anonymous
Truthseeker............Your fixation with "bullion" & with, as you call it, "hard metal bullion based "currencies" that don't need a government fiat to have exchange value" is where your arguments fall off the cliff. What specific currencies are you saving in? I'm not aware of any currencies in the world today that fit the traditional definition of a "bullion based currency". The Swiss franc used to be, but certainly isn't anymore. Please enlighten us. 

No one is arguing that we don't face a number of fiscal or monetary problems. No one is arguing with the probability of future inflation, maybe even high inflation at some point. But the real "danger" if you will, is a massive worldwide deleveraging across asset classes. Your $1 today may buy you less groceries than it did 3 years ago. It certainly buys you less gasoline than 3 years ago, & less healthcare. I'm sure we could all give a long list of specific items that have increased in prices every year, some of which have in fact seen large increases.

But while this has been going on there has also been & continues to be a decline in major asset classes. Real estate worldwide have seen sharp declines. The dollar value of small businesses have declined sharply in value.  Try selling a small business & you'll be lucky to get 70% of what you'd have gotten 5-6 years ago. There are a number of other examples. So in fact, in these cases, your dollar has appreciated in value. Your dollar today buys more real estate, buys more assets.

I don't pretend to know where inflation will be 10-20 years down the road. But I will say that I have every confidence that we will see another deep recession before we see anything resembling the inflation you predict. And if we see a massive worldwide slowdown, don't be surprised to see your bullion holdings decline 30-40% in value. If one really believes that inflation will skyrocket & the dollar will be worthless in 6 years................then get rid of these worthless dollars & buy real estate, & buy assets that will not only keep up with inflation, but almost as importantly, generate income as well..............in case one is wrong & the dollar doesn't go to crap. Don't buy gold & just have it sit there year after year earning nothing.

1
Comment #40 by Truthseeker (anonymous) posted on
Truthseeker
Anonymous #39, how can you say that gold "sits there earning nothing"? The gold I bought for $260 per ounce in 1999, at $550 in 2006 and at $800 in 2008 is now worth about $1,730 per ounce. That's one heck of an interest rate.

What you are actually talking about is being careful to engage in asset diversification. This I agree with. I am buying plenty of real estate, not so much in the USA, although that might be a good idea in a year or two, or even now, but especially agricultural lands in a number of foreign countries. And, I invest in my business activities.

The USA is going to be fine. It is just that the Federal Reserve central bank, and the notes it issues are going to be ended. The dollar will not go away. American currency will always be "the dollar" in the foreseeable future. But, the FRN will be replaced by a new type of US dollar, and old FRNs will be traded in for the new dollars at a very unfavorable exchange rate.

These predications are not wild or wholly haired. This nation has had a total of three different central banks, two of which were closed down in the past. The format of the US dollar has been changed many times. Greenbacks during the Civil War, US Notes backed by silver, US Notes backed by gold, and other types of dollars were issued for many years. $50 pnysical gold pieces were issued.

For a time, the USA is going to undergo a great deal of trauma, just as the Roman Empire did in the 3rd century. But, the USA will be stronger for it after it is over, and the financial system will be grounded upon a much more solid base.

2
Comment #41 by Anonymous posted on
Anonymous
"I don't pretend to know where inflation will be 10-20 years down the road. But I will say that I have every confidence that we will see another deep recession before we see anything resembling the inflation you predict. And if we see a massive worldwide slowdown, don't be surprised to see your bullion holdings decline 30-40% in value. If one really believes that inflation will skyrocket & the dollar will be worthless in 6 years................then get rid of these worthless dollars & buy real estate, & buy assets that will not only keep up with inflation, but almost as importantly, generate income as well..............in case one is wrong & the dollar doesn't go to crap. Don't buy gold & just have it sit there year after year earning nothing."

 

None of that is a defense for sharia law.  If you aren't concerned about that, then you are not paying attention to the world around us...  or the changes in the US regarding that particular cultural movement.

 

Been to France lately?  England?  Arab spring?  Congress?

 

The Us or Global Economy...  is a puzzle piece.  The whole puzzle has much more at stake than the value of the US dollar.  That doesn't make the fiscal cliff or the dollar any less critically important.  It's that there is so much else just as critically important happening simultaneously.

3
Comment #43 by Anonymous posted on
Anonymous
#41...........Your comments are so unbelievably off topic that they have set a new bar for absurdity here. A bar that is so high that it will likely withstand the test of time. I feel soiled just being in the same conversation as you. And yes, I have been to both France & Britain in the last few years. I live in the Afghan capital of the US.................Fremont, California. So please spare me & the rest of us your paranoia & pretensions that you are somehow opening our eyes to some hidden danger. 

1
Comment #42 by Anonymous posted on
Anonymous
Truhtseeker............The gold you hold is not earning income. I own a commercial rental property I know how much income I will earn this year, & short of the tenants leaving, I know how much income I'll earn next year & the next one & down the road. How much income did you earn from your gold in 2012? Nothing? How about next year? This is not "earning income".

My brother had the good fortune & foresight to buy an average 1971 Ferrari Dino in 1992 for $38k. He's spent an additional $15k restoring/maintaining it. That car is worth almost $150k today. That too is one helluva interest rate return. However, like your gold, it cannot be relied to generate income. It is not "earning income" Like your gold, it may appreciate or depreciate next year & may not appreciate at all for years to come. Like your gold, whether it generates any income is utterly & completely out of his control. However, unlike your gold, if he takes my advice & "rents" the Ferrari out through one of the exotic car rental companies..............he will in fact be "earning income"................while your gold just sits there earning nothing.

Incidentally, I'm still waiting for your list of "bullion based currency" that you are "saving in" today...........

1
Comment #49 by Anonymous posted on
Anonymous
Trutseeker is one of those people who doesnt talk to you, he talks at you. He states that he saves in "hard metal bullion based "currencies" that don't need a government fiat to have exchange value"............yet there are no such things in existence. I've asked him twice now for a LIST of these currencies, & his reply have been rambling posts about the history of federal reserve notes & what have you..............Interesting, in a masterpiece theatre sort of way, but rather beside the point since it doesn't answer the question. A simple list is all I need, but no such response is forthcoming because the only possible response is that Truthseeker is talking about saving in physical gold & silver. I suppose he digs a hole in his backyard or puts in a house vault. Such a person would never consider Gold contracts or putting gold & silver in a safety deposit box, for fear of fraud or confiscation. 

In life, in society, there's always going to be that 2% scenario where everything Truthseeker talks about actually happens. In that scenario, his investment or "saving" approach may in fact work out............maybe even work out fabulously. Truthseeker is not saying that owning a little gold is a good idea to protect from inflation & the decline in the dollars purchasing power. Owning some gold would be prudent. Truthseeker is saying that owning precious metals is the ONLY way to protect ourselves, that it should hold the BULK of one's savings & that the run-up in gold of the past 8-9 years proves that it does in fact generate some sort of consistent return. That argument is sheer nonsense................as anyone who can look at a gold price graph from 1982-2003 will attest to. Can anyone here afford going for 21 years with the bulk of their investments earning 0% all that time? Because that is exactly what happenned to physical gold holders during that time period when every other investment imaginable appreciated.................EXCEPT GOLD.

2
Comment #50 by Anonymous posted on
Anonymous
Some People have responded with statements about who the people are electing. However once an elected official goes to washington they like every other employee of any other employer answere to the people with the money! I feel like they all end up doing what the Federal Reserve wants, not what the people want. We have all been enslaved to the Central Banks since 1913 when the FED and the IRS were created.

A great and powerfull country like the United States of America paying interest on its own money for 100 years now that is insanity.

Its all because the people with the money the ones that really run the country have such a powerfull hold on everyone we elect. One of The last speeches JFK gave was to the national newspaper association asking them to help him keep the American people informed of the world wide secret society that had already infiltrated our government and military then all of a sudden he was assasinated and he was the last one that tried to abolish the FED cause it will get ya dead.

China does not barrow its own money at interest but then again their people are already enslaved. They must think we are so stupid!

1