Mitt Romney just received a huge campaign gift from Ben Bernanke as he moves to the Florida primary. The Fed just announced they will continue to flog savers — i.e., Florida retirees who live off CD income, and we’re not talking Credit Default swaps! — possibly into 2014. Ouch!
This is one reason Ron Paul has done so well in the primaries to the surprise of many, in our opinion. Wonder if Mitt’s advisers are smart enough to pick up on it? You think?
Talk about divisive government. We have policies, now institutionalized, that punish savers and subisidize debtors, many of which have made very poor capital allocation decisions and/or have lived beyond their means. Looks like the Fed won’t be satisfied until they turn all the widows and orphans into gold speculators.
All in the name of trying to improve the housing market. But when was the last time housing bottomed when interest rates were effectively at zero or negative? Rates have only one way to go in a no bubble economy and wil move up big when the repression ends and housing prices generally follow interest rates.
Of course, if you believe big inflation is coming, you’ll rush to buy hard assets. But to have big sustained inflation, wages need to rise. That is, unless, of course, people lose confidence in the paper currency and money demand collapses.
We can only conclude the Fed wants to generate another bubble. Enjoy the ride and let’s hope we can jump off before the train wreck.
We’re not complaining cause as we had/might/will/have a big position in gold to try and protect our savings. But, do you honesty think the retirees in Florida living off the 0.2% they earn on their CDs are sitting in front of trading screen whipping and driving in the gold market?
Finally, why do we have this funny feeling the sovereign debt crisis will hit the U.S. shores before the November election. Modern Monetary Theory aside — which states deficits don’t matter as the government is not revenue constrained when it has access to a printing press and inflation remains low. We will debate this in a later post — it’s coming, folks. Maybe to Japan first.
Global Macro Monitor 
Spot on!!!
Housing prices following interest rates? Friendly reminder that correlation and causation are two different things. Awfully tough sell that raising rates will lead to higher housing prices.
Bernanke et al are keeping rates as low as they as for as long as they are because the market-clearing interest rates are in fact negative. We’re not there yet, but as close as we’re really going to come (look at ST bunds). The bottom line is there is way too much capital out there (every dollar of debt is a dollar of savings) and a paucity of productive investment opportunities. Blaming Bernanke (who admittedly does not seem to understand this either) is wholly unproductive..
WellRed,
Thanks for the post. We think there is clear evidence — don’ have time to research it and cite it now — that rates and housing moves together. In fact, the Fed’s transmission mechanism is broken because of the housing market is so broken.
We don’t blame Bernanke, we blame his policies. The FED has declared war on savers. They have no clue their policies are the problem, not the cure. This is going to end very ugly. Wealth is created by production, not inflation.
Cheers,
GMM
Well put. Good things can only come from hard work and sacrifice. Debasing the currency is the easy way out.