The government doesn’t want us to save—it’s spend, spend, spend

James C. Sandefer

In a recent official statement, U.S. Federal Reserve policymakers said, “We continue to anticipate that economic conditions are likely to warrant exceptionally low levels of the Federal Funds Rate for an extended period…” In everyday language that means interest rates will probably remain at their current low levels for the foreseeable future. For those of us who aren’t big fans of the central bank and its policymaking arm, the Federal Open Market Committee (FOMC), that news comes as further confirmation of the Keynesian death panel for those comprising a responsible segment of the population having the intuitiveness, means and initiative to save rather than spend.

During economic downturns there’s often mention of the destructive influence of the late economist John Maynard Keynes, and it’s nowhere more apparent than in the area of saving, or lack of it. After more than a decade of mindless spending via the almighty credit the bottom has fallen out and thousands of good folks are trying to make ends meet on a daily basis. After all, it was Keynes who proclaimed that his ideal economy would see “the euthanasia of the renter” and an eradicating of the class of people who are responsible enough to figure out ways for living off the income generated from their savings. In effect, they’re living within their means.

The recent statement by the FOMC also confirms that the monetary sector is gripped by Keynes’ destructive views. As prudent savers and investors, it would be nice to have a voice in this matter, but so far that hasn’t been offered. Even a novice saver understands that a zero interest-rate policy enacted by the Feds during the bailout boon immediately begins eroding all forms of personal savings. Too bad those running the show in Washington don’t see the problem.

However, since Chairman Bernanke recently stated that the economy has bottomed out and is now in the initial stage of recovery, he should consider a modest move upward for rates by raising them by one quarter or even on half percentage point. That would send modest positive signal to savers that the Feds are aware of the issue affecting a large segment of people and wouldn’t disrupt his current policy. Such a move could have a positive, calming effect on world markets as well as sending a signal to them that our economy is recovering and higher rates are likely in the future. The market tends to respond well to such straightforward news.

Early into the recession economists acknowledged the exceptionally low U.S. savings rate and suggesting that it’s one of the leading factors making us substantially reliant on China, the Middle East and other countries that have proven to be our allies when it’s convenient and financially expedient for them. However, the question being asked today is why anybody would want to save in return for such a paltry return? In fact, the return on a typical bank certificate of deposit doesn’t come close to the inflation rate. And yes, we still have inflation, albeit it low in comparison to recent years in many sectors. Don’t forget that the Feds want their share of those measly earnings in the form of higher tax rates. So savers lose no matter how much they try to do the right thing.

In reality, the Fed has been running a scam monetary policy since the mid 1990’s that hammers conscientious savers. Since that time the central bank has continuously increased the money supply at a rate that far exceeds alleged gross domestic product. But it shouldn’t have come as a surprise that most people weren’t saving because they were penalized rather than being compensated for doing so. Conversely, the Fed’s monetary policy has been expedient for all those borrowing money, especially from the banks that have now been anointed “too big to fail.” Factually, the Feds tilted the playing field in their favor until it became a lop-sided game with savers being on the losing side.

Responsible, conscientious savers still have several viable options: 1) continue saving as much as possible in tax-free alternatives such as IRA contributions and educational funds, 2) invest in foreign markets that actually still have an interest in gaining mere savers as customers, and 3) consider buying some form of gold and silver whether it be in actual bullion or shares of companies that deal in it including mining companies.

The bottom line here is that the Feds don’t give a rip about savers and most likely won’t any time soon; it’s every saver on his/her own. It’s also a good bet that the dollar won’t consistently fare well in global markets until Chairman Bernanke begins listening and acting on behalf of the best interests of those on main street rather than Wall Street.

Basic citizens still have a few rights although they’re disappearing faster than a stack of chips on a casino poker table. For those fortunate folks who haven’t been slammed by a job layoff this is about as good a time as there will be to invest in places where our friends in Washington can’t get their hands on your money, or at least not all of it.

A nation on welfare

James C. Sandefer

Within weeks after the government acknowledged that a recession had been in progress for nearly a year, a mounting number of states began reporting a slow but constant increase in welfare applications. That number has maintained a continuous climb.

To date, ninety percent of largest states are home to nearly ninety percent of the nation’s total population. These states are experiencing welfare caseloads at record levels according to a recent survey conducted by The Wall Street Journal and the National Conference of State Legislatures. As the recession lingers on, more and more people are reaching the end of unemployment compensation periods and being forced to opt for welfare for basic sustainment. Unfortunately, the government hasn’t adequately addressed job shortage challenge that’s affecting thousands of Americans who want to work and are capable of working, but simply can’t find any employment regardless of the pay or position. The President has confirmed that the official unemployment rate will rise above 10%, but the ceiling has not been determined and likely won’t be identified or hit any time soon.

This increase is the first since former President Bill Clinton made a public pledge to “end welfare as we know it” through legislation that he signed into law in 1996. That was prompted by welfare cases recorded at a high of approximately 5 million in 1995. Shortly after he signed the law new cases declined sharply based on the limitation of benefits to five years, with few exceptions. The emphasis at that time was getting welfare recipients off the unemployment rolls and settled into jobs. What a novel idea. Curiously, the current administration views the growth of welfare recipients as a positive signal that the system is functioning properly at this time of increased need. They also offer laudatory comments for the food stamp program that’s currently serving expansively more people than welfare and also on the rise. Again, the Feds seems to be turning their heads to the obvious problem of job shortages across the country, with the exception of the Washington, DC metro area where federal positions are growing by record numbers. Ah, yes, bigger government; just what we need along with a mind-boggling record deficit.

Another heavy boot about to fall—again—will be another round of housing foreclosure due to re-defaults by those who refinanced mortgages on homes they couldn’t afford in the first place. With the exception of the nation’s capitol, most of the country is being hammered and has a glut of vacant properties. The administration concedes that their stimulus money will offer minimal, if any, relief for those on the brink of losing their homes because of the recession. No job, no income, no hope of a realistic, sustainable recovery in the housing sector, and no verifiable hope being offered by the administration. Add the escalating number of credit card defaults and those on the verge of losing their cards because of delinquent payments of more than 90 days and we have another potential calamity. And let’s not forget the fact that the Federal Deposit Insurance Corporation is unable to guarantee 100% of current mortgages should they fail, yet the Federal Reserve Board Chairman, Ben Bernanke, says the worst of the recession is behind us.

It may be time for Alfred E. Newman to make a comeback: “What, me worry?”

Based on information gathered from several major publications focused on senior living and military retirees, the hope of receiving a cost of living increase (COLA) for 2010 for Social Security, military/federal retired pay, and VA disability compensation recipients has virtually evaporated. The Feds cite the lack of inflation (-2.3%) 10 months into the current fiscal year. In order to reverse their position, inflation must rise more than 4.6% over the next two months because the COLAs are determined by the July/August/September average. At the moment, and for the foreseeable future, there’s no hope for a 2010 COLA, and predictions for an increase are already bleak for 2011.

COLAs began nearly 50 years ago, and this is the first time since their inception that the Feds won’t be paying them. It’s also been the first time in 50 years there’s been negative inflation for a full year. Fortunately, the law was written to preclude a cut in retired pay, Social Security, etc., during a down economic period, and there’s no payback during such a time that’s due from those who’ve been receiving the increases. There simply won’t be a COLA next year.

And the law isn’t forgiving about the out years (e.g., 2011). The COLA calculation doesn’t automatically reset at zero next year because these increases are based on cumulative calculations. Given the fact that we’re already in the hole for COLAs, 2010 will have to economically recover based on calculated Consumer Price Index (CPI) growth from this third quarter average to the third quarter average for next year. In addition, the law is specific regarding the starting point by making the calculation from the third quarter of the year prior to “the most recent adjustment…” Therefore, if a COLA is not paid out in 2010, then the calculated starting point for the 2011 COLA will remain as the third quarter of 2008. As you can see, once the COLA goes into a hole it becomes quite a task to dig out of it.

The quickest, most bittersweet way to accomplish a reversal is through inflation. For a COLA to be paid out in 2011, inflation would have to increase by two or more percentage points during the next fiscal year in order for the 2011 COLA clock to restart. Odds are heavily against such an economic occurrence. For those counting on the annual COLAs this comes as grim news. The Feds base their decision on the CPI, a broad measure of economic health, rather than focused data gathered from everyday folks who are struggling to buy groceries, medications, gas, pay utility bills, and various other necessary expenses.

Another glaring example of how doing the right thing costs us more money is the push toward energy conservation (e.g., reduced water and electric use). We were sold a promise that by conserving energy we’d be rewarded, but just the opposite occurred. Utility companies complained that utilization was down over the past year, so most of them across the country raised their rates. And the chances of these higher rates being reduced at any time are slim to none. Once again consumers are hit for responding to a call for energy conservation.

At this juncture I find it difficult to comprehend how many Americans wouldn’t be upset, and, yes, somewhat angry, about the way the Feds are running amok in a virtually all directions. As further confirmation. Inspector General reports being released from various government agencies continue confirming an ongoing lack of oversight in most areas. Show us the money!