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Here is an email from
"Stephanie". She heard me talk about the economy on Coast-to-Coast
AM radio with George Noory.
Stephanie writes ....
Hello Mish,
I don't know if you give advice, but I heard you on Coast-To-Coast and you
seem to know what you are talking about. I am 65 years old, get $938 from
Social Security, and this is all I live on every month.
I have a CD that is about $16,000 now and is providing $75 a month. In about
a year that will stop because the interest has gone down so much. If you were
me, what would you invest in?
I lost $2,000 in the stock market a few years ago and the way it is now it is
rather scary. I don't know what else to even consider and when I ask my
banker he seems to be at a loss too.
Any help you could offer would be a blessing. Thank you for your
consideration and kindness.
Stephanie - Somewhere, USA
Clobbered
by the Fed
Hi Stephanie
You and many others are getting clobbered by the policies of the Fed. Not
only did taxpayers bail out the banks at taxpayer expense, Bernanke and the
Fed continues to do so.
By holding interest rates low, the Fed is hurting everyone on fixed income
with savings in the bank or CDs. You get almost no interest on your savings,
and that is robbing you and everyone else like you.
Bernanke is hoping people like you gamble and invest in risky assets. Indeed,
he is doing everything he can to force people into taking more risk.
Don't do it. It is not a prudent thing to do.
The stock market is extremely overvalued here and could easily decline hard.
Indeed, I think it will at some point.
Emergency Fund in Cash
My straight forward advice to everyone is to have an emergency fund of at
least a year's worth of living expenses in the bank before they invest in
stocks, bonds, gold or anything other than short-term CDs or treasuries.
It is obvious that Bernanke's concern is doing what is best for banks. He
shows no concern about the damage he is causing elsewhere.
Bernanke is a Coward Hiding Behind Mathematical Formulas
I wish I could get Bernanke in a room with you and everyone in your position,
and take questions from you.
Bernanke will not do that because he is a coward. He hides behind
mathematical formulas, the same ones I might point out that told him housing
was not in a bubble, there was no risk of recession, and that the
unemployment rate would not top 8%.
He did not know what he was doing then, and he certainly does not understand
the risks now.
Moreover, his "Quantitative Easing" policies have helped fuel
speculation in commodities, especially food and gasoline. That speculation is
contributing not only to rising prices in the US, but even more so globally.
To be fair, there are some severe weather problems in other parts of the
world that affect growing conditions and thus food prices. In addition, there
is massive credit expansion in China and India that puts upward pressure on
food and energy.
However, there is also little doubt that Bernanke has fueled commodity
speculation with his low interest rate policies and that too has pushed
prices higher.
Believe it or not, Bernanke is worried that prices might fall. I suspect you
would love to see prices fall, and so would everyone else in your situation.
Unfortunately, Bernanke intends to keep interest rates low until prices go up
to his liking, and then when prices do start rising, interest you earn on
your CD will not keep up with prices.
Bear in mind, that the Fed excludes food and energy from the prices they
monitor. They desperately want housing prices to rise. However, the Fed can
make money available, but it cannot control where that money goes.
Serial Bubble Blowing
The Fed's loose money policies fueled a housing bubble last time, now money
is pouring into commodities, junk bonds, and leveraged buyouts (once again).
This is bound to end badly once again.
Meanwhile, the unemployment rates is still 9.4% officially, and much higher
unofficially.
Fed's Policy Is Theft
Stephanie, it's a little known fact that inflation benefits those with first
access to money, such as the banks, the wealthy (via rising asset prices),
and the government (think rising sales taxes and property taxes when prices
go up).
Everyone else gets screwed. You are right in the middle of the pack of those
most hurt by the serial bubble blowing policies of the Fed.
Viewed this way, Bernanke's policies are nothing but theft, robbing the poor,
for the benefit of banks and the wealthy.
This is why I support Congressman Ron Paul's effort to end the Fed.
No Good Solutions for Those on Fixed Income
Your dilemma is 1-year treasuries yield a mere .23%.
Unfortunately, I have no good investment solutions for you, because there are
none. You are not suited for stock market risks, and if there is any chance
you will need to use your savings any time soon, you cannot afford to risk
being in long-term CDs.
Arguably the best thing for you to do is find a bank that has 1% or higher
rates on savings accounts.
Avoid Fees
There are some other common-sense things you can do. For example, it is
critical for you to avoid all fees. If you have fees on your checking account
now, find a place that does not have them. Bankrate can help on CD rates,
savings rates, and checking account rates.
Invest in a Freezer
I do not know whether you have a home or an apartment, but if you have room,
get a suitably-sized freezer and only buy meat on sale. The price of meat on
sale is frequently 50% or less of meat not on sale.
Wrapped properly, many food items will last a year or longer. Use freezer
paper for roasts and date every package. Packaged bacon also freezes well. I
only buy bacon when it is 2 for 1. If you are nimble, learn to cut your own
chicken. If not, buy the cuts you like on sale and freeze those.
Buy ground beef on sale and make patties the size you like and freeze those.
Pork chops freeze well too. I use good quality plastic wrap doubled up.
Costco has excellent quality wrap in a large spool that will last a very long
time. Get all the air pockets out or you will get freezer burn.
Vacuum packaged cheese also stores well. It needs to be refrigerated and can
be frozen, but does not have to be frozen.
Buy storable commodities such as spaghetti, pinto beans, brown rice, etc. on
sale. Try not to buy anything unless it is on sale. Then buy large
quantities.
Complain to the Fed
If I had an email or Fax number for Ben Bernanke or the Fed I would post it.
Unfortunately all I have is a link to a contact form. You can use that form
to Contact Ben Bernanke and give him a piece of
your mind.
Change the button on the form to "Comment for Board Members" and
blast away. It will not do any good because the Fed does not care about the
plight of those on fixed income, but it might make you feel better.
I hope some of these ideas help. Best wishes.
Good luck to you Stephanie.
For everyone else ... This does not change my stance on deflation. I think
round II of a major credit crunch is likely. All of the structural problems
remain and the global economy is at least as unbalanced as before, possibly
more so. On a credit basis (which is what matters to those not retired and
struggling on fixed income), I expect the US to dip in and out of deflation
over a number of years as did Japan.
Mish
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