Where the money is....

When Willie Sutton bank robber was asked why he robbed banks he said "Because that is where the money is". How things have changed.

The banker's Bank the Federal Reserve is now robbing savers with near zero interest rates. Why? Because that is where the money is. It is a hidden tax. No law was passed. Still you are having the your money stolen through near zero interest rates to restore bank's balance sheets. If you had $300,000 in an IRA (or 401k) earning 5% in 2007 ($18,000 a year with nearly no risk) you are lucky if you earn half that today. That is a $9,000 or more of hidden taxes.

I hope to expose these types of actions and others by the FED and government. Boomers need to be vigilant - because their savings is where the money is. I will also delve into other areas of finances of interest to Boomers.

Monday, December 26, 2011

The year ahead - 2012

With the economy (and I am speaking of the world economy not just here in the US) things probably get worse before they get better. More job losses definitely seem likely over the next 2-3 years as countries (like Ireland and Greece) default and more people default on mortgages and bankrupt. Tough times also will lead to more corporate defaults (what the talking heads on TV say about corporate cash reserves is all fiction - according to the latest numbers corporations have about $30 trillion of debt) . Bank failures will increase. Insurance companies and other financial entities may not be able to pay the promised pension payments.

Now most people will tell you that the Federal Reserve will print more money and this will lead to inflation. This is wrong. We know from the Great Depression systemic economic failure leads to deflation not inflation. Or, look at the housing market. The Federal Reserve has added about $3 trillion to its balance sheet (much of it GSE debt of Fannie and Freddie) and housing prices have still deflated. You don't have to be a rocket scientist to figure this out - all you have to do is look at what is happening in the housing market. This proves that the Federal Reserve is powerless to stop deflation once you get systemic failure.

As countries fail the banks in Europe have to take huge write offs on their government bonds collateral and make related adjustments to the asset side of their balance sheet. This results in reduced assets and the ability to loan. Less money (reduced loans) and reduced velocity of money leaves Central Banks like the Federal Reserve powerless. They can print all the money they want, but they are powerless to put it into circulation if there is no demand for it. The result is deflation (not inflation).

With deflation those who have debt have to pay with dollars that are worth more over time so it becomes harder to service that debt. Inflation is the debtor's friend and deflation is the debtor's enemy.

Think it can't/won't happen. Watch the news. Japan just cut their projected growth rate in half for 2012. Japan/China just announced an agreement to trade priced in each other's currency rather than dollars (they know what is likely to happen). It appears likely China may hit a wall as economies slow and exports falter. Europe is probably already in a recession. The US seems to be at a stall point (note the stock market which often is a predictor and is about unchanged over the past 12 months) as 3rd qtr GDI was at .3%.  The US government is a mess - and I see no one (DemoRat or RePukeCon) with a long term plan to address the existing issues. I probably could go on and on, but you should get the picture.

So your best plan is to be/get debt free and build your cash reserves (some gold/silver may be advisable). Invest in real assets (land on which you can grow your own food?). Precious metals and land may deflate, but will probably do so at a rate slower than assets such as stocks, credit paper, etc.

The K-Wave winter is starting. Prepare.  Good luck.

No comments:

Post a Comment