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How The Federal Reserve Is Purposely Attacking Savers - Chris Martenson

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I came across this post from Chris Martenson of Peak Prosperity. It's a long but simple, and very interesting follow up to a piece that he did recently on Financial Repression as a tool to solve the govt debt crisis. Nothing really new exactly, but a very clearly defined piece which I found much easier to understand than some other efforts:

http://www.peakprosperity.com/blog/88227/how-federal-reserve-purposely-attacking-savers

Particularly clear is his version of what Yellen's recent speech should have said:

My fellow Americans. Decades of poor fiscal restraint and accommodative monetary polices have brought us to an uncomfortable juncture.

My intention today is not to cast blame – there will be plenty of time for that later – but to take stock of where we are so that we can all decide on the best course forward, openly and honestly, as should be the case in a democracy.

There are no easy choices at this point, only a rather poor range of options spanning from somewhat unpleasant to potentially catastrophic.

The heart of the matter is simply this: the US government has built up an extraordinary amount of public debt, and an even larger pile of unfunded liabilities.

There’s simply no way for those to all be paid back under current terms. And given recent trajectories in play with respect to economic growth and deficit spending patterns, those debts and liabilities are only growing larger with time.

Quite simply our choices are these:

  1. Pay down the debt by taking in more revenue than expenses. This is also known as austerity and given the size of the debts and other obligations, several decades of severe belt tightening would be required. This program would be extremely painful for nearly everybody and would require massive tax hikes coupled to major spending cuts.
  2. Default on the debts and obligations. This simply means not paying people, investors, institutions and countries what we have promised to pay. Down this path lies the potential for massive destruction of our financial and political systems, so we have chosen to not entertain this path any further than to mention it exists.
  3. Do nothing and wait for a fiscal and monetary accident to happen. This is a guaranteed disaster that could result in the sudden and permanent decline of opportunity in this country that would be so painful we cannot even predict the possible outcomes.
  4. Engineer conditions where negative real rates of interest slowly allow the government’s obligations to fall relative to inflation. Over the span of decades this is the least painful route and our country has been down this path before.

We’ve selected path #4 as the least bad option. Since 2009 our policies have been geared towards #4 and we see no alternative besides staying on that path for as long as necessary. The alternative is the literal bankruptcy of our nation and we cannot and will not allow that to happen. Not on our watch.

While path #4 is the least objectionable of them all, it comes with its own share of unfortunate consequences and injustices. At its heart, negative real interest rates are an effective tax on savers and those whose incomes fail to keep pace with the inflation we are creating as an overt act of policy. This generalized and widespread loss of purchasing power takes a little bit from everyone, rather than a lot from a few systemically important institutions such as your federal government, which spreads the pain widely, and therefore causes the least disruptions to our daily lives.

Path #4 has a name: Financial Repression. This policy combines negative real interest rates with various forms of capital controls and tax policy to assure that nobody can evade it.

Obviously this is not fair, nor is it in alignment with our national narrative of prudence and hard work being rewarded because, truth be told, it rewards the profligate and those who produce nothing of real value but can play the game of high finance well. Yet here we are without any better options before us, and so we reluctantly chose Financial Repression.

One other distasteful ‘feature’ of the program of financial repression we’ve been putting you all through is that the rich get richer. Until or unless there is a massive change to the taxation and wealth re-distribution programs of the federal government, the Federal Reserve’s program of Financial Repression will continue to deliver an ever-larger gap between the wealthy and everyone else.

Such is the nature of the compounding function combined with the inequity of who gets first access to the newly created funds we make available in order to drive the interest rate curve into negative territory.

Are there any risks to this program? Well, the largest of them really needs to be discussed. Financial Repression has worked in the past, but it has only worked because we experienced both inflation and economic growth in equal measures.

Today, for reasons that we are still studying, neither the wage growth necessary to incite the sort of inflation we need nor economic growth have arrived as we thought they would.

If economic growth does not return, then the entire program of financial repression could well fail, and fail spectacularly. Everything depends on a return of economic growth sufficient to service the vast increases in debts that will result from the program.

But if that growth does not materialize? If the world is now stuck in a ‘New Mediocre’ of low growth then one risk is the possibility of a crisis that will be rooted in a permanent loss of confidence in debts of all forms, but government debt specifically. Down that road lie currency crises, and a wide variety of related financial upheavals the final result of which is what most will experience as a massive destruction of wealth.

We are working hard to assure that these risks are well contained, but you should be aware that they exist

After all, this is all of our futures that we are experimenting with and we do not have a playbook that we can follow here in 2014. We are in wholly uncharted territory. The exact arrangement of conditions we see across the global landscape is brand new.

We’re sorry to have to be in the position of engineering Financial Repression, but we felt there were no other options before us and we hope that you agree that a slight yearly discomfort to almost everyone is preferable to a major disruption to our way of life, our political system, and the possibility of worse things.

Is this fair? No. Was it avoidable? Yes. Is there anything we can be doing differently today? Not that we are aware of. The choices are between bad, worse and utterly terrible. We're choosing the bad path, and we hope you’ll agree that this is the best we can do at this point.

But you deserve the truth because it’s already completely obvious and available for anybody with access to a computer. Since we are all in this together and we’re all being asked to sacrifice in some way, it's much better that we all agree on the treatment plan.

It’s not a perfect plan, far from it. But considering the alternatives, this is the best one on the table.

If you want to make it more fair, more equitable, and with an eye towards building to a future in which we can all share some hope, you’ll need to turn to your policy makers and ask them to work from the fiscal side to correct what they can. Without a profound realignment of priorities, we’ll just get more of the same and, truth be told, eventually more of the same turns into a fiscal and monetary disaster about which nothing can be done except absorb the pain and loss that it will bring.

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It Will Take 398,879,561 Years To Pay Off The US Government's Debt

20141022_debt.jpg

The US government’s debt is getting close to reaching another round number - $18 trillion. It currently stands at more than $17.9 trillion. But what does that really mean? The Social Security Administration just released data for the average yearly salary in the US in fiscal year that just ended. It stands at $44,888.16. The current debt level of over $17.9 trillion would thus take more than 398 million years of working at the average wage to pay off.

Don't worry it's easy for the avg worker to help pay the taxes to pay this off....

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It's surprising that the two old political parties in the US still retain support.

At least in the UK their support is visibly and rapidly declining.

Edited by billybong

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Guest UK Debt Slave

It's surprising that the two old political parties in the US still retain support.

At least in the UK their support is visibly and rapidly declining.

As in the UK, patience with the status quo is wearing very thin indeed

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It Will Take 398,879,561 Years To Pay Off The US Government's Debt

20141022_debt.jpg

The US government’s debt is getting close to reaching another round number - $18 trillion. It currently stands at more than $17.9 trillion. But what does that really mean? The Social Security Administration just released data for the average yearly salary in the US in fiscal year that just ended. It stands at $44,888.16. The current debt level of over $17.9 trillion would thus take more than 398 million years of working at the average wage to pay off.

Don't worry it's easy for the avg worker to help pay the taxes to pay this off....

Putting the budget of a country in the context of single individual is meaningless hyperbole.

If anyone is interested I ate a wrap for lunch today. It would take an ant a trillion years to eat the same amount of food.

More sensible to quote the debt level of a country in terms of how long it would take the entire country working at average wage to pay it off. That doesn't sound anywhere near as scary though, which I guess is why it wasn't provided in that way.

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I'm not a massive fan of Martenson to behonest. The site is slickly put together but is so clearly a just a slick business selling a particular narative to it's US subscribers.

I wouldn't worry so much about the fiscal shape of the US, their deffcit is shrinking massively:

http://www.nytimes.com/2014/10/10/opinion/paul-krugman-secret-deficit-lovers.html?_r=0

Down to just over 2.8% of GDP - at this rate there will be a surplus soon. Plus they have healthy demographics.

Meanwhile, in Europe, where austerity has been practiced, we are stuck in a near economic depression.

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It's surprising that the two old political parties in the US still retain support.

At least in the UK their support is visibly and rapidly declining.

Top 2 took 86% of the seats in the last election.

What price are you offering it will be at least 80% in the next?

Conservative 303 Labour 257 Liberal Democrat 56 Democratic Unionist 8 Scottish National 6 Sinn Fein 5 Independent 3 Plaid Cymru 3 Social Democratic & Labour Party 3 Alliance 1 Green 1 Respect 1 Speaker 1 UK Independence Party 1 Vacant 1 Total number of seats 650

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It's surprising that the two old political parties in the US still retain support.

At least in the UK their support is visibly and rapidly declining.

Most things in the US have the form of open competition/free market but in reality, when you look beneath the surface, it is just another cartel. Politics and the 2-party "democracy" is no different.

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It's surprising that the two old political parties in the US still retain support.

At least in the UK their support is visibly and rapidly declining.

They have teabaggers and we have 'kippers.

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