The Fed vs. the Real World

Here's a prediction. When the Prime Rate jumps to 8 or 9 percent, all of the money that the Fed takes in from taxes will go to pay the interest on the national debt. When that happens, look for a 10 or 20 percent "haircut" on your bank account, stock portfolio and retirement account in order to save this country from bankrupcy.

I keep wondering if Powell and Yellen do their own shopping. They seem to be oblivious to the rise in prices of gasoline, food, medical care, etc.

Tried putting up a treated pine privacy fence a while back.....first of all there is no lumber available out there and secondly the cost is absolutely prohibitive.

My oldest daughter is a junior engineer at a civil engineering company. She told me "Dad, if you're thinking about any project with a steel building, either an engineered building or 'stick built', put it off for a couple of years. The price of steel buildings, and the steel parts for a 'stick-built' steel building...... has DOUBLED in the last 6 months. Good thing we don't have Inflation! ....oh I just remembered..../sarc off!

Holding cash or U.S. Treasury bills costs 2% a year. Nobody is buying or holding Treasuries any longer, except the Federal Reserve. The balance of trade with other nations is so negative that the dollar is falling in value. Other nations currency reserves have dropped the dollar by 25% as a portion of their foreign currency reserves. Biden has already spent $6T, plans another $2T, and we are under 3 months of his term of office. No goods or services are being produced. The government produces nothing, except paper currency. U.S. credit rating were previously lowered to A. It should be lowered to BBB. The U.S. is not capable paying its debts, which the government admits is 150% of the whole economy. That is without including all the government promises, which are not funded, or on the books. No public accounting firm will sign a U.S. government financial statement. The U.S. never intends to pay its debts, and cannot, instead must roll them over. The world is waking up, and we will soon see the credit rating of the U.S. falling, which will set off a rapid deflation in U.S. valuations. The balloon will inflate, then burst. We are at the mercy of fools.

I hear that the low inflation rate and low interest rates are killing seniors. Seniors need to be in the market, which has a greater return than certificates. Dangerous? Not if you can react have some control over your investments.

Simply put: The American financial system is designed to pour cheap money into the economy to maintain perpetual prosperity. No President want to ever bee accused of "mismanaging" the economy. The problem is when the politicians need more juice, as happened in the Dubya years. I can still hear Hannity trumpeting the longest economic expansion in history. And in 2008 it overheated and blew up. The Fed kept interest rates low, and the various housing agencies and banks pumped out easy money to "stimulate" the housing market to ridiculous dimensions. The boiler blew too early for Dubya, then the "Greatest of All-Time" presidents. Had the whole thing stuck together a few more weeks, we'd be talking about the unicorns and rainbows of his term.

I was discussing how to deal with the coming massive inflation, caused by the massive, entirely uncontrolled increase in money created from thin air by the Fed, with my financial advisor yesterday afternoon. We are working on some strategies to minimize exposure to bonds, as we know that interest rates will be driven upward in the near future by the resistance to purchasing US government bonds, which will collapse the bond values for quite some time. Best be out of bonds ASAP if you have any. Their values will very likely be dropping. And what to do about massive inflation coming? Hard to say, and "buy gold" is a highly questionable path for investors since the US government could again do what they did in the 1930s....make private ownership of gold ILLEGAL and REQUIRE all gold to be sold to the government at a government mandated price. So, imagining that gold is some great path to avoid the loss of monetary value from hyperinflation is a pipe dream. Suppose you buy half a million dollars in gold, which would be about 285 ounces at the current spot price of $1750 ish per ounce. Then the US government announces that gold is illegal to own more than say 1/2 ounce in jewelry, and must be sold to them for say, $100 an ounce. "They can't do that!" you say, but you are wrong, they HAVE done it. Your $500,000 purchase of gold will bring you $28,500 when you sell it back to the government at $100 an ounce. Heck they may be "generous" give you $500 an ounce, and you'd turn $500K into $143K in a big hurry. And what would this buy? The old Venezuelan bolivar was about four to a dollar, so worth about a quarter. Today 2,100,000 bolivars will get you one US dollar. How long before that $500,000 401K will buy a tank of gas or a loaf of bread? Perhaps this is why may billionaires are buying up farm land. That does seem to be a real store of value, and in a real financial collapse, you can move there and grow food, both animal and vegetable. But how will you pay your taxes? Think hard on this if you have any significant retirement investments. The stock market is not going to "tank" suddenly, almost certainly, and you really should be fully invested in the stock market, but the bond market will be doing it, and eventually, the money itself will start being devalued. Whether that is in 5 years or 40 years is impossible to say, but it cannot continue this way with several trillions of dollars being just printed each year without a blowup.