It’s a funny conversation to have with rich people, who eye their riches with panic, not pleasure.<\/p>\n
The Fed meets this week. The Fed adjusts interest rates to “manage” the economy, or whatever. It can only affect short-term rates. That’s the theory. Yet the 10-year treasury rate is ultra-low and falling. This reflects less the Fed and more\u00a0 the “flight to quality.” US treasuries are the safest thing going, according to big institutions overseas who eye their local currencies with disdain.<\/p>\n
What will the Fed do at its meeting? Probably lower rates further because of its double-dip fear. This piece from Forbes.com<\/em> yesterday reflects that thinking:<\/p>\n Fed’s Next Move Will Be To Ease Interest Rates At the same time, however, recent economic data–including the Philly Fed Index, first-time jobless claims and retail sales–are already pointing to a probable double-dip recession. Therefore, the Fed\u2019s next move is more likely an easing than a tightening of rates.<\/p>\n The ease won\u2019t come in any of the traditional forms. If the Fed were to reduce rates to a negative level, it would result in a politically unpalatable situation where depositors are charged to put their money into a bank. Nor will our central bank seek once again to dramatically increase the size of its balance sheet. Although the Fed bought another $7.34 billion in mortgage-backed securities last week, even Chairman Ben Bernanke won\u2019t be foolish enough to buy up another $1.5 trillion of assets that he will not be able to dispose of in the future. (See Also: Investing In Precious Metals)<\/p>\n The Fed\u2019s likely ease will involve zero interest on excess reserves: Since October 2008 the Fed has been paying interest on commercial bank deposits held at the central bank. But because of Bernanke\u2019s fears of deflation, he will do whatever it takes to increase the money supply. With rates being near zero and the Fed\u2019s balance sheet already at an intractable level, the only viable solution to fight Ben\u2019s phantom deflation fear is for him to remove the impetus on the part of banks to keep their excess reserves laying fallow at the Fed.<\/p>\n If commercial banks stop being paid to keep their money dormant, they will find a way to get money out the door. They may even start shoving loans out through the drive-up window. Banks need to make money on their deposits (liabilities). If they don\u2019t get paid by the Fed, they will be forced to take a chance on the consumer. After all, it has been made clear to them that the Fed and Treasury stand ready to bail out banks\u2019 bad assets at any cost. So why not take a chance once again?<\/p>\n Following this month\u2019s meeting, the FOMC is unlikely to indicate that the Fed will stop paying interest on commercial bank deposits. However, in the near future this strategy will be the most appealing method for the Fed to increase liquidity. Once Mr. Bernanke assents to the double-dip recession scenario, he will fight deflation by any means necessary.<\/p>\n Deflation is not a possible outcome if a central bank is willing to do whatever it takes to increase the money supply. The Fed could buy every house on the market if it so desired, and it could buy every dollar of our $13 trillion national debt. It is true that Bernanke can\u2019t force banks to lend, but he can compel them to boost the money supply by removing any compensation they receive from keeping the money multiplier in check. Even if there was no banking system or fractional reserve system [in which banks are required to hold reserves equal to a fraction of depositor\u2019s funds] in place, it would be specious to argue that inflation can\u2019t occur without the involvement of private banks.<\/p>\n According to Bernanke\u2019s academic philosophy, expanding the money supply somehow equates to growing the economy. It is true that for the economy to grow credit must be available–but much more importantly interest rates and the value of the dollar must be stable. The current Federal Reserve chairman is a student of the Great Depression. Although he will, unfortunately, most likely get a chance to study one first-hand, this next one will be marked by inflation rather than deflation. Investors should be aware that he will do whatever it takes to avoid a collapse of the money supply and a double dip in the economy. Part of his plan is to ensure there is not only plenty of money printed–that much he has already accomplished in spades–but that banks have big incentives to lend it out.<\/p>\n For investors seeking ways to hedge against a surfeit of money, consider owning Market Vectors Junior Gold Miners ETF and Origin Agritech Ltd..<\/p>\n Michael Pento is chief economist at Delta Global Advisors and a contributor to greenfaucet.com.<\/p>\n The hope is that interest rates will eventually rise. The way to bet they will rise is through TBT.\u00a0 It’s been a totally\u00a0 horrible “investment” this year.<\/p>\n The runaway general.<\/strong><\/span><\/p>\n Stanley McChrystal, Obama’s top commander in Afghanistan, has seized control of the war by never taking his eye off the real enemy: the wimps in the White House. Read the entire Rolling Stone <\/em>article, click here.<\/strong><\/a><\/p>\n The reward for all the years of hard work.<\/strong><\/span><\/p>\n There was a man, who had worked all his life, had saved all of his money, And was a real miser when it came to his money.<\/p>\n Just before he died, he said to his wife…’When I die, I want you to take all my money and put it in the casket with me.<\/p>\n I want to take my money to the afterlife with me.’<\/p>\n And so he got his wife to promise him, with all of her heart, that when he died, she would put all of the money into the casket with him.<\/p>\n Well, he died.<\/p>\n He was stretched out in the casket, his wife was sitting there – dressed in black, and her girl friend was sitting next to her. When they finished the ceremony, and just before the undertakers got ready to close the casket, the wife said, “Wait just a moment!’<\/p>\n She had a small metal box with her; she came over with the box and put it in the casket. Then the undertakers locked the casket down and they rolled it away.<\/p>\n So her friend said, ‘Girl, I know you were not foolish enough to put all that money in there with your husband.’<\/p>\n The loyal wife replied, ‘Listen, I’m a Christian;<\/p>\n I cannot go back on my word. I promised him that I was going to put that money into the casket with him.’<\/p>\n You mean to tell me you put that money in the casket with him!?!?!?’<\/p>\n ‘I sure did,’ said the wife.. “I got it all together, put it into my account, and wrote him a check….”<\/p>\n “If he can cash it, then he can spend it.’<\/p>\n
\n<\/strong>The Federal Open Market Committee meets Tuesday to discuss its record-low interest rate policy. The announcement of the decision will be released on Wednesday. While no increase in interest rates is expected, there is little doubt among investors that the future direction for the central bank\u2019s target rate will be up. In fact, Kansas City Federal Reserve President Thomas Hoenig has repeatedly expressed his desire to increase overnight lending rates to 1% from the current zero to 0.25% range by the end of summer.<\/p>\n![\"\"](\"https:\/\/www.technologyinvestor.com\/wp-content\/uploads\/2010\/06\/TBTsLousyreturns.jpg\" "\\"TBTsLousyreturns\\"")
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