Wednesday, February 24, 2016

Let's Not Be Negative

Once again, we must enter the world of Stupid Economics. Back in the days when the country was less liberal and more steeped in realism, just after WWII, when I was in elementary school, my teachers explained compound interest. They taught us about savings accounts and how your money could grow just by putting it in the bank and getting a share of the banks profits.

While there were always more profitable forms of investment, we were told that savings accounts were good because they were safe and the return on investment was reasonable. Many people of my generation believed this, whole-heartedly.  They grew up with this as holy writ. 

Just prior to the 2008 election, the economy slumped. Economies are cyclical. They sometimes slump. Mr. Obama was elected President and promised to restore economic good times. He then proceeded to make every economic decision in a manner that forced the economy deeper into the doldrums. 

The Fed, riding shotgun for Mr. Obama, was forced to do something to provide cover for bad economic policy. They lowered interest rates. And they continued to lower them periodically as things worsened.

This did provide cover through the media. Since the low interest rates drove money into equities the stock market went up like a sky rocket. So the media could report the economy is great, just look at the stock market.

Well the economy wasn't great and still isn't. Statistics have been cobbled together to paint a pretty face on an ugly situation. Worst of all, those folks, especially older folks, who depended on savings accounts are getting nothing. They are being robbed to cover for bad decisions by the administration.

It is about to get worse. As bad as our economy is right now, it is still the strongest in the world. So many central banks in Europe and Asia are making a very foolish move. They are establishing a negative interest rate. To make it simple, if the negative rate is -1% and you by a $1000.00 bond, at maturity it is worth $990.00. Great deal, huh? 

The genius bankers thought this would drive people to invest and spend, thus driving up their pathetic economies. People are spending on one thing. Safes. They are taking their money and stuffing it into the proverbial mattress. Anyone with a lick of sense and no political agenda could see this coming.

So, advice to the Fed, let's not be negative.

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