"Jackson Hole revealed things that did not make it into the reporting of the event by the mainstream media. Turns out, the academic and philosophical underpinnings were laid down there for a radical expansion of the Federal Reserve’s toolbox. I guess you could call that creative, but I wouldn’t call it helpful, because the unthinkable policy that I have been warning about since last May – yes, we’re talking negative rates – was not only discussed at Jackson Hole, it was discussed in a positive, even slavishly approving, manner. I am going to share with you my sense of what happened at Jackson Hole and what it really means. I trust that by the end of this letter you will better understand just how bankrupt – and disastrous – what passes for sound economic thinking among the world’s central bankers actually is.
Negative interest rates were a principal topic. "So we’re in a world where they seem to work", so says Fed Vice Chair Stanley Fischer
Let’s read that sentence again: “… the idea is, the lower the interest rate the better it is for investors.” They are sacrificing mom-and-pop middle America, the hard workers who have played by the rules and retired and saved and now want to live out their lives enjoying their grandkids and a little well-deserved relaxation, and they find they can’t do that because the Federal Reserve thinks that protecting Wall Street and wealthy investors and bankers is more important.
If you ask other Fed decision makers outright whether they support this remarkable view of Dr. Fischer’s, they would of course cough, mumble, and then launch into a jargon-laden digression, since Fischer’s little “trade-off” is so obviously politically incorrect. But the reality is that protecting investors at the expense of savers is precisely what Fed policy aims to do; and here Fischer, in an astonishing moment of candor, has come right out and admitted it. How in the name of all that is holy and just can you think that the public’s savings have to be sacrificed on the altar of equity prices?
I should point out that we’re not just talking about middle-class America, Europe, and Japan. The [multiple expletives deleted] central bankers are jackhammering to smithereens the very foundation of our retirement system. They are making it impossible for pension funds and insurance companies to meet their targets and to provide their services without massive contributions that will have to come from taxes and skyrocketing insurance rates that will have to be paid mostly by the middle class."
Although the Fed believes low interest rates are good for "equities", the recent performance of pension funds do not support that notion.
Notice the comment that pension funds will not meet their obligations in the current interest rate environment without massive infusions of cash from the taxpayer. Pension funds are not achieving the necessary investment returns from either equities or bonds. It is time for Georgetown to get ahead of this issue before it becomes a crisis!
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