Over the last several years I have watched the Federal Reserve attempt to repair and reinvigorate the economy. However, as in almost all policy decisions, it is a zero sum game in most respects. You hope that the overall policy benefits the country in the long term. However, there are winners...and losers in the short term.
The Fed's efforts to drive down interest rates over the last several years is a case in point. The policymakers are so driven to prime the pump in an attempt to save Wall Street and the banks who made the bad loans and investments they have purposely forced savers to get almost nothing for their efforts. Why? Quite simply they want to make it so unattractive to save that these savers will finally give up and take a flyer on the stock market or buy a new house. At a minimum, they would like them to go to the bank and pull the money out and spend it on something!
Of course, the savers they are targeting are your grandparents or your parents or some other responsible soul who played by the rules their whole life. They saved liked they should to build a nest egg for retirement or their child's college eduation. Now the Fed policymakers come along and they want to "smoke them out of the foxhole" by fixing it so they get no interest on their savings. If they can't get them to trade their savings for stocks or some other investment they have a second approach lined up. INFLATION! What do people do when they see their money being eaten up by inflation? They quickly decide they would rather spend it on something today rather than get a lot less than something tomorrow.
This chart shows the massive increase in the money supply that has been engineered by the Federal Reserve. The green line is the total supply. The red line is the annual change. As you can see, the total money supply has doubled since 2009.
Bill Gross of Pacific Investment Management (PIMCO) is considered by many to be the best fixed income investor (bonds) in the world. He manages PIMCO's Total Return Fund which has more assets than any other mutual fund. It is currently approaching almost $250 billion under management.
He has been watching the Fed very closely and he does not like what he sees. In fact, he describes what is occurring as both "devilish" and robbery. The full commentary is here.
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