THE FED’S GAME: CHEATING THE SAVERS © Leo Haviland March 24, 2014

Surely the wonderful Federal Reserve Board should be beloved by all Americans, for it undoubtedly has our economic interests at heart! United States stock marketplace bulls (just look at the S+P 500 at over 1850 now compared with March 2009’s bottom around 667) and corporations adore the Federal Reserve’s long-running easy money game. Debtors generally love the Fed’s policies too. Shouldn’t everyone be enamored of sustained interest rate yield repression joined to an effort to create allegedly sufficient inflation? Why question the Fed’s interpretations of its responsibilities? Why dare quarrel with its actions?

Many debtors like inflation, for it reduces the burden of their outstanding obligations. America is a major debtor nation.

A review of the Federal Reserve’s policies since end 2008 (and arguably those for several months before this) in the context of this massive American debt problem shows that the Fed for quite some time has significantly favored debtors (borrowers) at the expense of creditors (savers).

The Fed team endlessly has proclaimed its unstinting devotion to what it calls its “dual mandate” of maximum employment and stable prices. Yet Federal Reserve Act Section 2A, buried in the Fed’s website, says the Fed should promote effectively three goals, not just maximum employment and stable prices, but also “moderate long-term interest rates”. There really is a triple mandate. On the rate topic, what defines moderate and long term is unclear. Are the debt instruments involved only US Treasuries, or also corporate and municipal securities and mortgage lending rates?

Anyway, the Fed for several years has seldom bothered to focus on the language and substance of this moderate long term rate mandate requirement. Why not? Probably because the Fed seeks to avoid close scrutiny of the cheat the saver (help the debtor and borrower) strategy it married itself to during the worldwide economic crisis.

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