|
| Fed Reserve Chairman Ben Bernanke |
I'm sure most of you guys have heard the term "taper tantrum" that has been bantered occasionally on the news in reference to recent pullbacks in the stock market. But for those of you who are left confused by this term, it refers to speculation over whether or not the Federal Reserve will begin to scale back its monetary stimulus program known collectively as "Quantitative Easement." QE3 started about a year ago, and is the third phase designed to nurse an ailing economy back to health through the purchasing of $85 billion in bonds per month. To feel its effect, just look at your savings account. Mountain America Credit Union (my bank) pays .10% on a savings account. Our current inflation in the U.S. is 1.5%. This means that if you're keeping any money in your savings account, it's basically the same as stuffing it in your mattress. In other words, your money is getting eaten alive by inflation. Welcome to the new reality.
|
| The Federal Reserve Bank has an impressive facade. |
Why would the Federal Reserve do this? That's a big question, and it comes with a lot of hitches. The idea behind it is to stimulate the economy and grow the middle class. It's resulted in one of the most profound bull markets in history, and I have to say, the going has been pretty sweet. I stopped fighting the Federal Reserve in May. I likened it to a raging river threatening to sweep us all over the falls. In my metaphor, the falls is really a stand-in for "fear" that the stock market will crash and that I (along with anyone else that puts their money into the pot) will be broke and penniless. Sure that could happen. But I could also get hit by a bus crossing the street tomorrow. In the movie, "The Thirteenth Warrior" a Viking tells Antonio Banderas (who's playing an Arab) that "Fear profits a man nothing." I take that saying to heart. So to return to my metaphor of the river, there I was holding onto the branch of a tree being pummeled by the force of this huge river that wants to pull me over the falls. Hanging onto other branches with me are more middle-class Americans. However, here's where the metaphor ends. In May of this year, I let go.
|
| The team of Fast Money talking the taper. When will it rear its ugly head?Stocks will drop the day it does, but they'll recover. And any drop in stockprices is just a chance to buy more. It means everything's on sale. And Ilove a good sale. |
I allowed myself to get thrown over the brink and into the pool at the bottom.I didn't drown. I haven't lost my savings. In fact, my liquid assets have increased by quite a bit in five months with some shrewd investing that I did all by myself (I paid no financial advisor and I suppose I think I'm smart enough to be my own advisor).Color me optimistic, but I don't think the U.S. economy is going to crash again for a long time. I encourage all of you that are afraid to invest to grow some balls and put some money in the stock market, whether you choose to do it through your 401K, a 457, a Roth IRA, or through the purchase of a mutual fund or carefully chosen equities. With the Federal Reserve pumping money into the economy, I think it's immune from crashing (unless the government defaults on its debt at which point we're all screwed whether or not you have stocks). And it won't last forever so ride the gravy train while you can. Sure, there will be setbacks, there will be pullbacks, and not every day is rosy on Wall Street. But if you invest for the long term (years and years) then you will reap the rewards. It's better than sitting back and watching your savings account devalue in front of your eyes. I have to say, I was sick and tired of doing that.In retrospect, I think Ben Bernanke has been an astounding chairman for the Federal Reserve given the challenges he's faced. I think he was truly looking out for the middle class, no matter what people say about him. Sure, QE may not have worked like he intended and that's mostly because the middle class is so underrepresented in the stock market. But I have to ask myself, what other than that could the Fed have done to help the middle class? The economy is a tricky devil, and just handing out money to families might have made them put it into savings. For an economy to pull itself out of recession, there needs to be spending and not hoarding. The complexity of it sometimes boggles my mind, and I understand why there are people whose entire career is spent to try and understand the idea of money.
|
| Will Obama nominate Janet Yellen for the job of Fed Chair? If he does, Janetwill become the first woman in history to sit in the esteemed position. Thatin itself is very exciting. I think she'll do a fine job. |
For the record, I think Ben's replacement is going to be Janet Yellen. She's touted as the small woman with a HUGE I.Q. Her Alma Mater is none other than U.C. Berkeley, and she served as president of the Federal Reserve bank in San Francisco. She's also one of those people that believes in keeping their thumb firmly on the print money button. Lots of people like to scoff at the Federal Reserve and say, "Ben's just printing money." Well...that's what the central bank is
SUPPOSED to do. It's
SUPPOSED to print money. Money is good. Liquidity is good. When the economy is flush in money it makes things work smoothly. People can get money to buy houses and to buy cars and to buy the things that they need. That's how economies work. So yeah...I hope Janet slams the "print money" button as often as she can.
|
| Nancy Pelosi. Yeah I know you Republicans out thereabsolutely hated her. For the record, I'm not a fan ofSpeaker Boehner so I get it. However, I still think youshould read her op-ed on USA Today and try toimagine how you'd react if you were told over the phonewhat got said to her five years ago. |
We live in extraordinary times. This is our parent's economy. We can go and blame the past generation; democrats can blame republicans and vice versa. But the fact remains, we are here and this is the way the world works right now. Extraordinary times require extraordinary messures. I don't think a lot of people understand the depths of how close capitalism came to utter destruction in 2008. Recently, former Speaker of the House, Nancy Pelosi wrote an op-ed for
USA Today. In it, she said something that scared the shit out of me (you can read the full article located HERE):
Five years ago Wednesday, when I was the speaker, I gathered the other Democratic House leaders in my office to discuss the latest financial news. I told them that, as a matter of course, Treasury Secretary Henry Paulson briefed me on the state of the markets and the financial system, but had not done so that week.
In that time, Lehman Bros. had filed for bankruptcy; Merrill Lynch had faced failure and had been purchased by Bank of America; and, two days earlier, AIG had survived only after a Federal Reserve bailout.
After the meeting at 3 p.m., I placed a call to Secretary Paulson and asked him to come the next morning to brief the leadership. Then came his stunning response: "Madam Speaker, tomorrow morning will be too late."
My conservative friends, say what you will about Nancy Pelosi, but you have to admit that hearing that on the other end of the phone would be absolutely chilling. And of course, you know what followed. Congressional hearings around the clock and emergency measures to approve a trillion dollars in stimulus money because all the facts said that if the U.S. didn't do this, capitalism WOULD HAVE DIED. Our entire financial system would be in shambles. Every single one of us, red and blue, would be destitute. Children would have no future.
|
| Billionaire investor Warren Buffett |
But the stimulus alone wasn't enough. So that's where Ben and the Fed stepped in with Quantitative Easement programs to prop up the economy. There are tons of critics (and there should be because that's how democracy works). However, I've felt the power of QE myself, and I've got a new found respect for our central bank. Here's what Warren Buffett had to say of Ben Bernanke's Quantitative Easement bond-buying program:
"The Fed is the greatest hedge fund in history," Buffett told students at Georgetown University. "It's generating US$90 billion a year in revenue for the U.S. government and that wasn't the case a few years ago."
Yes, you heard that right. The math doesn't lie. QE is actually GENERATING MONEY. A LOT of money. How is the Fed doing that? Answer: tons and tons of bonds. Yes, all that bond buying they are doing to stimulate the economy that comes under heavy criticism that the Fed is borrowing from your children's future is wrong. They are INVESTING in your children's future. All of those bonds are increasing in value and paying the government back. In fact, QE may not cost this country a cent if you look at it from a certain point of view. It will make this country money. Neat, right?It's been five years since Lehman Brothers went belly up, and I'm writing this post to thank Ben Bernanke. I think you've done a wonderful job. I don't care what the critics say. You've made me money, and in a time where scraping by is hard, that makes you a hero in my book. May your retirement from the Federal Reserve be filled with joy.Today, I'm being interviewed over at Yolanda's blog Defending the Pen. Have a great weekend.
