For the past 7 years we’ve listened to the so-called “experts” bemoan the “extraordinary” Fed policies. They called them dangerous, untested, experimental. Now all of a sudden there is a change of heart? Don’t raise the rate?? It is too risky?? It would be irresponsible and dangerous?? The markets and the economy couldn’t possibly bear an interest rate above 1/8 of a percent?? The markets and economy can’t handle a cost of money of .5-.75%.
So here we sit on the door step of moving toward a sounder structure to the financial system. Unfortunately, past actions place us in a state where a step toward sound money may be delayed by the fact that we have had and have become accustom to such unsound money. The constant manipulation of rates has arguably caused more problems than it has eased.
The Fed should raise rates, because rates never should be this low in the first place. Let’s recap what the Fed has done over the past 8 years. They put interest rates at essentially 0%. They have been giving primary dealers free money through the clearly communicated arbitrage known as quantitative easing in order to replenishing their balance sheets. And in order to effect these goals, they have lowered the income received by savers.
The US can currently claim ownership to the highest peace-time level of public debt since the Fed statistics started in 1939. Yet, the manipulated cost of this debt is in the lowest decile of the period. How does this happen? Well the money comes from somewhere. It comes from savers. Those who have been saving their entire life for retirement receive a lower current income because the interest rate has been “placed” at the most convenient level for leveraged, recently bankrupt debtors (many of whom are merely financial speculators). Our clients have been bearing an undue burden.
These clients want reliable income and low volatility. So this advisor is standing up on behalf of the savers and saying on principle to raise the rate. Move, get started, go in small increments toward normalization. Give mom and pop back a return on their savings. Lower future volatility. Place a cost on excess and speculation. Don’t cede in the moment to the tantrums. They only beg because you have been so apt to acquiesce and distribute the candy. Giving in is easy, but peace will not exist until the rules and principles of sound money are enforced. And, the rules exist for Everyone’s enjoyment.
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For information on Alhambra Investment Partners’ money management services and global portfolio approach, Douglas R. Terry, CFA is reachable at: email@example.com
This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Investments involve risk and you can lose money. Past investing and economic performance is not indicative of future performance. Alhambra Investment Partners, LLC expressly disclaims all liability in respect to actions taken based on all of the information in this writing. If an investor does not understand the risks associated with certain securities, he/she should seek the advice of an independent adviser.