Weatherford Democrat


October 1, 2012

COLUMN: The government's game with money

— The games the government plays may make sense if you are a Ph.D. However, the simple test for success of anything governmental might be how it impacts the average American. Let’s first take the games the federal government plays with your money.

Interest rates

By forcing interest rates down, the Fed hurts most retirees. Those that have saved money all their lives now cannot get any worthwhile return on their saved money. My grandparents and my parents saved money all their lives for retirement. Although they didn’t save huge sums, they did have enough that it created a little additional income. It was enough interest income to create a little extra each month to cover expenses. The interest paid help them keep the principal intact longer.

As if that impact is not enough, think about the choices low interest rates force on those who rely on income from their savings. In order to improve the return on their money, these savers must now take on riskier investments. In a volatile market, more risk is not a good option as it increases the probability of losing more or all of your savings. We are punishing the people who sacrificed all their working lives to save for their retirement. The very people that did the right thing now are punished because the Fed has decided to monkey with interest rates. This also impacts pension plans as they either take less return on their money or make higher risk investments.



Quantitative Easing is even more sinister. QE is simply printing more money. Rather than being backed by gold or silver, paper money is just that “paper.” Every additional dollar printed diminishes those already in circulation. Think of an original painting. If someone paints the same picture over and over, the original is worth less each time another picture is painted. So, too, it is with money. QE means that a dollar is worth less every time we decide to print more money.

QE has the same impact as inflation. Inflation (QE) has the effect of making your savings worth less. Think of it this way. I have a silver dollar that was worth a dollar when it was struck at the mint. You could take a dollar bill to the store and get the same goods as you would with the silver dollar. Today, it takes about 25 dollar bills to buy a silver dollar. Yes, that silver dollar will still buy about the same amount of goods that it would in 1960. Here’s the example of that. Gasoline in 1960 was about 15 cents a gallon. That silver dollar would buy about 7 gallons of gas. With gas at $3.80 per gallon, that silver dollar still buys about seven gallons of gas. The paper dollar buys about a quart of gas.

Simply said, this is the Fed stealing money out of your pocket. They kept the silver and gave us the paper. They have $25 worth of silver and you have a piece of paper that is worth about 15 cents. Another way of saying this is the Fed has stolen 85 cents of every dollar. A retiree that had saved $25,000 in 1960 would now find it is really worth about $1,000. The net result is that the retiree has suffered a $24,000 loss in value because of inflation and QE.

Inflation simply means your money is worth less each year. Today with interest rates on a one year CD at less than 1 percent and inflation at 2 percent, a saver loses money very year (1 percent). So, this is how the Fed is stealing from the middle class. Although, their declaration is this is to improve the economy! One might ask, “Whose economy”?

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