Weatherford Democrat

October 25, 2012

COLUMN: A solution for the government's game

Robert M. “Ken” Davis
CNHI

— In a previous editorial (“The Governments Game with Money,” Viewpoints, Oct. 1), I discussed QE (Quantative Easing) and how that program has caused a significant devaluation in our currency. More specifically, the Fed continues to print more paper money that is causing every dollar to diminish with every additional dollar printed.

The primary thrust of my writing was that the people hurt the worst are people that saved all their lives in anticipation of retirement only to now find their money has devalued. The example of that devaluation was that a silver dollar and a paper dollar would buy seven gallons of gas in 1960. Today the silver dollar is worth about $25 and will still buy about seven gallons of gas. The paper dollar will buy about a quart of gas. That my friends is a devalued dollar!

I ended that editorial with a rhetorical question about what the solution to this problem might be. After additional thought and a little research, I am now prepared to offer a solution.

First a little background. QE1 cost the American taxpayer about $2.1 trillion dollars. QE2 cost us about $800 billion and QE3 is estimated to cost about $40 billion. As far as I can see it definitely helped GM, the United Auto Workers Union, Chrysler, The United Auto Worker’s pension plans, the banks and financial institutions and green energy companies like Solyndra. Like everything in life some benefit at the expense of others. These groups benefited, and the American tax payer and the American consumer paid the cost.

Ben Bernanke was quoted recently as saying low interest rates actually help savers and retirees. WHAT??? Well his logic was that this helped stopped the falling housing market.

Let’s be clear about something I learned in the cow business years ago. There are really only two significant days in regards to cattle prices when you’re in the cow business. The first is how much they are worth the day you buy them and second is how much they are worth the day you sell them. All the rest is immaterial.

For the majority of Americans, they buy a house and 20 or 30 years later they sell it. Only two days are important here as well — the day you buy and the day you sell. Over the time that you own a house the value will fluctuate. Most of us don’t need the Fed to protect us from something that doesn’t happen. So Bernanke’s assertion that he is saving us from something by keeping interest rates low is bunk! Tell you what Ben, I prefer to get interest on my savings and I’ll take my chances on my house value. With interest rates on CDs at all time lows, people who worked hard, saved some money and played by the rules are now having to pay for everyone else’s problems.

To make matters worse, the Fed has decided to lower interest rates to spur investment. Well, they loaned the money to banks for nothing and we still don’t see much improvement in the economy. As far as stimulating the economy goes, we are told that companies are sitting on a lot of cash, so they aren’t holding back because of interest rates.

So, here is my suggestion. Let’s raise interest rates by 1 percent. In other words let’s pay 2 percent on a five-year CD rather than 1 percent for money invested in an FDIC institution. Today the Fed guarantees about $8.9 billion dollars invested in FDIC institutions. So, theoretically that increase would put an additional $89 billion dollars into the economy. The difference is that this government money would go to the people that played by the rules. They saved money for retirement in anticipation of some nominal rate of return on their savings. One of the great expectations of any QE program is how quickly that money gets into the economy. I can tell you that any retiree that planned on getting between 3 percent and 5 percent on their money is way behind on their annual expenditures. They will spend the money. Those retirees on or near the edge will not have to put their money into riskier investments in hope of paying their utility bills.

Of course, this will still diminish the dollar if we don’t get spending under control. But at least the people being hurt the most will get something back! It may be a little like getting a two-for-one with every wisdom tooth removed — but it’s something — and a heck of a lot more than they’ve gotten in QE1, QE2 or QE3!

Every con artist knows that you borrow expensive money in ordinary times and pay it back with cheap money when the dollar is devalued. The current scheme is hurting the backbone of American in order to help those that lived too rich, did misdeeds, participated in duplicities, were uninformed, or took the easy road. The primary ones paying the price are the people that sacrificed to have a better retirement.

Ben, the next time you want to get money into the economy just raise interest rates! We’ll be happy to spend our money as we see fit.