"No Country For Old Men?" Bernanke Plan To Exterminate Savers Is Unsustainable

Tyler Durden's picture

Bernanke's recognition of his penalizing savers with low rates as an 'issue for people' sparked an interesting note from the WSJ on how sensible and stoic savers are being herded (unsafely) into risky investments. Bernanke's insistence that "our savers collectively have to hold all the assets of the economy and a strong economy produces much better returns in general" must be juxtaposed with comments from a money manager that "I don't think that's a fair-trade" for money intended to be invested safely. By removing the last shred of hope for a rise in savings rates anytime soon, the Fed is once again creating the potential for major unintended consequences as the 30% drop in interest income for US savers from the 2008 peak forces them to extend duration (TSYs), lower quality (corporate bonds), and/or increase leverage/risk (equities). One only has to look at Treasury yields, Muni yields, investment-grade bond yields, and now high-yield bond yields for how tempted investors (retail and professional 'insurance/pension' assets) have become to take their safest net worth asset (low risk liquidity) and expose it to the business/credit cycle and all its myriad event risks. While reducing the rate of savings might seem sensible for the short-term from the Fed perspective, it leaves a wholly unsustainable recovery (or bubble in who knows which asset class next) and as Nordea notes this week, based on their models, a considerably higher savings rate will be needed going forward (for any sustainability) even as 'saved money' is rotated into risk or spent on quality-of-life maintenance. Perhaps it is time for many to listen to the sensibilities of the WSJ's last (75 year-old) interviewee who notes "At my age, I can't be a risk-taker anymore" as maybe it is time to consider the reality of the recent good US data in relation to coinciding elements such as inventory build-up, plummeting household savings, and lower gas prices when adding to that risky investment.

Wall Street Journal: Itchy Investors Ramp Up Risk 

 Robert Marcotte can't afford to play it safe anymore. With interest rates likely stuck near zero for nearly three more years, the 61-year-old retired telephone-company manager is about to ramp up his holdings of stocks and municipal bonds, using money now at the bank in certificates of deposit.


"It gets me a little uneasy," says Mr. Marcotte. "Since I'm not working, I am very risk-averse, but still need to generate income."



The Federal Reserve is presenting a broad swath of conservative investors, from retirees and college savers to banks and insurance companies, with a tough choice: move into riskier investments or continue coming up short from low-risk investments that aren't even keeping pace with inflation.




The Fed has "removed the last shred of possibility that interest rates were going to revert to normal in the near future," says Johns Hopkins University economics professor Christopher Carroll.



In congressional testimony on Thursday, Fed Chairman Ben Bernanke acknowledged that low rates penalize savers. "We understand it's an issue for many people," he said. "That being said, our savers collectively have to hold all the assets in the economy and a strong economy produces much better returns in general."




The low interest rates of the past several years have taken a toll on U.S. savers. All told, Americans collected interest income from CDs, savings accounts, insurance products and other sources at a seasonally adjusted, annualized rate of $976 billion in the fourth quarter of 2011. That's down nearly a third from the peak rate of $1.42 trillion in the third quarter of 2008.





One worry is that some investors will take on risks they aren't prepared to handle.

Brent Burns, an investment manager who builds bond portfolios for financial planners, says that since the Fed announcement he has fielded a flurry of questions from advisers considering high-yield and international bonds, and real-estate investment trusts. "I don't think that's a fair trade" for money intended to be invested safely, he says.



It isn't just retirees who are taking on more risk. Sotirios Keros, a 39-year-old pediatric neurologist in New York, says he plans to shift his emergency reserve to a long-term municipal bond fund when his CDs mature this summer. "I would still like to keep that as liquid as possible and as risk-free as possible, but I'm not really happy with the available options," he says. The Fed's decision makes it clear that "there's no value in waiting" for higher rates, he says.




Low rates are also pressuring life-insurance companies, which rely in part on returns from high-quality bond investments to pay their obligations. "We have about $175 billion in cash and investments, and 94% of that is conservatively invested," says Chris Blunt, executive vice president of New York Life.


After waiting three years for rates to rise, Jenny Fleming, a financial planner, is putting client funds into dividend-paying stocks. One of her clients, Margie Stewart Alford of Austin, Texas, is using dividend-paying stocks to provide interest income that might normally come from CDs. While Ms. Alford, 75, still plays Friday-night poker, she says she can't afford to boost her stock exposure too much. "At my age, I can't be a risk taker anymore," she says.


From Nordea Bank this week - Households´ savings have plunged

One likely factor holding up personal consumption is that US households have diminished their savings ratio at a rather brisk pace in H2 2011. While one can argue about the reasons behind this, we believe that it is unsustainable. On the contrary, our models suggest that savings actually should increase (see fig 4 above).

The average savings ratio since 1960 is 7% and considering the appalling fiscal situation (and the lack of will to do anything about it), a higher savings ratio is most definitely in the cards going forward.

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Mr Lennon Hendrix's picture

Bernanke will fail, bitchez!

Silver Bug's picture

His plan is to "inflate" away the problem. So yes retired people and savings are basically going to be exterminated. Sad really.



Conrad Murray's picture

Wall Street has taken over the Death Panels business!

hedgeless_horseman's picture



Low yields mean EVERYONE on Wall Street is violating FINRA's new suitability rules...and probably the old rules, too.

NFLX granny?

hedgeless_horseman's picture



All I know, junior, is this.  The next time the President of The United States of America goes on the television and says it is a good time to buy stocks I am selling my Series EEs and going all in.  He went to Harvard and worked on Wall Street, you know...and Mrs. Horseman needs a new mounting block.

GeneMarchbanks's picture

Harvard... Wall St... at least we get to pick chocolate or vanilla so don't be an asshole and just BTFD!

hedgeless_horseman's picture



Obama or Cramer?   Hmmmmm....they are both obviously successful men with great Wall Street track records.  Maybe a blended portfolio of both their top stock picks would be right for me and the rest of my friends at Restful Acres Assisted Living Facility?

TruthInSunshine's picture

The more that The Bernank pushes on a string (QE, ZIRP4EVER), the more people white knuckle their fiat.

Oh, the irony watching the snake eating its own tail.

The Bernank is DESTROYING the desire to consume, as he's freaking the world of savers and the presently liquid out with his absolute abomination of policies, while the non-savers and the majority who have difficulty getting credit have difficulty spending, also (given the banking sectors precarious-dead state of health).

Here is the textbook example:  Mr. Smith, who is 78 years old, worked hard his whole life and retired with enough savings that would have, in an ordinary interest rate environment, have produced an income stream from interest on his savings, that would have prompted him to spend far more freely (he may even have already have replaced his 2001 Mercury Grand Marquis by now if not for the fact he is anxious due to his meager/non-existent interest ZIRP income).

So, Mr. Smith buys no new car, hires no one to put a sunroom on his (now radically depreciated home), does not take a vacation this year, and he bought everyone a lump of coal for Christmas this year (and will do so next Christmas).

All thanks to The Bernank.

Mr. Smith [and the savers, who ARE the liquidity that will needed to save the world from the next fractional reserve banksters from induced real world economic meltdown], says "[n]o thanks, Ben, I may only have another 5 or 10 years, and I will not invest in LULU or 30 year USTs, bitch."

ghostfaceinvestah's picture

For younger people, the only "risk free" investment is to pay down debt, any debt.

Bernanke is fostering the very deleveraging he is trying to prevent.

Captain Kink's picture

You are dead right. This is the ZIRP trap. Identified by Gross and others here for weeks now...In a normal situation, Debt is your best defense against inflation (with the exception of PMs, potentially) and (hyper)inflation is coming if he continues to print his way out.  This is, in fact, the prescription--reduce the "real" value of the debt through inflation, but they don't understand the situation they are in at the zero bound....  In this environment The Fed should be normalizing rates NOW. Yesterday, in fact.  The only way we have any hope of getting out of this fuking mess is to RAISE RATES, strengthen the dollar, invite HUGE Foreign Direct Investment (inflationary--offsetting deflation), thus allowing captial formation, encouraging investment (including bank lending), igniting auto and home purchases, creating jobs, sparking the economy in a way that may, just maybe, provide for a sustainable level of real growth that does not require massive deficit spending to keep it going. It also has the added benefit of enabling savers and those on fixed income to get a return on their monies.... You are spot on.  This is the ZIRP trap that you have identified, and there is only one way out.  RAISE RATES NOW! 

We have never had an economic recovery with a weak dollar... NEVER.

MachoMan's picture

I am completely deleveraging and in June I hope to have not a penny in debt to my or my wife's name...  including mortgage...  I might buy another house, but it would be significantly cheaper and we'll pay it off in a couple of years all things equal.  Something in the ~1x income range.

This is EXACTLY what ben's policies are forcing us to do...  6% on student loans?  20% on cc?  4% on mortgage?  All more than you can get from cds, bank account, treasuries, et al...  the only reason not to pay off debt early would be if it didn't lower your payments, e.g. a mortgage as opposed to cc debt.

By not allowing J6P to partake in the large firesales of institutions, the only available option is to pay down debt and hopefully let whatever breathing room that gives you to last just that much longer in the biflationary environment...  waiting until you finally get a crumb big enough to come along.

AnAnonymous's picture

Mr. Smith, who is 78 years old, worked hard his whole life and retired with enough savings that would have, in an ordinary interest rate environment, have produced an income stream from interest on his savings,


This normal environment is one of a growing world.

Alas, alas, ill despair, US citizens have hit the world limit growth.

If US citizens cling to their fiat, it is more because there is less and less to consume as mass production is kicking the bucket.

Chump's picture

US citizens have hit the world limit growth.

???  Rofl, shitty chinese spam bot is shitty. 

akak's picture

Just another example of public spitting, nose-picking, roadside shitting, Tibet invading, hypocritical Chinese citizenism in action.

It is the inherent nature of Chinese citizenism to shit on the roadside, spam online forums and blob up.

As Stoolman Mousy Tongue declared in his Teeny Tiny Scarlet Book, "All idiocy flows from the barrel of Chinese citizenism".

smb12321's picture

This involves another event rarely mentioned by the MSM.  Pension funds are being devastated, especially those expecting an absurd 8% annual return.  Of course the funds are structurally unsound to begin with but 1% interest inevitably leads to riskier investments - just the thing Ben wants despite overwhelming evidence of dire consequences.  In the "old days" we diligently saved at 5-7% interest until we could afford to safely buy a product.  The idea of long-term savings is anathema to the powers that wannabe.

TruthInSunshine's picture

Great comments on the ZIRP trap & deleveraging. I personally seeing guys that worth 8 figures on paper, driving 6 figure cars and living in homes that they thought were worth 7 figures, deleverage like crazy right now; some of them are doing so voluntarily, while others are doing so involuntarily.

I'm not talking about a few people, either. I'm talking dozens of clients and former clients. Most of these people made paper fortunes in real estate development, auto dealerships, owning distributorships or exclusive channel distribution outlets for construction materials.

Defense contractors are going to start taking it up the ass next. Wait, watch and see. They're the last class of self-thought 'self-made' entrepreneurs who think they're above the fray.

Ilene has an article posted above where David Stockman (former Budget Director under Reagan) emailed Bruce Krasting regarding Bruce's call out of Larry Summers on his fluffing of Friday's "fantastic /s" NFP Report.

If you read what Stockman has to say about the manipulation of those numbers, and how looking at adjusted vs unadjusted data does in terms of revealing the massive manipulation, it's pretty damn scary.

Employment Data Saga Continued: Krasting Says Larry Summers Misstates; Stockman Says It Goes Deeper

They say that when the going gets rough, the tough get going, and there's not a whole lot that awake people can do in the face of a giant Ponzi/scam/Matrix that's being propagated by government and Wall Street accept to deleverage (or not get into debt), make rational & diligent preparations in the form of a solid game plan, and hone one's skill set in continuing to adapt to the ever worsening economy.

The dam is going to burst, when the bullshit is stacked so high, as it always has before and always will in the future.

GoldenGal's picture

Think  this may be the last time to SELL gold before the bottom drops out?



Diamonds are the NEW gold!

GoldenGal's picture

Thirty year Italian treasuries, a  date with Trav 777, along the greek mediteranean and a bottle of Port to celebrate St Patricks day wearing my antique mantilla  sounds like adream come true!

Mr Lennon Hendrix's picture

At least gold is seen as aggressive, so old people will thankfully not invest there!  Who needs gold?  Not old people.  They need paper!

Non Passaran's picture

They sure do.

Because "experts" today say: now its the time to buy Europe bank stocks!

I'm not making this up: http://finance.yahoo.com/news/now-time-buy-europe-bank-171421154.html

earleflorida's picture


 Chapter 11: "Roosevelt and Gold Confiscation" 

"FDR's Gold Policy in the 1930's" 

--- bought [forced/ gunpoint/ 10 yrs jail, etc?] gold for $20.67 oz. for 100 yrs ,... then sold gold for $35 oz. --- Jan/1934 @ $4,033ml ___ Feb/1934 @ $7,348ml, an increase of $3,405ml in less than a month --- nice!


http://www.independent.org/publications/article.asp?id=165 ___ note: key research articles: 5/1/99- thornton/timberlake jr/thompson


Jonas Parker's picture

Bernake "herded" me into physical silver and gold!  :)

stocktivity's picture

God help him if there is a 10% correction ever again in the stock market. (sarc)

Gubbmint Cheese's picture

I'm sure it will all work out.. Ben's got his finger on the pulse of the world..


Bastiat's picture

. . . got his fangs in the neck of the world, more lke.

tony bonn's picture

bernankula and his plutocratic overlords are cretins and wicked people....leave the economic fraud alone - the personal and criminal swindle is indictment enough....

Doña K's picture

We can stop them.

  1. Default on mortgages (if you are under water)
  2. Hoard cash out of banks
  3. Buy physical PM's
  4. Buy only what you realy need and only made in America
  5. grow your own stuff (if you can)
  6. Learn a real trade
  7. Hug your kids
  8. Make love to your spouse
  9. Play and have a god time with friends and family
  10. Consider bankruptcy if credit card debt is unbearable

That will teach BB a good lesson.

LoneCapitalist's picture

#9 had better be a typo, or youll get junked on this board.

hedgeless_horseman's picture



Not true.  I have found this site very accepting of an individual's right to a relationship with God.

resurger's picture

Genghis Khan's / Benjamin Khan's great empire

"He had the greatest empire in the world and he had a money system exactly like ours. He printed paper money and he had a way of making people take his paper money - if you didn't take his paper money he'd cut your head off [Insert your case here]

His money system worked for a long time but finally there came a time when people started issuing too much money and they became too independent and the time came they refused to take it. And the empire collapsed because of the money system."


<3 Love you Ben

falak pema's picture

Genghis Khan had two thousand mistresses and allegedly six thousand progeny, inspite of spending his life fighting wars in the saddle. He is alleged to have died when he seduced and bedded a Chinese Tangut princess whose land he had conquered and who  had hidden a pair of pliers in her vagina. During consummation she used it to good stead to cut off his nuts, died as a result of it, as he, a few days later in great pain. Now that is going out with a bang, when you are world leader. Can you imagine anybody in our times with such entrepreneurial passion who put his pecker where his sword went, figuratively speaking, before bang  bang? 

Fortunately our women are free nowadays, and to seduce we don't have to use brute force and they, no pliers. But I may be wrong! 


lincolnsteffens's picture

I think you are getting the term mistress confused with capture and rape. Genghis got the pick of the lot where ever his Hoard conquered. The best looking women were paraded before him BEFORE his fighters had their pick. This is why the most common inherited gene traits in the world are traceable to Genghis.

Doña K's picture

DNA can only be traced to mothers not fathers. By conjunction theory maybe.

Matt's picture

I'm pretty sure that this is incorrect. The Y-Chromosome is passed down with little alteration from father to son, so you can trace a man's lineage from father to son, going back a very long ways.

Using this same method, they found that 1 in 12 Irishmen are descended from a single warlord, Niels of the Nine Hostages; in Northern Ireland, it is 1 in 5.

Doña K's picture

Mitochondrial DNA can be regarded as the smallest chromosome, and was the first significant part of the human genome to be sequenced. In most species, including humans, mtDNA is inherited solely from the mother.


Y chromosome ancestry a lot more complicated and requires grouping and assumptions

falak pema's picture

the specific example of the Tangut princess in my text shows how the term "mistress" was applicable to Genghis's nightly companions...he did get retribution at last. Mistress of master...more appropriate.

steve from virginia's picture


The Chinese had paper money 200 years before Genghiz Khan.

They have a long history o alternatingf paper/metal currencies and currency backing. They have had periodic hyperinflation caused by debasement.

The Chinese have historically used silver and copper as monetary metals.

The Mongols were successful b/c their core states making up 'China' were adjacent to prosperous nation-states that could be pillaged.

Kublai liked Europeans, Marco Polo came for a visit and stayed 20+ years. Venice became fabulously wealthy trading with the Mongols. The Crusader states were supported by Khan armies until the Crusaders were defeated by Saladin in the 12th century.




HD's picture

I often wonder if Ben truly understands the damage he is doing and feels trapped or is simply oblivious to the consequences outside the Fed bubble.

XitSam's picture

I often ponder on this question. Currently my opinion is ...

He's aware. But he thinks what he does is in the best interest of the banks, because without the banks where would the financial system be? That it destroys savings and raises food prices around the world is collateral, and probably necessary, damage.

kaiserhoff's picture

In view of our present difficulties, it would seem that we ought at least to try to start over again from the beginning and devise concepts..., which come closer to physical reality.

                            P W Bridgeman, from The Logic of Modern Physics

XitSam's picture

sorry, double post

Gief Gold Plox's picture

I think you're giving him to much credit in assuming that he actually cares. My mistake is assuming he's adequately educated and an intelligent man, who just doesn't give a damn. Not about the masses anyways.

Remembering that the FED is in essence a privately owned organisation, it is my belief that they're following a script whose ultimate purpose is to extend the mandate of the FED indefinitely, granting it wider jurisdiction in the process. Hundred years are almost up and there's no way in hell the people who enjoy so much power are going to sit idly by while it expires.

DavidC's picture

Yes, that made me wonder when the Fed said it is extending ZIRP into 2014 - isn't the Fed's mandate finished before that?


Rainman's picture

Bernank term is up in '13. He be votin Obama '12 fo sho.

baby_BLYTHE's picture

Benoicde doesn't create monetary policy, he implements it. He is simply taking orders from Rothchild, Warburg, Schiff, Morgan, Rockefeller and subsequent shareholders of the Federal Reserve Corporation. The FOMC does not work for the American people. These past several years are testament to that fact. They simply don't care about the middle class or the working poor.

Who Owns The Federal Reserve?

AnAnonymous's picture

Ben Bernanke is a US citizen. US citizens are duplicitous.

Bernanke understands as much as it is possible to understand his own actions and the consequences of.

He wont tell for sure.

Just like the time he claimed that his policy had nothing to do with inflation, when food prices skyrocketed and food riots happened around the world.

US citizenism, self indiction is a big no no.

Never take responsibility for the negative consequences of your actions, only for the positive.