"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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Antifederalist's picture

You miss the point, Malthus.

Unrestrained credit growth created this frankenmonster economy.  Sound money would prevent that. 

There may be supply/demand carrying issues on the planet, but stable money would allow markets to adjust for shifting preferences.

carbonmutant's picture

Savers are Collateral Damage in Bernake's financial war...

Jena's picture

and they're priced in.

The Big Ching-aso's picture



Paraphrasing, does this sound sorta familiar?

"Listen up everybody, it's ok to go back in the water. The 24 foot Great White sighted yesterday along Amityville's shoreline is gone. As far as we know, it's gone."



Matt's picture

And, you know, the thing about a central banker ... he's got lifeless eyes. Black eyes. Like a doll's eyes. When he comes at ya, doesn't seem to be living... until he prints, and those black eyes roll over white and then... ah then you hear that terrible high-pitched screamin'. The streets turn red, and despite all the poundin' and the hollerin', they all come in and they... hyperinflate you to poverty

Cult_of_Reason's picture

Recently announced Fed FX Swap lines is how Bernanke secretly injects cash (free money) to Primary Dealers without actually doing QE (for example using JPM subsidiary in London or Tokyo), that in turn, PDs use  to buy S&P futures and prop up the stock market.


The Fed and Primary Dealers colluded to rig stock prices (near 1.0 perfect correlation between the Fed injecting cash to Primary Dealers and stock market prices).

 Fed -> ECB or BOJ via FX Swaps -> PDs foreign subsidiaries -> PDs using free money from Bernanke to buy S&P futures -> Higher Stock Market

(and if you audit Bernanke's books, all you see is currency swap transactions between Fed and ECB or BOJ [no direct evidence of Bernanke manipulating his favorite Russell 2000])



chunkylover42's picture

Implicit in the Bernanke's statement is that the Fed will do whatever it takes to support asset prices.  Ergo, risk on.

Dr. Engali's picture

Everybody keeps saying that Ben is failing. I think he is being amazingly successful. He has managed to blow up the equity bubble a third time  This is exactly what Ben wants. Put people further out the risk curve for the next round of wealth extraction. They won't be happy until they have it all.

resurger's picture


Go buy stocks man , The Plunge Protection Team (PPT) will make sure the bubble wont Burst, dont worry!

Guess who's on the team

Jim Chano's

Good luck

Vince Clortho's picture

force the sheep into high risk investments and then fleece them.

It's a win-win situation.

JailBank's picture

There is a need to punish the savers in this country how selfish have they been? They should ahve been buying up the latest Apple products like they are supposed to, not creating economic safety nets for themselves. That such a selfish attitude to have in regards to our collective economy.

TooBearish's picture

Yeah, when interest rates pop, soon stocks will crash , soon the end will come ...blah, blab ..bull .  Amregeddon postposted infinitely....BTFD

Jreality's picture

BTFD is the new FDIC!  ;-)

LongBalls's picture

This is all getting very exhausting. WTH is the end game here. We all know this crap is FUBAR. So let's just get to the point. Dollar will crash or will not? Gold is hedge or not? SDR will be the new basket of currencies or not? Global write down of debt or not?

All we know is that you can't leave your cash in a shoe box!?!?!? CRAP....sometimes I think I would loose less money if it were in a shoe box!

lasvegaspersona's picture

Cash in a shoe box is as good as anything with ZIRP.

I doubt if a few big fiats bite the dust that the world will be willing to save in another fiat like SDRs. Fiats work well as the medium of exchange but have always betrayed savers when it comes to long term stability of purchasing power. For Zees ve haf gold....

Village Smithy's picture

As predicted ZH took a lot of heat over the exposure of the BLS fraud numbers on Friday. The truth is that the longer these Kool-Aid slingers hide the truth, the more innocent people make bad decisions based on this misinformation. I wonder how many retirees are contemplating moving funds into equities or high yield funds this week all based on the "great news" that unemployment is falling. We may argue here about what the role of government should be but one thing it should not be is misleading. 

Negro Primero's picture

Nowhere to run, nowhere to hide:




Only Australia, (while it lasts), and...

AnAnonymous's picture

Nowhere to run, nowhere to hide:


US citizenism is everywhere.

TheFourthStooge-ing's picture


"US citizenism is everywhere."

It has even taken over the people of China.


akak's picture

Chinese citizenism is essentially the same thing as US citizenism, although there is in fact no such thing as "US citizenism", whereas Chinese citizenism is alive and kicking, shitting on the side of the road, raping Tibet and otherwise blobbing up.

This is the logic of eternal Chinese citizenism.

TheFourthStooge-ing's picture

Chinese citizenism has embraced the worst parts of US citizenism, and then added nose picking, roadside shitting, and enslavement of Tibet.

The Bernank seeks to emulate Chinese citizenism.


akak's picture

The Bernank is clearly a practitioner of Chinese citizenism, as demonstrated by his destruction of the American economy, his exploitation of the American saver, his enslavement of the American investor, and by his monetary blobbing up. 

He has been seen to pick his nose during congressional testimony as well --- another telling sign of Chinese citizenism.  I wouldn't be surprised if he shits on the side of the Beltway on his way in to work.

Thus is the eternal nature of Chinese citizenism citizens blobbing up.

razorthin's picture

I'll tell you what's sad - That we are sitting back and taking it.


CuriousPasserby's picture

More like bending over and taking it.



xela2200's picture

Nope. The people here are doing something about it. Every time they choose PM over CDs or bonds, they are sticking it to TPTB.

youngman's picture

It is true that pension funds will have to chase returns..and that will put them in some very risky business ...they will lose as those go bust..to tell the public that saving money is bad is not the way to teach the public...and that will end bad too....so today stock are good...Facebook is a billion dollar company...savings are bad...gold and silver is bad...munis have become bad....Central Banks running the world...we are screwed

Spigot's picture

Persistent inflation destroys the economic prudence of nations. It also leads to the moral decay of nations as well.

halflink123's picture

I agree with the article, but Bernanke is doing more harm than just pushing savers out on the risk spectrum.


By keeping rates this low, he is giving the government free reign to add debt. As the debt burden increases, even savers' money becomes less and less safe, because the asset side of bank balance sheets, be they treasuries, mortgages, whatever, steadily loses credit quality.


By destroying the credit quality of US government debt, you increase the risk of default/inflation, which makes all other US assets more risky, even and perhaps especially bank assets.  


I would guess that the US has been in such a dangerous situation before, but I don't think it's been anytime in the last 100 years.  Certainly this is looking far worse than what happenned during the Great Depression, where I don't think the federal debt levels ever reached 100% of "GDP".

halflink123's picture

I would also just like to add that the '08 bailouts prevented a lot of useful bank debt restructuring. As a result, most banks are still extremely, extremely levered - very few banks are less than 10:1 levered.  So banks really have not used this "opportunity" to cushion their balance sheets with additional equity. So you have, still, decreasing credit quality while at the same time very high, and in many cases, still increasing leverage.  


And yet there is no concern about this anywhere, not from the Fed, not from anybody.

onebir's picture

& to add insult to injury (so far) the Fed backed BoA's transfer of derivatives to its retail banking arm over FDIC objections!

They're (inadvertently I hope) setting the stage for a loss of confidence in banks and by extension fiat money (even if inflationary chasing doesn't achieve the latter...)

Central bank mandates need to be re-examined so they have some duty to savers.

SheepDog-One's picture

Bernanke and Co., setting up the New World Order for years.

MachoMan's picture

There are quite a few ways to outpace inflation.  The present biflationary environment requires us to take part in and find deleveraging/firesale deals.  The problem?   Access to these deals is very limited and only those connected get to partake, else feed on the scraps.  For example, when fannie starts dumping properties en masse, who is going to get to benefit?  For further example, when a bank fails, who gets to purchase the assets?  These are the easy deals...  the hard deals are finding individuals deleveraging... 

but yes, Ben's policy is to force everyone to toss their common sense to the wind and make speculators of us all...  tempered only by events the timing of which we are not privy.  It's akin to making everyone crazy so the folks formerly in the nuthouse can now be normal. 

Kali's picture

"When a bank fails, who gets to purchase the assets?"

This has always pissed me off.  Why is it that some stranger can buy my debt from a defunct bank?  I should have first right of refusal to buy it,  pennies on the dollar, not someone else.  Ok. That was my mini rant of the day.

XitSam's picture

You're thinking the system is about fairness or justice. It is about preserving the banks.  (good point btw, I hadn't thought of this before)

Kali's picture


I know it is in the fine print, but same with mortgages.  Banks shouldn't be able to sell it without my permission.  This was an agreement between me and the bank.  These fuckers, just like when they broke "a promise" on all the credit card interest rates, people who borrowed at a fixed rate and then they change the rules and jack up the interest.


forcing me to invest my savings in bullshit 401k's, etc. by heavily taxing "non-retirement" savings.  I am so sick of all this bullshit.  And they wonder why people buy PMs.  Hang em all.  Banks used to be a vital part of a functioning community.  Now they are predators and thieves.  Along with the government.

Don't even get me started on bullshit derivatives.  When I was younger, these kind of transactions would be considered con man schemes.  Now it is par for the course.

This crack up is taking way too long.  They are gonna kill us all off before it is over. 

MachoMan's picture

Of course, if the originator couldn't have sold your debt to someone else, you probably wouldn't have gotten a loan... 

The best policy is to allow everyone to contract freely, i.e. allow people to make their own mistakes.  The trick though, to ensure equity theory is not unbound, we must hold those who choose poorly to their poor decisions.  This includes not only borrowers, but their dumbass creditors as well.  Of course, the jury is still out whether this actually leads to more sound decisionmaking.  (at the very least it coincides better with our concepts of individual liberty, so that in and of itself should be sufficient reason to implement it).

You are free to try and work out an arrangement on your mortgage...  it's just that securitization has made this incredibly difficult, if not cost prohibitive.  Ultimately, you should be able to purchase a security with your home in it...  or, alternatively, make a settlement agreement with the owner.  You are free to fire away with a quiet title action if you like...

The government doesn't force you to throw anything in a 401k...  you need to whine to your employer about that one...  mine offers a simple plan that vests immediately...  of course, I'm closing it out the next time they dump money in it and have already stopped contributing...  given there is not a chance in hell I'll ever see any of it 30 years from now.  I'll pay the tax now and make uncle sam happy and then pull the proceeds from the system.  No more churn.

In the end, the banks should be free to do whatever they want with the lien, but need to be fucking cock stamped should they go full retard (e.g. MERS).

AnAnonymous's picture

but yes, Ben's policy is to force everyone to toss their common sense to the wind and make speculators of us all...


Beyond Bernanke. It is the result of two centuries more of US citizenism.

Speculation is always somewhere. One can only diminish its importance through mass production (abundance)

As US citizens strived and succeeded in making the age of abundance last as short as possible, well, speculation is back on the front stage.

Bernanke can do nothing against that. Some things are not reversible and it is not possible now to reverse two centuries plus of US citizenism.

MachoMan's picture

I don't really disagree with this.  But, I think we're talking in circles...  is the drug dealer or the drug user to blame?  Who knows...  but, the difference with the FED's strategy is that it forces the drug user to take drugs...  so, we can all be "american citizenzy" and all, but in and of itself, the FED is acting and forcing policy down our throats, regardless of whether the demand would have been there absent FED presence.  In other words, IT IS possible to rape a nymphomaniac.

Further, I don't think it's fair to hide behind unprovable theses, despite them holding up to a cursory inspection.  I also don't think you get to stand on the foundation that it was us consumerism that paved the way for the FED's conception and integration...  at the very least, it's a tit for tat kind of love affair (a relationship that has broken I think).

Everybodys All American's picture

I know in going through the crisis in the mid seventies most people never would consider our current situation to be of sound economic policy. Today though we are being run over with Keyensians who think that a strong dollar policy is unnecessary. Conventional wisdom in essence has done a 180. I'm quite frankly amazed at the economic ignorance of not just Bernanke but all of the Fed governors. What is even more alarming is we have so many warning signs all over the place (Greece, Spain, Ireland, Portugal) and still this policy is embraced.

I should be working's picture

Bernanke is full of it.  ZIRP are a blatent attempt to force the collected savings of the American people into the Wall St casino.  And the double edged sword also promotes undue speculation increasing risk to the economy.

How can Bernanke, who lived through the financial crisis, not understand that free money promotes excessive risk-taking in pursuit of short term gains? 

Seasmoke's picture

Logans Run carousel for all public employees over the age of 50

EmileLargo's picture

Its all a bit dumb. The old with savings get stuffed on their savings which increases their dependency on the welfare state which in turn raises government deficits which in turn make it harder to raise interest rates at any time because even a miniscule rise in interest rates causes the government's interest rate bill to skyrocket. The savers are well and truly screwed with no escape hatch. Interest rates will not be raised by the Fed, period. 

yogibear's picture

Bernanke and the Federal Reserve's message is to get out of the US dollar because he will keep printing. 


All the more reason for a new reserve currency. All countries need to make plans for another currency away from the US dollar, not backed by the lies of the Federal Reserve and the spend to infinity US government.

SilverFocker's picture

What country would that be............there in lies the problem, that every other country big enough to take on the reserve capacity is also fucked.......The gold for oil will also not work unless all consumption is on board, and that will not happen "Yet".

The Big piece of the pie is when they try and choke off the oil, then the U.S. will choke the food supply even further than what is being done now.

This is a GLOBAL shit-storm not delegated to just one or a few countries.

Zero Govt's picture

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

Bailout the incompetent and bankrupts, fleece the productive savers. Why does America work so hard to make enmies when its central bank is a financial terrorist of epic proportions??

"Bernanke's recognition of his penalizing savers with low rates.."

Pissing on the savers (sane and sensible) you mean ..and he knows he's doing it?!!  ..why is this retard head of the Fed and not heading for the funny farm?

Economic vandalism, anarchy and perverse policies writ large. End the fucking Fed

AnAnonymous's picture

Bailout the incompetent and bankrupts, fleece the productive savers. Why does America work so hard to make enmies when its central bank is a financial terrorist of epic proportions??


Quite simple. Because those enemies are the savers, the ones that really conserve by not consuming their resources.

Savings as broadcast by US citizenism that is money put under the mattress is just another form of consumption that grows more important when they expect interest return on it.

US citizens go where resources were conserved, Iraq, Libya, possibly Iran...

akak's picture

Schizophrenia can be treated nowadays with the proper drugs, you know.

Unfortunately, there is no cure for being terminally stupid.

Such is the fate of mindless, nose-picking Chinese citizenism citizens.

Zero Govt's picture

AnAnon  -  consumption is not an end in itself... savings are important as it's stored wealth, just as every animal is biologically skilled at storing fat. We need stored wealth for rainy days, the inforseen and retirement

building fat is the opposite of building debt (the legacy of spending what you haven't got)

The Fed are economic morons (or wanting a population of debt-slaves: fascists) and the enemy of the (good) people

Shizzmoney's picture

Shit that the Fed pulls like this is why I love to laugh at those who mock the Occupy or End/Audit the Fed movements. 

They may laugh at those with no jobs now; but we will ALL have the last laugh when these greedy bastards steal those precious 401Ks to "pay down debt"