How You Can Limit Your Exposure to the Fed's Financial Interference

There are ways to protect yourself
Thursday, August 1, 2013, 1:18 AM

Executive Summary

  • Understanding the Fed's ability to impact (or not) health & education, pensions, and inflation
  • What you can do to insulate yourself from the impacts of the Fed's financial interference
    • Mindset
    • Major expenses
    • Debt
    • Resilience
    • Income

If you have not yet read Part I: The Fed Matters Much Less Than You Think, available free to all readers, please click here to read it first.

In Part I, we found that the supposedly omniscient Federal Reserve is irrelevant to the engine of real wealth creation (innovation) and actively inhibits the allocation of capital and labor to innovation by incentivizing speculation and malinvestment.

In Part II, we’ll look at what else matters that the Fed either negatively influences or does not control, as well as specific actions we can take as individuals to insulate ourselves from the collateral damage caused by misguided central bank policies.

Health and Education

We all know health and education are vital to individuals and the economy, and like everything else that matters, the Fed’s influence is limited to financial repression of interest rates that enables the Federal government to avoid the sort of healthy fiscal discipline that higher rates would demand. In other words, the Fed has widened the moat around government spending, protecting it from the hard choices that would accompany massive deficits and bond issuance in a free-market economy.

Public and Private Pensions

By at least one measure, the Fed’s repression of interest rates (designed to recapitalize the banks at no direct cost to the Fed or government) has cost savers $10.8 trillion in lost income. Since the majority of savings in the U.S. are in public and private pension plans, 401Ks, and IRAs (individual retirement accounts), the Fed’s repression of interest rates has pushed these income-security savings into risky speculative asset bubbles in stocks, bonds, and real estate, and critically undermined the financial health of pensions by radically reducing their low-risk, safe returns. » Read more


How to Break Out of Stagnation

Start "printing" future energy now
Tuesday, July 9, 2013, 1:04 PM

Executive Summary

  • The world's ongoing net energy recession will continue to drag GDP downwards unless a technology mircale occurs (unlikely)
  • Reversing our net energy decline will be key to breaking out of this stagnation
  • Solar capacity build-out is an important growing trend, as it offers "free" streams of future energy after its up-front costs
  • Solar GW capacity is now growing at a classic exponential rate. The countries that invest the most here will have a long-term advantage over those that don't
  • Stimulative programs that invest in renewable energy infrastructure are looking increasingly attractive to our current fiscal ones that are clearly failing to return us to previous levels of growth

If you have not yet read Part I: The Dead Weight of Sluggish Global Growth available free to all readers, please click here to read it first.

With OECD countries in an ongoing energy recession, and given that just about all major economies, both in the OECD and Non-OECD, depend on exports, the risk is that global trade and global GDP also start to slow down. In 2013, we see that is exactly what's starting to happen, as noted by the Economist:

According to The Economist's calculations, world GDP grew by just 2.1% during the first quarter of 2013 compared with a year earlier. Just 12 months ago, output was growing at a reasonable clip of 3.1%. The European Union, the world's second-largest economy, which welcomes its 28th member on July 1st, is back in recession. Meanwhile there are concerns about stumbling blocks as China seeks to rebalance toward a more consumption-oriented economy and more moderate growth rates. Long the mainstay of the world's fortunes, China alone has been responsible for nearly half of all world economic growth since the end of 2009 when the world began growing again.

While commodities from copper to oil have retained the majority of their price gains achieved over the past ten years, the fact remains that year-over-year inflation has settled in at a low, tepid level. Meanwhile, global wage deflation, a secular trend over the past decade, continues. Overall, this means that labor still has very little pricing power. Indeed, with structural unemployment now embedded in much of the OECD, the question remains: How will Western economies put enough people back to work to erase the idle labor pool? » Read more