“Bailing Out the Present and Making the Future Pay for It”
You might consider the title of this post a provocative statement, but we have been concerned for many years about the situation unfolding and described in a recent ProPublica article. Mission Chief Investment Officer Tom Feeney has frequently written about the burden that today’s debt loads will create for our children and grandchildren. Tom also heard a Federal Reserve governor acknowledge directly that the Fed’s decisions ultimately would reduce retirees’ safe investment income earning ability, very possibly for some years to come.
It is widely understood that the Fed’s bank bailout during the Great Financial Crisis (2007-2009) was exceedingly generous to Wall Street on the taxpayer’s dime. The Fed perceived that it stood at the edge of an economic abyss as bank after bank approached insolvency. With little consideration for unintended consequences, the Fed then concluded that bailing out bad financial decisions and bad investing was its best course of action. The Fed provided unprecedented corporate socialism without adequately thinking through the public costs—specifically those imposed on savers and future retirees (especially over the subsequent two decades).
As the number of retiring Baby Boomers explodes upward, the Fed’s suppression of interest rates is limiting the income that pensions, the Social Security fund, and other retirement assets can earn. Retirees who are unable or unwilling to assume much risk in their retirement assets are particularly vulnerable over the longer term. This article points out, “…the Fed’s near-zero rates…are undermining the long-range future of the U.S. retirement system. This matters – a lot – because Fed statistics show that retirement benefits (not including Social Security) are hugely important to the middle class.”
Gene Steuerle, Co-founder of the Tax Policy Center, calls it out directly: “We’re bailing out the present and making the future pay for it.” In bailing out banks during the Great Financial Crisis and bailing out all kinds of bad investments in today’s economy, the Fed, “is putting our economic future at risk.”
The bailouts have increased our national debt. That means that in addition to investors’ inability to safely earn current decent income on bank deposits and other investments, future generations are saddled with massive national debt, likely increased taxes, potentially severe inflationary pressures, and threats to the stability of portfolios in the future. For robust and succinct coverage, read Allan Sloan’s ProPublica article: “The Fed Saved the Economy but Is Threatening Trillions of Dollars’ Worth of Middle-Class Retirement: The Federal Reserve has bailed out the stock and bond markets and stabilized the economy with its rock-bottom rates — but at the expense of Social Security and pension funds.” Read the ProPublica article.
By Susan Ernsky, President, Portfolio Manager
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