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G&G Associates
Tax & Financial Consulting Services
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Don't let the Fed Destroy Your Savings
Akwaaba (Welcome) G&G Readers,
Imagine a drunk driver who has lost all his sense of direction. He not only has no idea where he's going, but is also controlling his speed by looking at a broken speedometer. How would you feel being a passenger in that car?
Unfortunately, that's the reality we're facing. We're all passengers in that car.
Our economy is under the control of a drunk driver, who is now making decisions based on broken metrics. I'm talking about the Fed. It has announced its newest plan to boost the economy. And the plan is based on two key, terribly flawed numbers.
This is likely to end in disaster and here's why…:o(
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Why the Fed's Measure of Inflation is Meaningless
The Fed has recently announced it will print $85 billion every single month until inflation rises above 2.5% or unemployment drops to 6.5%. Printing money in itself is a dangerous activity. When you decide how much you print based on two flawed metrics, then it almost ensures disaster.
The numbers the Fed uses to measure inflation and unemployment are useless. Let's take a look at inflation first. Besides ignoring food and energy costs, which are big parts of our daily lives, the Fed uses other tricks to keep reported inflation artificially low.
I wrote about this in an article last year. {See G&G website newsletter archive April 19, 2011 issue}
Since 1980, the government has implemented several changes in the calculation of inflation. Because of those changes, the reported inflation is much lower than the true rate of inflation.
According to www.shadowstats.com, which calculates inflation by using the original methodology, inflation is now close to 10%. Meanwhile, the Fed keeps telling us it is below 2%. How can the Fed control inflation by using a meaningless measure of inflation? It can't.
And it gets worse.
Why the Fed's Measure of Unemployment is Useless
The Fed has also said it will only stop printing money when the unemployment rate drops below 6.5%. That threshold is also terribly flawed. Just like the reported inflation doesn't really measure loss of purchasing power, the reported unemployment rate doesn't really measure the health of the labor force.
You see, the Fed doesn't count those who are not looking for a job as unemployed. As a result, when people give up looking for jobs, the unemployment rate goes down. This gives the impression things are getting better when they're not.
In fact, that's a big reason why the unemployment rate has been falling recently. Millions of Americans have dropped out of the labor force. In November alone, 540,000 Americans dropped out of the labor force.
This is important because a significant improvement in the economy will encourage more people to start looking for a job. This influx of people into the labor force could push the jobless rate UP because more people would be officially looking for work. The Fed would start counting those as unemployed.
An improvement in the labor market could push the unemployment rate up, not down. Under that scenario, the Fed would keep printing money, despite the improvement in the economy.
Why This Will End Badly
Because of the artificially low reported inflation, the Fed will keep printing money. And if the economy improves, a higher unemployment rate will give the Fed another excuse to keep printing.
The Fed can control how much money it prints. But it can't control where that money goes.
All this money-printing will result in asset bubbles. There's already a massive bubble in the bond market… and stocks wouldn't be trading at current levels if it wasn't for all the money-printing. The problem is bubbles always end badly. The booms are always followed by massive busts.
Investors who follow a "buy and hold" strategy will be crushed by the next Fed-induced crash just like they were in 2000 and 2008. If you want to reach your retirement goals, you don't have the luxury of time to ride out another major crash. It's time for a new approach --- one that avoids catastrophic losses, while keeping you in bull markets.
I've spent the last few months developing a strategy that does exactly that. It's a revolutionary way to save for retirement that has averaged an annual return of double digit return over the past decade. It could be the safest and perhaps only shot you'll have at securing the retirement you deserve.
For more details about this strategy, if you are not a GGIS subscriber already, we stop procrastinating and signup now. Your savings could be in jeopardy if you don't.
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If you need a one-on-one consultation to learn how to implement these investments or any other tax or financial strategy mentioned in these newsletters, feel free to contact my office to setup an appointment.
Meda Ase p (Thank You Very Much),
Asar Maa Ra Gray
Tax & Financial Consultant, RFC
G&G Associates
757-271-6068 office
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LEGAL NOTICE: This work is based on what I've learned as a financial researcher and analyst based SEC filings, current events, interviews, corporate press releases and what I've learned as a financial consultant. It may contain errors and you should not base investment decisions solely on what you read here. It's your money and your responsibility. Nothing herein should be considered personalized investment advice.
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