Early Retirement Blog

Federal Reserve Chairman Ben Bernanke has launched QE2, a second round of quantitative easing, that involves purchasing $600 billion in U.S. Treasury Bonds in an effort to stimulate the economy and avoid a double dip recession. In reality, QE2 is another bailout for Wall Street and the wealthy, that makes middle class Americans poorer, and will be paid for at the expense of current and future retirees.

I am going to skip explaining how QE2 benefits the bottom line of Wall Street banks and corporations. I’m not going to describe how the wealthy elite, through the hedge funds where they keep their money, are already positioned to make tremendous profits from the gold and commodities bubble QE2 will create. By now, almost everyone realizes, that the Federal Reserve, Congress, and the White House, serve the interests of Wall Street and the wealthiest 2% of Americans.

Instead I want to describe how QE2 affects the bottom 98% of Americans and their retirements. The Federal Reserve’s QE2 will pour an extra $600 billion into the economy. QE2 is designed to create inflation. Inflation makes you poorer. In a previous article, I wrote about the recent negative TIPS yield, where I described how QE2 produced inflation makes you poorer.

Expanding the money supply by such a large amount, will devalue the dollar, and produce inflation. For instance, if you hold a dollar, and all of a sudden there are twice as many dollars as before, then the dollar that you are holding loses half it’s value.

It now takes twice as many dollars, to buy the same thing, your dollar could buy before. It takes more dollars to buy bread, cars, gas, stocks, real estate etc. The price of almost everything goes up. Meanwhile, because of high unemployment, your wage stays the same or only slightly increases. That is how inflation makes you poorer.

As a real life example, of how inflation makes you poorer, today I went to my local Italian bakery to buy my usual croissant. For the past three years, my croissant cost $1.75, today the price was $1.95. The price went up by 10%. My salary did not go up 10% today. I am 20 cents poorer today than I was yesterday. Inflation has already started, and it will only get worse, as the Federal Reserve begins purchasing U.S. Treasuries.

Current retirees on fixed incomes and Social Security will suffer the most from QE2. The Federal Reserve, while causing the price of food, fuel, and everything else to rise via QE2, is keeping interest rates at zero, providing zero income for retirees who have their retirement savings in bonds, CD’s, and money market accounts. Meanwhile, to add insult to injury, for the second year in a row, seniors will not receive a Social Security COLA (cost of living adjustment).

As I have written before – Seniors are being used to bailout Wall Street. Instead of raising interest rates, which would help seniors at the expense of Wall Street, the Federal Reserve has decided to keep interest rates artificially low by purchasing U.S Treasuries. To pay for QE2, and it’s impact on the economy, current workers will be forced to give up their retirements.

When Federal Reserve Chairman Ben Bernanke went through his Senate confirmation hearings, he was asked by Senator Jack Reed of Rhode Island if he could think of ways other than spending cuts and tax hikes to reduce deficits. Ben Bernanke responded with a smile, “Willie Sutton robbed banks because that’s where the money is, as he put it, the money in this case is in entitlements.”

Entitlements is another way of saying Social Security and Medicare, your retirement benefits, the benefits you pay for when your paycheck is taxed. The Federal Reserve and the U.S. Government do not want to pay back the money they owe you. They have admitted that they plan to rob the retirements of the American people.

In the next month, QE2 could cause an economic shock, which provides the pretext the bi-partisan Budget Deficit Commission needs, to recommend raising the retirement age for future retirees and the cutting of benefits for existing retirees.

I have a sinking feeling, that unlike the ocean liner that bears the same name, the Federal Reserve’s QE2 is designed to sink the economy and your retirement. While the wealthy elite are on the life rafts loaded with the ship’s silver and gold, middle class Americans who are below deck in the cheap berths, will be left to scramble for anything that floats.

Related Articles:
Cat Food Commission
How to Retire With Less Than $ Million
How to Retire on Only Social Security
Walk Away From Your Mortgage to Retire

stop