The Fed is Destroying Another Investment

December/15/2010 18:07PM
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The Obama economic machine is not done with you yet. After Barney and Chris tried the “everyone in America should own their house” idea and destroyed the housing market, the domino’s started to fall. The stock market went to hell and every one’s 401K was halved. Then the jobs went away. Then your health care went away. Unless, you are a politician, a union member, or an illegal immigrant. After all that, the futures of your kids and grand kids began to shrink. To insure the American Dream would be spent in the best interests of getting elected in the short term, the country was mortgaged with record deficits.

Watching all this, the American people, smarter than the government, began to look for safer places to put their few assets they had left. Where better than Treasury bonds? After all, they are backed by what’s left of the financial might of the United States government. Of course, China might have the first mortgage with their trillion in loans. Followed by India and Japan. With banks shaky, with CD’s paying zilch, and with the stock market scary, it’s the last bastion of opportunity to invest.

To insure that goes away, your government introduces QE2. In November the Fed announced they would buy $600 billion in Treasury bonds. At that time,10 year notes were paying 2.3% interest.

Here’s what QE2 has done for all those millions of Americans who bought those 2.3% bonds. Those bonds are now paying 3.4% interest. Investors who bought the 2.3% bonds are out 6.5% in the value of their investments. You see, as interest rates go up on bonds, the face value falls.

So, if you bought bonds from your government, you are out two years interest already if you bought in November. If the QE2 works, you stand to see interest rates go up and the value of your bonds go down.

Since the Fed keeps buying the bonds as the interest rates go up, that demand will keep pushing those rates up.

Got any ideas where to put your money now? That is, if you have any left. Rest assured, wherever you put it you government will find it and invent a way to reduce your net worth.

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