REMINDER: All investment, economics, and finance related material now appears at the new IaconoResearch.com. For the time being at least, this has become a personal blog covering a variety of mostly unrelated topics.

Why Save When Borrowing is So Cheap?

Federal Reserve Chairman Ben Bernanke is clearly winning his war against savers as the freakishly low interest rates mandated by the central bank combined with a weak economy here in the U.S. are making it either impracticable or impossible for many Americans to maintain even a tiny amount of cash set aside for a rainy day.

According to a survey by Bankrate.come that included the graphic to the right, a full one-quarter of Americans now have more credit card debt than emergency savings which, when you think about it, shouldn’t be too surprising.

But, what was surprising (at least to me) was that a full 30 percent of those earning $75,000 or more could not say that they have more savings than credit card debt and 36 percent of college grads were characterized the same way.

One could make allowances for the avalanche of zero interest rate offers from credit card companies and how recent college grads have been having a tough time in the current economy, but still, these numbers seem quite high.

As might be expected, for non-college grads and low wage earners, things are much worse with nearly two-thirds of the respondents saying they had less savings than credit card debt, but things seem to be deteriorating rapidly for the middle and upper-middle class.

Overall, just over half of Americans now have more emergency savings than credit card debt while another 21 percent either don’t know what they have or have neither.

When asked how they feel about their level of savings as compared to a year ago, only 14 percent said they were more comfortable while 38 percent said they were less comfortable.

Don’t look for any of these numbers to improve much in the years ahead – at least not until 2015 when the Fed’s low interest rate policy might finally come to an end.







How Goldman Sachs Masked Greece’s Debt

Lest we forget that everyone’s favorite investment bank played a key role in the Greek tragedy that has been playing out for over two years now, this BBC video reminds us how some complex financial engineering by Goldman Sachs helped mask Greece’s debt for years, that is, right up until a new government was elected.

The term “loan shark” comes to mind when listening to this depiction of what Goldman did and, paraphrasing former Fed Chairman Paul Volcker, financial innovation that, over the long-run, benefits the economy stopped with the ATM machine.

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China Cuts Reserve Requirements

China’s central bank cutting bank reserve ratios on Saturday in order to spur lending and boost economic growth was one of the weekend’s major stories, that is, along with more Middle East geopolitical turmoil and surging oil prices … perhaps they’re all connected.

Reserve requirements will be reduced from 21.0 percent to 20.5 percent for large banks, leaving China with what are still some of the highest bank reserve ratios in the world. Wikipedia provides a good discussion of this subject that includes the following caveat to the official reserve ratio of 10 percent here in the U.S.:

Effective December 27, 1990, a liquidity ratio of zero has applied to CDs, savings deposits, and time deposits, owned by entities other than households, and the Eurocurrency liabilities of depository institutions. Deposits owned by foreign corporations or governments are currently not subject to reserve requirements.

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Quantitative Easing Revisited

This follow-up to the wildly popular original YouTube hit Quantitative Easing Explained covers such subjects as how quality improvements in the iPad 2 keep inflation low and how Fed money printing rewards the wealthy while punishing the poor.

Though its popularity pales in comparison to its predecessor (about 5 thousand views vs. 5 million views), it’s still worth a look if for no other reason than this quip:

I have figured out the formula for predicting the Fed’s actions. First, you take a past policy that has been a complete bust. Then you double the size and do it twice as long.

A New Perspective on the Fed’s Balance Sheet

Following the long-term look at the federal government’s public debt in this item from a short time ago comes this long-term view of the Federal Reserve’s balance sheet compliments of the recently stumbled upon Gresham’s Law blog.

Note that the graphic is interactive in its original form at Gresham’s Law and additional charts are provided that go into great detail regarding what the central bank was doing, money-printing-wise, over 10 year periods beginning in 1915. But, the most important point is made in the right-most portion of the graphic above where even a log-scale chart would indicate an astounding increase in Fed largess.

Wall Street ❤ Mitt Romney

According to this CNN/Money report, it would appear that Wall Street has a new favorite candidate in 2012 after candidate Barack Obama, back in 2008, raised more money from the financial services industry than any other candidate in history.

New boss, same as the old boss … and the ones before that.

Maybe we’ll get a good third party candidate this year…

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