BY RUSSELL TURNER
SAVING FOR A RAINY DAY
I was raised by very conservative parents. I was taught that having some savings was one of the best things anyone could do with their finances. I have found that saving part of one’s income is a great thing, but it is only part of the equation. An equal part of the equation is having the ability to avoid spending more than is practical. A prudent person knows that if your debts are head and shoulders above your savings you can find yourself in trouble pretty quick. Although the numbers in our national budget are astronomical compared to those in our family budget, the same principles and consequences apply.
Our national debt is currently over 18 trillion dollars and by some estimates it will double every 6 years. Many people and governments have purchased that debt and are collecting interest on their money. Over the past several years the Federal Reserve has been buying the bulk of that debt; in total the Fed’s balance sheet exploded from $800 billion to $4.5 trillion between 2008 and 2014. A huge balance sheet means that the Fed is over leveraged. It means that they have only a tiny margin of safety in reserve in case there are serious problems in the financial system.
I have noticed that humans have a bad trait of believing that the good times will roll on forever. From personal experience I have learned that there is no sin in keeping the credit card in your wallet even if times are good. In 2008 there were several big banks that had huge balance sheets such as Lehman Brothers, Wachovia, etc. They were over leveraged, and had almost no margin of safety. When things started to go bad, they all went bust. In a recent article the FDIC, in its own words, doesn’t think that it is prepared for the next financial crisis. I was always taught to trust the banking system of our country to take care of our savings, but I have having trouble trusting the very people who have bought up so much toxic debt and have such a small reserve to insure the economy of this nation. Now we see the Federal Reserve has no margin of safety and is effectively insolvent.
We Americans have allowed the Federal Reserve to control and manipulate the currency and economy of our nation. All of you who think that the smart people in charge of the Federal Reserve will not allow an economic upheaval to happen like our grandparents experienced during the great depression are giving them more credit than they deserve. The Federal Reserve has manipulated the interest rates to an absurdly low rate. That one action has severely impacted retired people who saved for their retirement. Instead of having an interest income from their savings they are forced to spend their savings. I firmly believe that the current policies of the Fed will severely impact all Americans. When the very organization that is charge of our economy and currency is insolvent the end result cannot be good.
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