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The Daily Reckoning Weekend Edition | Saturday, August 13, 2011 Federal Reserve to savers: You're Screwed...at least for two years, Fellow Reckoners write in to correct a few key terms and definitions, Plus, all the rest of this week's reckonings, neatly archived for your crisis vacation reading... ................................................................................................. Obama's Burning Shame Revealed Here... This is the unspoken, burning shame that could kill Obama's presidency... It could spell the end of his short political career...  It's all revealed in this extremely urgent and controversial documentary report. Joel Bowman Joel Bowman, checking in briefly from Barcelona, Spain... No time to write today, Fellow Reckoner. We're getting into the spirit of the Great Correction, en route to a crisis vacation destination in the Balearic Islands, just off the coast of Spain. If you are unfamiliar with the phrase "crisis vacationing," think of it in investing terms. In a market selloff, a value investor, like Chris Mayer (essays in the weekly archive below), might be on the hunt for bargain basement opportunities. A short seller, like Dan Amoss (essays also below), might look to cash in on downward moves using put options or by selling short shares of a particular company. Likewise, crisis vacationing seeks to capitalize on economic downturns. We simply go to places where government have made stupid decisions. As you might imagine, the world is full of such places. For one, they offer cheaper food and accommodation. And fewer crowds. And better service. And, more importantly, you know your money is going someplace it's needed...to struggling local businesses, businesses that don't typically have much say in their government's ridiculous, market-crippling decisions. In short, we're taking a budget getaway. We're in search of a comfortable seat from which to view the strange goings on in the markets. More on that next week... For now, let's turn over to Addison Wiggin, who has this week's feature column. (Addison's essay, below, originally appeared in The 5 Minute Forecast on Wednesday, August 8.) Please enjoy... Back to the Panic Lows Addison Wiggin Yesterday, the Fed put savers on notice: You're screwed for the next two years. At least. The pertinent background: On Dec. 16, 2008, the Federal Reserve launched the first round of "quantitative easing," accompanied by a decision to slash the federal funds rate to an unprecedented 0-0.25%. The Fed statement said conditions would warrant these "exceptionally low" levels "for some time." On March 18, 2009, the Fed sought to be more precise in its time horizon, promising these "exceptionally low" levels "for an extended period." Every six weeks, the same language has turned up in the Fed's statements -- an all-too-easy source of mockery for your 5 editors. Yesterday, the fun stopped. Now there's an actual date (well, year, anyway) attached to the "extended period." Boo. "The committee currently anticipates that economic conditions -- including low rates of resource utilization and a subdued outlook for inflation over the medium run -- are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013." There you have it: The Fed has acknowledged the economy is going to be jonesin' for at least two more years and will require the IV drip of near-zero interest rates just to stay alive. Following the Fed's decision, the yield on a 10-year Treasury note sank to 2.14%. That's only 7 basis points away from the all-time panic low reached a couple of days after that first QE declaration from the Fed in December 2008. More to the point, the Fed has made it plain that savers will continue to be relentlessly flogged. "From this day onward," wrote former hedge fund manager Bruce Krasting at his blog last night, "every buy-and-hold investor who acquires Treasury debt with maturities of less than five years is guaranteed to lose money." This is the reality of something we discussed in Vancouver last month: Financial repression. The Fed will keep interest rates artificially low so the Treasury can keep its own debt service costs down. The Treasury Department blows through $3.8 trillion in a year on $2.2 trillion revenue. But at the moment, barely 5% of that total goes toward interest payments on the debt they issue to make up the difference. That's a sweet deal. Treasury officials would love to keep the drip going for as long as possible. Good for the Treasury, not so good for you... because it means you get still more in the way of "negative real interest rates." This morning, a 5-year CD yields 2.25%. But consumer prices are running at a 3.6% annual clip. So your CD is actually losing you 1.35% in purchasing power... before taxes. That's financial repression. To borrow a phrase from the computer world, this isn't a bug: It's a feature. The Fed is purposely forcing you "out onto the risk curve" so that prudent savers will buy stocks and prop up the stock market. In another 2007 flashback, Alan Greenspan accidentally gave away the game in his Daily Show interview with Jon Stewart: Stewart: When you lower interest rates, it drives money to stocks and lowers the return people get on savings. Greenspan: Yes, indeed. Stewart: So they've made a choice -- "We would like to favor those who invest in the stock market and not those who [save]"... Greenspan: That's the way it comes out, but that's not the way we think about it. We featured the segment in I.O.U.S.A. despite Greenspan's own proclamations in the film that "without savings, there would be no future." "In a negative rate world," said David Franklin of Sprott Private Wealth during the Symposium in Vancouver, "speculation must be part of your portfolio." And gold is the safest among those speculations. Sure enough, gold is powering to new highs... again. The spot price crested $1,800 briefly today, later pulling back to $1,777. Only 72 hours ago did the price break through $1,700 for the first time. Regards, Addison Wiggin, for The Daily Reckoning Joel's Note: In his latest presentation, Addison describes the "hellish" scenario now facing Mainstream America...a scenario our elected clerks in Washington not only ensured, but also denied would ever come to pass. It's not the easiest presentation to watch, but it is worth your while. Check it out here.   America 2012...Wall Street in Ashes...Main Street in Ruins... Here's SIX ways to protect yourself and profit from the biggest lies DC, Wall Street, the Fed and your banker are telling today... Click Here To Find Out How.   ALSO THIS WEEK in The Daily Reckoning... Hedge Yourself! By Chris Mayer Gaithersburg, Maryland Alfred Winslow Jones was an unlikely figure for Wall Street. He had a Ph.D. in sociology and then served in the Foreign Service in Berlin in the 1930s. Later, he became a journalist. He wrote for Fortune magazine and Time-Life, mostly on nonfinancial topics such as Atlantic convoys, farm co-ops and boys prep schools. Now What? By Chris Mayer Gaithersburg, Maryland Today we entered uncharted territory. For first time, the U.S. suffered a credit downgrade and is no longer AAA, according to S&P. So now what? Some will say it isn't a big deal. What's one notch to AA+? The problem with that thinking is that it assumes we don't go lower than AA+. But the problems that brought us here aren't solved, not by a long shot. In fact, they haven't been addressed at all. So one has to reasonably assume the step to AA+ is just the first step in a long slide to greater depths. That is a big deal. Monetary Reform: The Beginning of the Beginning By Charles Kadlec Fundamental reform of the world's monetary system has begun. It is way too early and too amorphous to be front-page news. We are only at the beginning of the beginning of a popular effort to restore gold backed money to the center of economic activity. Crony Capitalism at Work By Dan Amoss Jacobus, Pennsylvania High-speed trading is turning the stock market is turning into a farce, and in the process is turning off an entire generation of investors. It's speeding up a process -- P/E ratio compression -- that normally takes a grinding bear market a couple of decades to accomplish. Even after the wake-up call of the May 2010 flash crash, the SEC has done little to foster a healthier market ecosystem. Amazing Power By Terry Coxon Imagine discovering that your dog can fly. As soon as you'd gotten over the surprise, you'd start wondering why you hadn't noticed years before. Then you'd start thinking about the money you could make with such a talented canine. That's the experience I had with IRAs.   Gold Hits $1,800 Per Ounce...Where to From Here? Even as the yellow metal soars to record new highs, this stunning new presentation from a trained geologist reveals...  Nine Simple Ways You Can STILL Get Rich With Gold Click Here for Byron King's Latest Dispatch. The Weekly Endnote: And now, we turn the floor over to our Fellow Reckoners... First up, this one from an appreciative Reckoner B. King... Eric's article "It's Not Armageddon?" is the best, most succinct I have ever read. He should be awarded a medal by Congress...after they have tattooed on their foreheads "Mr.Fry is the guru." More power to his pen, and long may his influence increase. Regards to all the honest people in America -- this naturally excludes politicians. And this, from a Reckoner who calls him or herself "Out of the Country Permanently"... Hi Joel, Please stop using the term "defense budget" and call it what it really is an "offense budget". Thanks and keep up the good work. And, while we're on the subject of correct terms and definitions, here's Reckoner B. Goodwin with a few more... On the same note, set up a translation program to clean up a whole mass of (mess of ?) courtesy titles, as in: The Great State:  The ingrate state The Honorable Congressman: The Pork Belly Monger Ambassador: Foreign Affairs Spinster Senator: Geriatric "I'm All Right" Jack  Government Statistics: Just barely plausible guesses, biassed towards what the Guvmint would like you to believe -- provisional figures, to be revised much later in a more truthwards direction, but even then laughable Flight to safety: Panic Rising price of gold: Falling value of the dollar --- As always, we welcome your feedback and thoughts. If you'd like to send us an email, please do so to the address below. Other than that... ...enjoy your weekend. Cheers, Joel Bowman Managing Editor The Daily Reckoning P.S. Finally, we would like to send a special thanks to the staff of the Fairmont Hotel in Vancouver. During this year's Agora Financial Investment Symposium, your absent-minded (read: mildly-inebriated) editor left his iPad in the lobby bar. A few days ago, we received an email from the housekeeping manager, who promptly sent the device, via express mail, to our hotel here in Barcelona. Nice, eh? Thanks, mate. ------------------------------------------------------------------- Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com Double Depression Not Like 2008 Still Going Strong China: Where Money Is Treated Best Buying Gold on the Price Inflation Guarantee Awaiting the "Zero Hour" of Available Credit New Study Informs Burning London That Austerity Breeds Social Unrest Dominique Strauss-Kahn From IMF to Rikers Island, Perhaps an Input Upgrade The Daily Reckoning: Now in its 11th year, The Daily Reckoning is the flagship e-letter of Baltimore-based financial research firm and publishing group Agora Financial, a subsidiary of Agora Inc. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. Published daily in six countries and three languages, each issue delivers a feature-length article by a senior member of our team and a guest essay from one of many leading thinkers and nationally acclaimed columnists. Cast of Characters: Bill Bonner Founder Addison Wiggin Publisher Eric Fry Editorial Director Joel Bowman Managing Editor The Mogambo Guru Editor Rocky Vega Editor Additional articles and commentary from The Daily Reckoning on: Twitter Facebook DR iPhone APP To end your Daily Reckoning e-mail subscription and associated external offers sent from Daily Reckoning, cancel your free subscription. If you are you having trouble receiving your Daily Reckoning subscription, you can ensure its arrival in your mailbox by whitelisting the Daily Reckoning. © 2010-2011 Agora Financial, LLC. All Rights Reserved. Protected by copyright laws of the United States and international treaties. 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