A dollar just doesn’t go as far as it used to.

In case you hadn’t already noticed this fact – you never know who lives under a rock these days – the Bureau of Labor Statistics just supplied the evidence. Its latest report shows that over the last 12 months inflation has run at 2.9%. What you could buy with a hundred dollars back in February 2011 now costs you $102.90.

Thank the Fed for this. Actually, you can thank other central banks around the world as well. Everyone and their dog is printing currency with abandon in an effort to ensure that prices go up, not down.

Congratulations. It’s working. This is a fabulous development for someone… somewhere. I’m just not sure who…

For the rest of us, it sucks. We’re paying more to eat, drink, drive and entertain… essentially to live. All because central banks are doing everything in their power to motivate us to spend.

More specifically, the Fed is trying to motivate us to borrow and spend. When we’re spending, or borrowing money and spending it, the economy grows. With a growing economy, unemployment declines. More employed people means they have more money to spend. People win, the economy wins, and the Fed gets a gold star for meeting two of its three objectives, fighting inflation and containing unemployment.

Sounds like a win-win situation, right?

Well, if you call cutting savers’ legs off at the knees a “win,” then maybe. Personally, I think the Fed’s actions are punishing the responsible members of our society while encouraging the irresponsible to continue behaving badly.

Watch Out for the Target on Your Chest

The Fed is hurting savers in two ways:

1. By keeping inflation high enough (at 2.9%) to create buying urgency. If the prices are constantly going up, it makes sense to buy now rather than wait until tomorrow.

2. And by keeping interest rates low. Low interest rates are great when you’re borrowing. They depressing when you’re saving.

Thanks to the Fed’s Operation Twist and other market actions it has successfully kept 10-year interest rates around 2%.

But the inflation rate for the past year was 2.9%.

That means investors who put their money into 10-year Treasury bonds essentially lost 90c for every $100.

I’d feel happier if the Fed just put a gun to my head and told me to hand over my cash. That way, at least, I’d know I’m being robbed.

The Tide is Turning

The good news is the tide might be turning… the markets are getting tired of all the intervention.

Over the past few days interest rates have been moving higher. Unlike stock prices, trends in interest rates tend to have long moves.

This move resulted in us recently selling one of our solid fixed-income positions in our Boom & Bust portfolio. It had paid us nicely. It even treated us to capital gains over the past year, far outstripping the paltry 2% paid on 10-year Treasuries. However, as rates move back higher, fixed income will decline.

We are determined not to save our way to the poor house by owning high quality fixed income in the face of low rates and high inflation. Instead, we’ll seek out better yields.

We’re sure the Fed doesn’t like us, but we don’t care.


P.S. A good place to go for higher yield savings and checking accounts is EverBank. In fact, with a high yield pledge account at EverBank, you could earn 13.8 times more yield than the national average. Fore more details or to open an account click here. In the interest of full disclosure, we do have an advertising relationship with EverBank, so we may receive compensation if you chose to open an account. But we wouldn’t recommend them, or even have this relationship with them, if we didn’t believe they were one of the best options in the market.

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Harry Dent
Harry S. Dent Jr. studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of his chosen profession that he turned his back on it. Instead, he threw himself into the burgeoning new science of finance where identifying and studying demographic, technological, consumer and many, many other trends empowered him to forecast economic changes. Since then, he’s spoken to executives, financial advisors and investors around the world. He’s appeared on “Good Morning America,” PBS, CNBC and CNN/Fox News. He’s been featured in Barron’s, Investor’s Business Daily, Entrepreneur, Fortune, Success, U.S. News and World Report, Business Week, The Wall Street Journal, American Demographics and Omni. He is a regular guest on Fox Business’s “America’s Nightly Scorecard.” In his latest book, Zero Hour: Turn the Greatest Political and Financial Upheaval in Modern History to Your Advantage, Harry Dent reveals why the greatest social, economic, and political upheaval since the American Revolution is on our doorstep. Discover how its combined effects could cause stocks to crash as much as 80% beginning just weeks from now…crippling your wealth now and for the rest of your life. Harry arms you with the tools you need to financially prepare and survive as the world we know is turned upside down! Today, he uses the research he developed from years of hands-on business experience to offer readers a positive, easy-to-understand view of the economic future by heading up Dent Research, in his flagship newsletter, Boom & Bust.