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MyRA is your money’s graveyard February 9, 2014

Posted by hslu in Congress, Economics, Obama, Retirement.
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Bernanke kept the Fed’s funds rate at near zero level since Great Recession started in 2008-2009. He also bought trillions of long term US Treasury Bonds and mortgage backed securities in order to bring their rates down as well.

He did it because he wanted to force investors to riskier assets: stocks, real estates, commodities, currencies and  derivatives. Bernanke wanted trickle down effects from the riches to kick start the sagging US economy.

S&P 500 made 175+% since 2009. Housing prices in many cities recovered nicely. Many investors and hedge funds also made lots of money in carry trades and they have no one but Benanke to thank for. As expected, the rich got richer while the poor got stuck with food stamps and unemployment benefits. Trickle down from the riches got the economy growing at ~2.2% for years.

Now that the Fed has trillions of Bonds on its balance sheet and Bernanke didn’t know what to do with them. Selling them will raise the interest rates which will increase US government’s interest payments on its $17+ trillion national debt. Hihger rates will slow down the still fragile economy.

Someone came up with the MyRA idea and the do-whatever-I-want Obama said he can do it without the Congress: why not sell the bonds to American citizens? The boomers are retiring in thousands everyday. They can use a steady income. Seniors have been making 0.01% on their CDs from the banks. Let them have those bonds and everyone is happy.

The Fed can unload the Bonds off their balance sheet and the boomers and seniors can keep the bonds.

Sounds like a good idea.

Right?

Yes, a good idea for the government, that is. But it is a lousy deal to people who buy these type of bonds.

Bonds on Fed’s balance sheet have a low coupon rate because Bernanke made it so when he bought them on the open market.

With economic growth expecting to rise, inflation will return once banks start to lend and interest rates will rise.

Long term interest rates have been going up since Bernanke uttered the ‘t’ word in May 2013. If the boomers and seniors exchange their CDs with the bonds, they will see the principles of their bonds shrink as inflation picks up. They might as well bury their money in graves because they won’t see some of them as 10 year rates go up from ~2.7% now to 5 to 6% in a few years.

Here is my advise if you are thinking about MyRA:

DON’T!

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