WATCH OUT FOR A STEALTH “TAX” ON SAVERS!

Quantitative easing has led to a stealth “tax” on savers in what’s been called “financial repression,” according to Bloomberg. As mentioned above, one goal of quantitative easing is to lower interest rates. On that score, it’s succeeded since interest rates are super low all along the yield curve. Unfortunately, there’s a problem with that – interest rates on many bonds and savings accounts are lower than the rate of inflation. This means savers are losing purchasing power (the stealth tax) while debtors are able to pay back their debts in inflated (i.e., “cheaper”) dollars. Savers are effectively being “financially repressed.”

The public debt of the U.S. is more than $15 trillion, according to the Treasury Department. The annual interest expense on that mountain of debt is more than $400 billion. Not surprisingly, the government wants to keep interest rates low because that will keep their interest payments low. Also, by tolerating some inflation, that debt pile can be paid back in inflated dollars. So, who loses in this deal? It’s the diligent American saver who lives below their means and has to endure very little interest on their savings.

Government policy makers are well aware that their actions are, to some extent, helping debtors at the expense of savers. They also know that in this complicated, global economy, there’s no easy way to make everybody happy and still get us out of the fiscal hole we’re in. Knowing that, we’ll keep doing our best to help you prosper.

Weekly Focus – Just for Fun

If you could spend one year traveling around the U.S. and Canada, how many different bird species do you think you could see? Well, there’s actually an informal competition that does just that and it’s called a Big Year. Last year, a movie starring Steve Martin, Jack Black, and Owen Wilson chronicled the Big Year exploits of three men who tried to set a new Big Year record in 1998. Sure enough, one of the men set a new record of seeing 748 bird species that year. Check out the movie and you’ll never look at birding quite the same.

Best regards,

Jonathan K. DeYoe

LPL Registered Principal

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added. Securities offered through LPL Financial, Member FINRA/SIPC.  This newsletter was prepared by Peak Advisor Alliance.  Peak Advisor Alliance is not affiliated with the named broker/dealer. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices.  The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market. Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association. The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998. The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones. Yahoo! Finance is the source for any reference to the performance of an index between two specific periods. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. You cannot invest directly in an index. Consult your financial professional before making any investment decision.