- - Sunday, June 8, 2014


Overwhelmed by revelations on Taliban prisoners exchanged for Sgt. Bowe Bergdahl, while reeling from consequences of foreign-policy failures everywhere, Americans are missing a near and present danger that will bite each of us hard, deep inside our borders.

Five years into the combination of profligate federal deficits and irresponsible Central Bank intervention suppressing interest rates, we near a place we last encountered in the late 1970s, when inflation spread out of control.

Runaway inflation — when prices soar for essential items — inflicts harsh pain on everyone. It brings down governments, sometimes ushering in tyrants. And runaway inflation stands in our future, perhaps just months away.

When saving is only for suckers

Even novices understand how inflation pummels the bottom 80 percent, the households whose after tax incomes barely cover expenses. But untamed inflation and artificially low interest rates also crush the saving class.

SEE ALSO: ORTEL: A wobbly U.S. economy may be heading for a fall

Before 2009, risk-averse savers could put money aside in certificates of deposit (CDs) with one-year maturities that yielded interest rates higher than consumer price inflation.

During the 15-year period for which comparable data is available from 1993 to 2007, interest rates on one-year CDs were higher than changes in the CPI-U Index (“Consumer Price Inflation-Urban”) each year, except for 2004.

On average over this entire period, interest rates on one-year CDs were twice the level of inflation. In 2008, inflation was less than 0.1 percent, yet interest rates on one-year CDs averaged 3.933 percent.

But thereafter, during each year from 2009 through 2012 (comparable data is not available for 2013), interest rates on one-year CDs were lower than inflation.

In 2009, interest rates were 1.920 percent and inflation was 2.721 percent; in 2010, interest rates were 1.077 percent and inflation was 1.496 percent; in 2011, interest rates were 0.706 percent and inflation was 2.962 percent; and in 2012, interest rates were 0.636 percent and inflation was 1.741 percent.

Overall, from 2009 to 2012, interest rates on one-year CDs averaged just one half of inflation. So savers were pushed by this reality to invest in much riskier assets such as equity funds and common shares whose values can plummet once again as they did between September 2008 and March 2009.

Is it “over the top”?

During the heat of the 2008 fight to secure the Democratic presidential nomination, Barack Obama was depicted in terrorist garb with his wife on the cover of left-leaning New Yorker magazine. The full scope and reach of economic policies implemented since 2008 seem, in hindsight, a “War on Capitalism.”

The economic data that is most reliable (total debt and per capita incomes earned in the private sector) for the years 2009 forward paint a deeply disturbing picture. Total debt has soared well into the danger zone while after-tax incomes have dropped.

These negative results were “achieved” using tools (outsized deficits and suppressed interest rates) whose effectiveness is questionable, at best. So savers, whose financial assets are trapped inside banks and brokerage firms, could now be set for slaughter, via “one-time” wealth taxes.

Relentlessly targeting billionaires and millionaires for scorn, lauding error-laced analysis contained in “soak the rich” arguments articulated by the likes of Thomas Piketty — these signal that the Obama administration has few painless solutions left.

Instead of paring a bloated, and woefully ineffective maze of Federal Government bureaucracies, the Obama administration must be contemplating extraordinary solutions in the event the worst happens and a “crisis-in-confidence” results, again threatening the U.S. and global financial systems.

The Obama administration seems sure to continue ruinous policies to the very end, we speed towards a day when the U.S. dollar will be dethroned as primary reserve currency for the world.

When the Federal Reserve System belatedly raises U.S. dollar interest rates, all unprepared Americans will lose, and some losses will be mammoth.

Mark these words — within months, Americans of all stripes will rue and ultimately revolt against policies of economic ruination imposed upon us.

Charles Ortel serves as managing director of Newport Value Partners (newportvalue.com), which provides economic research to executives and to investment firms.

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