Retirement?

Same here! Cash back cards. I run everything through them -- it's free money.

 

You just put words in my mouth. I never said "the Fed is forcing people to borrow money" or anything like it. What specifically did I say that you are talking about (my words, not yours)? I can maybe answer your second question, if I know what it is you are trying to say.

 

This is like asking me who was forcing people in the Soviet Union to wait in line and pay black market prices for toilet paper. ... Nobody was FORCING anyone to do anything. Hell, I am debt free -- even though the Federal Reserve would love for me to load up on debt (and has incentivized me to do it) and gamble with the money in various markets.

Look, unless you want to have a discussion rooted in reality, you are going to always argue with me -- when I am not saying anything that isn't plain.

Income producing vehicles fall along a risk spectrum. Depending on an entities' goals and their tolerance for risk, they can put their money to work in a variety of ways. If you are willing to accept risk, you can reach for greater gain. You also may lose your principle, depending on the level of risk you take. Some are good at making those decisions, many aren't. There are winners and losers in the world. Blah blah blah.

Pension funds (and insurance products) don't operate that way. They rely on a risk-free rate of return, which is the minimum return an investor expects for any investment -- even one that carries little to no risk. There is no reason to give someone money without a promise that they will pay you back more (a premium) at a future date.

In an unmanipulated market -- one where interest rates are determined by the market participants, not by a politburo -- all lending rates of return get determined by the market participants -- based on the risk involved. It is the collective decision making of all those borrowers and lenders that finds the optimum levels. At the lowest level of risk, in an unmanipulated market, you get X percent return -- even if you don't want to take on any risk.

What the Federal Reserve (and the BOJ and ECB and PBOC and various other entities) is engaged in is control and administration of those interest rate markets -- with their politicized objectives setting their "policy." It's no different than any kind of command-economy market -- think the old Soviet Union, where prices were administered. The price of money (the most important price there is, because it affects every other market) is administered by them.

What that means practically is that they have tried to keep money and credit flowing -- not tighten up conditions. They only spike the punch bowl. Once they started, they were unable to stop the party -- politicians love it because they make promises and spend and the debts they incur get inflated away by the central bank. If interest rates are suppressed, you can borrow more and do it longer. If the market takes control of those rates, lenders disappear -- except at higher and higher rates of interest. And entities that keep borrowing more and more default / drown in their debt. It's most natural regulator of risk there is -- you are not going to lend money to someone with a bad idea who is always indebted up their eyeballs.

It spills over to the broader economy, because the mechanisms they use to suppress rates miscalibrate risk. In a free market -- one in which the participants bear all of the risk and have the ability to set prices themselves to manage their risk -- you have a self-regulating mechanism. You have entities willing to accept risk. But mostly you have entities that are looking for income at moderate to no risk. And they assess who they lend to -- they have that incentive.

In one with price controls -- and price controls designed to create more and more debt -- that self-regulation doesn't exist. Yes, there are low risk options. But because of the price controls, lending to them doesn't even pay you back more than the rate of inflation the Fed has created with their manipulation. It's why a dollar from when the Fed was created has lost 99 percent of its value -- but that is another conversation.

Because the risk-free rate of return (or options with relatively little risk) is being artificially suppressed, entities that would have earned that income in a free market are forced to take riskier and riskier behavior in order to achieve the income they were relying on or need. That is the miscalibration of risk I am talking about. Nobody is forcing anyone to do anything -- if that is literally your question. But if you are a pension fund that actuarily was relying on a certain risk-free rate of return -- and a central bank has price fixed interest rates to deny you that income -- and you still have obligations you have promised to meet. ... your choices are to NOT make good on your obligations. ... or try to make good on them by taking on more and more risk -- to make back the income that the central bank robbed you of! Once the bubble builds, you get entities that actually understand what the decision (and the risk) they have been "forced" into. But you also get the dupes -- they people who rush into something where all they see is appreciating asset values and don't realize the mess behind it.

It is how you end up with asset bubbles. The cause of those asset bubbles is that entities that have to reach into riskier and riskier things in order to meet their objectives, They drive up the prices of things creating "demand" where there would have been none in an unmanipulated market.

None of this is something that is all that hard to understand. This is SPECIFICALLY what the Federal Reserve is trying to do. They created a phony economy based on debt with artificial prices -- mostly to keep politicians spending (but with a spillover that it has indebted the WHOLE economy -- by creating fucked up incentives).

And what I just spelled out is why I keep saying the truism that they are robbing savers in order to encourage debtors. They need that debt -- more and more of it, because when it gets pulled away the phoniness they created comes crashing down -- the deleveraging / defaults.