In order to “save the world”, the Federal Reserve lowered interest rates to zero. It meant ostensibly, that companies that were laden with debt could refinance at advantageous rates. It also meant that those who “lived off the interest” saw their low-risk income dwindle to zero.
So Widows, Orphans and the incompetent or degenerate second and third generations of wealth had to find new income. But there was none, so they have been “living on the principal” for the past four years. It has served to eat away at the accumulated savings of the United States of America.
This policy was designed primarily to aid banks so they may rebuild their balance sheets after trillions in malinvestment. And now we have entered the second act in the “world with no yield.”
In this phase, corporations will eat through their savings in order to pay shareholders and keep them interested and happy. They are declaring special dividends from retained earnings or borrowing cheap money in order to pay dividends. These payouts are designed to attract the old yield-oriented investor because there is no place to get yield in the bond market without significant risk, even more so than ostensibly owning an equity.
So now corporate American and the world are burning through their savings to stay relevant. The Federal Reserve will burn through American’s cash in order to save the TBTF banks, and its working. Who will have to burn through their cash next? Will their be any left?
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