September is a busy month. Vacations are Facebook memory photos, children are back in school, fall athletics are in full swing, and employers and entrepreneurs are planning for a fourth quarter fraught with uncertainty. A tax and spending cliff looms, yet pundits figure the politicians will punt until after the election.

In mid-September, "Helicopter Ben Bernanke" carpet bombed the economy with pronouncements of easy money and low interest rates stretching into 2015! The stock market liked it. Outside of a Wall Street bounce that helped portfolios, most investors have little inkling as to how Fed moves impact their lives.

Most of the cash that you have is not physical currency. It is in digital form as a computer entry. When you swipe debit or credit card, digital money flows from your account to someone else's account.

The Federal Reserve Bank literally does not print money: the Treasury Department does that. The Fed does create digital money out of thin air, and it has been on a tear! Call it "quantitative easing" or "twisting." The Fed creates money and buys government bonds, suppressing interest rates. On September 13, the Fed announced more open-ended bond purchases, potentially keeping interest rates near zero through 2015 (QE3).

How does that impact you? If you can borrow money or refinance old higher cost debt, it's a good thing. Except that banks have tightened lending standards and are sitting on reserves to meet federal regulatory mandates. The turnover of money ("the velocity of money") is at a 50-year low. Individuals are reducing debt and the prudent among us are bolstering cash reserves. Corporations are sitting on record levels of cash. Many lenders are out of the market. Only public debt continues to expand, mostly at the federal level.

The velocity of money, the rate at which a dollar turns over in the marketplace, gets lost in all of the arguments over taxes and deficits. If people have confidence that their job and earning power is secure, if they have an incentive to earn under a reasonable tax structure, they will earn and they will spend. Every dollar you spend is someone else's potentially taxed income. Despite the "digital printing presses" running wild, it is the low velocity of money that is restraining inflation, such as it is. You continue to buy food and fuel. That's where the inflation is!

Here's the game. The Treasury issues bonds to cover deficit spending. The Fed creates "money" and buys the bonds. The Treasury pays interest on the bonds, which the Fed rebates to the government, lowering the deficit. If it sounds like a circle, it is!

The circle may get vicious when the Fed has to mop up all the excess liquidity in a recovering economy by selling the bonds in its inventory. In a recovering economy as the velocity of money accelerates, inflationary pressures will increase unless the Fed pulls back by selling bonds. Interest rates will rise and the government's cost of debt service could soar, as will yours if you still have variable rate loans.  Low interest rates have an insidious hidden cost. Trailing 12-month inflation was 1.71% as of August (CPI-U), while the national average 1-year CD rate was 0.31%; a five year CD, 1.01%. Helicopter Ben is telling you that through 2015, your safe money will continue to be a loser adjusted for inflation and taxation! Your savings dollar is shrinking in real terms.

Record low interest rates will continue to pressure retirees. At the same time, investment opportunities are being created in certain sectors as distressed owners of assets look for a solution. The key for an investor is understanding risk as aggressive marketers, and, yes, con men, seek to take advantage of those seeking to boost retirement income.

Caveat emptor! In the search for yield, this is not the time to chase simplistic solutions!

 Lewis Walker is President of Walker Capital Management LLC. and Walker Capital Advisory Services, Inc., a Registered Investment Advisor (R.I.A.) Securities and certain advisory services offered through The Strategic Financial Alliance, Inc. (SFA).  Lewis Walker is a registered representative of SFA which is otherwise unaffiliated with the Walker Capital Companies.    ▪ 3930 East Jones Bridge Road ▪ Suite 150 Norcross GA 30092, 770-441-2603