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Citizens who work hard, save, and eventually retire with
money in the bank are the bedrock of a stable society. In a rational world
they would be held up as examples for the rest of us to emulate, and public
policy would aim to create the highest possible number of self-reliant
seniors.
Instead, four decades of soaring government spending,
borrowing, money printing and public/private corruption have left the US with
the historically-all-too-familiar dilemma of "inflate or die".
Translated into policy, this means keeping interest rates at rock-bottom
levels in order to ease the pressure on "consumers" who the
government previously encouraged to go deeply into debt -- and to convince
the rest of us to leverage ourselves to the hilt with mortgages and car loans.
So a retiree who had enough interest income to live
comfortably when CD rates were 7% is destitute with rates at 1%. And with the
cost of living rising by far more than 1% a year, their remaining principal
is evaporating. They did everything right according to the wisdom of their
upbringing, but somewhere along the way society changed the rules. Now
"right" is defined as taking out the biggest possible mortgage and
using plastic to buy a 60-inch plasma TV from China. Saving is dangerous
because it depresses consumer spending. And dependency on social programs is
the norm for retirees instead of the unfortunate exception.
Seen this way, inflation and interest rates are a civil
rights issue. Government, by favoring borrowers over savers, is destroying
the lives of millions of people who don't deserve it and can't defend
themselves. And it's creating a future generation of retirees who didn't save
a dime because it seemed pointless.
The only consolation is that the mainstream media is
starting to sense a story. Here's a brief excerpt from a much longer article in today's Wall Street
Journal. Anyone with access to that paper should read the whole
thing:
Fed's Low Interest Rates Crack
Retirees' Nest Eggs
PORT CHARLOTTE, Fla. -- Forrest Yeager, a 91-year-old
resident of this seaside community, had been counting on his retirement
savings to last until he died. The odds are moving against him.
With short-term bank CDs paying less than 1%, the World
War II veteran expects his remaining $45,000 stash to yield just a few
hundred dollars this year. So, he's digging deeper into his principal to
supplement his $1,500 monthly income from Social Security and a small
pension.
"It hurts," says Mr. Yeager, who estimates his
bank savings will be depleted in about six years at his current rate of
withdrawal. "I don't even want to think about it."
Mr. Yeager is among the legion of retirees who find
themselves on the wrong end of the Federal Reserve's epic attempt to rescue
the economy with cheap money. A long spell of low interest rates has created
a windfall worth billions to banks, mortgage borrowers and others it was
designed to benefit. But for many people who were counting on their nest
eggs, those same low rates can spell trouble.
Mr. Yeager's struggle highlights a nagging dilemma facing
Fed Chairman Ben Bernanke. The longer the central bank keeps interest rates
low to stimulate the economy, the more money it pulls out of the pockets of
millions of savers. Among the most vulnerable are retirees, who have few
options to restore lost income on investments built up over entire lifetimes.
In 2009, according to the most recent data available from
the Labor Department, average annual investment income for the 24.6 million
American households headed by people 65 and older amounted to $2,564. That
figure is down 34% from 2007, and is the lowest since 2003. A recent survey
by the Employee Benefit Research Institute indicated that one in three
retirees had dipped deeper than planned into their savings to pay for basic
expenses in 2010.
Most economists agree that the Fed's interest-rate
policies, together with other measures, have helped avert a much deeper
economic slump. Still, the situation for savers has become progressively
worse since the Fed first lowered its interest-rate target close to zero in
late 2008.
As of January, the average interest rate paid on
relatively safe vehicles such as short-term savings accounts, time deposits
and money-market funds stood at only 0.24%. That's one-tenth the level of
late 2007 and the lowest on records dating back to 1959. Such depressed rates
don't come close to compensating for inflation, which was running at an
annualized rate of 5.6% in the three months ended February.
Low rates don't just hurt retirees. They also penalize
people of any age hoping to build up funds for the future, and discourage
rainy-day savings that could make U.S. consumers more resilient to job losses
and other financial jolts. Americans' net contributions to their financial
assets, such as bank and 401(k) accounts, amounted to 4% of disposable income
in 2010, according to the Fed. That's the lowest level since it began maintaining
records in 1946 -- except for 2009, when people actually pulled money out.
A few thoughts:
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Sorry for
the rant that opened this post. But what's happening to retirees is one of
this century's great injustices, and also one of the most under-reported.
Maybe because it's too ideologically complex, with easy money policies --
usually thought to produce good things like jobs and higher government
spending -- suddenly a force for destruction. That's a hard concept for most
reporters to wrap their heads around.
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Another
reason that the plight of retirees in a low-interest-rate world isn't news is
that easy money is seen as the only alternative to another Great Depression.
So old folks are collateral damage in a just war. Which leads to a crucial
point: Today's policymakers are not the only villains. The people who put us
in this box go all the way back to the creation of the Fed in 1913, and they
populate both major parties. Virtually no part of the US ruling class is immune
from blame.
·
The WSJ
article had some surprising stats, like this one: "In 2009, according
to the most recent data available from the Labor Department, average annual
investment income for the 24.6 million American households headed by people
65 and older amounted to $2,564. That figure is down 34% from 2007."
Is that really all the average retiree makes from their savings? Two hundred
bucks a month? Hope their homes are paid off...
John Rubino
DollarCollapse.com
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