1116 words. Reading time 10 minutes, because you'll laugh, you'll cry, you fall off your chair.
Here are my two cents worth about money, employment and interest rates. I have no economic theory or solution to propose, I am just speaking from experience.
1) A government that encourages shipping productive jobs overseas, because the managers, owners and shareholders of large manufacturing concerns can make more profit by producing at a lower cost, even while prices don’t go up that much, is by and large a capitalist government. The people in charge play what I call “Jobs Jenga”, where the one who removes the most jobs without collapsing the economy wins, for the time being.
If I believe that this can work in the short run, I am Capitalist Tool. Plus, if I believe that this will work in the long run, I am a Capitalist Fool. There I go again. My My!
Consequence #1: This alone will reduce the purchasing power of the population, especially those who are unemployed.
2) A government that keeps interest rates very low accomplishes two things:
a) The government itself can borrow much more at much cheaper rates, if it controls the market. So it will definitely borrow more than it reasonably should, because there are either no limits, or there are only those limits it itself controls and overrules.
b) Retired people, and those who skimped and saved to accumulate, say, $200,000 in order to live off it, or rather just subsidize their meager Soc Sec benefits, will find that in a super low interest rate environment (such as long term certificate of deposit rates of 1.25%) their annual earnings on savings of $200,000 are about $2,500, in 2017 dollars. For these people, low interest rates are similar to a “swarm of locusts that eats 80% of their crop value”, or may be akin to “an invading army that literally salts your fields so that your crop yield will drop below subsistence values, as if they wanted to make you starve”. So, now, your savings are no longer worth as much as you thought they’d be, because a thing is worth both “what it is” and “what it brings (the interest)”. If it doesn’t bring anything, then it’s only “What it is”.
I give you simple grade school math, and I know your hate math:
It was not too long ago that you could reliably make 6% in CD’s. That $200,000 in savings would have yielded $12,000 per year at 6%. If Soc Sec paid you $800 per month, with an extra $12,000 per year, or $1,000 per month, you would have been able to make it in retirement with $1,800 per month, in the low rent district. With lower than normal interest rates, you can’t make it. You are forced to live off the principal, and at a rate of 1.25%, and using $12,000, you have used up your principal in 18 years. If there is any serious inflation in those 18 years, you’ll be done with your money much sooner, I can tell you that, nay, guarantee you that.
Consequence #2: This in addition will reduce the purchasing power of the population, especially those who are retired and unemployed and unable to work.
Meanwhile, Social Security won’t be able to pay your full expected monthly check by about 2032. About 20 years ago, I faintly remember that this date was supposed to be around the year 2048 or so. So let’s do a simple extrapolation: (Extrapolation is a fancy term for the type of guesswork best expressed in song lyrics: By the time I get to Phoenix, you’ll probably be in Albuquerque, or something like that …)
So: If in the last 20 years the point of “not getting your fair share from Soc Sec” has come 16 years closer (2048-2032), then in the next 10 years, that point will easily come closer by another 8 years. (Assuming that congress does nothing, which I have sort of come to expect, except for changes to the worse...)
So, then, thus and therefore, 2032 less 8 years is 2024. And 2017 plus 10 is 2027. Hence and consequently, sometime between 2027 and 2024 your Soc Sec benefits will likely start shrinking, in actual dollar terms, without even considering inflation . “10 years from now” is too close for comfort, because 2007 seems like it was just three years ago from 2017. This makes more sense the older you get. (My math teacher always told me to be more exact, but off the top of my in-exact head, this is the best I can do.)
The above is for people who actually were able to save up $200,000. The great majority of us have less, much less than $20,000. Many not even $2,000 in total.
What will we do then? Rob a bank of worthless money, so you can get your three square meals and a cot for free?
3) Meanwhile though, the various banks and finance companies have managed to convince congress that “previously called usurious interest rates, that is, rates greater than 8% per year” should be made lawful and proper, and apparently a sufficient amount of cash was thrown into election and re-election coffers to make that argument stick.
So, while you get only 1.25%, if you need to borrow money, it’s going to cost you anywhere from 8% to 29.98%. Or even more. Except for gov’t supported mortgage loans, and car-industry supported car loans, where different rules apply.
Consequence #3: This in addition will reduce the purchasing power of the population, especially those who are in debt, who pay much of their earnings in interest.
The recipients of this interest may or may not spend more, because they already seem to have so much, that they don’t know what to spend anything on. The super-rich might also be concerned that they don’t have enough money, so they might not spend it. May be some luxury goods will have a good market, but not the rest of us.
In economics I was told that “Savings equals Investment”. I am no longer sure of that, because the more worthless your money becomes, the more of it do you need to have and hold to feel “reasonably comfortable”, and the richer you are, the more this applies.
How far away have we come from the 3 - 5 - 3 rule of banking of the 1950’s. It meant “Pay 3% to the depositor, lend it out at 5%, play golf at 3pm”. The days of “I love Lucy”.
Of course, all these numbers will be different in dog years, and even more so, if you are talking cat minutes.
Commented 2566 days ago |