An Inflation Tearjerker, Or, Don't Bother Saving Those Dollars, America; We'll Just Make More!

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The Wall Street Journal with a tearjerker-y reminder of the human costs of squeezing down interest rates to the bone in an inflationary environment where merely saving is never sufficient:

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.

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….

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.

I've blogged previously on how inflation necessarily makes speculators of us all, and how that ain't a good thing, at all.

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33 responses to “An Inflation Tearjerker, Or, Don't Bother Saving Those Dollars, America; We'll Just Make More!

  1. And let’s not forget about what inflation does to the cost of things like food and energy–where the poor really do get hit the worst!

    http://www.crbtrader.com/data……&sym=BZY00

  2. … Them Squirrels!

  3. Yeah, the thing I hate most about inflation is that it forces anyone who doesn’t want to watch their wealth erode into the Wall Street shark tank, there to be fleeced by inside traders, hedge funds, and the like. Ably assisted by the grotesquely illegal “flash trading” systems that give the sharks (who pay a fee for the service) advance notice of bids to buy and sell stocks. No different than the scam Paul Newman ran in The Sting. I fucking hate it, and can only imagine the agony of retirees getting their bones picked by the Bernanke and Geithner’s co-conspirators.

    1. there’s always gold (unless it’s in a bubble)

      1. or unless it’s stamped into coins that people want to buy.

        1. Let’s start trading in liberty necklaces.

          1. liberty toenails.

          2. Keep your wampam white man.

    2. Never thought of it that way, RC, but it does sound a whole lot like ‘past posting’, doesn’t it?

      Financial question for you guys. Can you make an argument that TARP, on a constant-dollar basis was the biggest theft in world history?

  4. The whole policy of favoring borrowers over savers can also be categorized as punishing the reponsible and rewarding the irresponsible.

    1. That sounds a lot like progressive taxation.

      1. progressives are all about screwing the poor through inflation, and making themselves feel better by taxing the rich. One is a compounding effect and the other is linear. Fucking Math, how does it work??

    2. What could possibly go wrong?

      I will say this about Timmay! and Creepy Uncle Ben, their free money jihad does allow for some excellent mortgage refi options, which will allow the thrifty to build wealth better than they could with higher rates. I dig building not losing equity about 60% faster with my 15-year vs my old 30-year.

      Granted, that’s a mighty slim silver lining, but I’ll take ’em where I can.

      1. Great point JW – be sure to call your friendly local mortgage originator!

        Please, please call your local MLO, this down market has been hell.

  5. Admit it people, we are all fucked. Just think, a few years ago if you had a million in a money market @ 5% you could live on 50K a year and not touch your balance. LOL @ all of us!

  6. Some time recently, the CNBC kids were interviewing some asshole from the Federal Reserve.

    Somebody actually asked him about this; his response was basically, “Fuck them.”

  7. So, I have 10k in credit card debt and not enough income to pay it off (without seriously compromising my lifestyle)… what’s my best strategy here? Bunker down, wait it out?

    1. Minimum payment, man. Inflation is your friend.

      1. Not really, unless his credit card has a fixed interest rate. Probably, it does not, so if he can leverage some other asset in order to convert his variable-rate debt into fixed-rate debt, then what you wrote becomes true. Here are the rules of the inflation game:

          1. DO hold real capital.
          2. DO hold fixed-rate debt.
          3. DO NOT hold cash money.

        Play this way and triangle wins, triangleman.

        1. Ah yes. I haven’t had credit card debt in so long I forgot about the variable interest rates.

    2. prostitution. I mean, I don’t know what you look like, so it might take a lot of fuckin’ for money, but you know. you can give it a try.

  8. what’s my best strategy here?

    Paying down that credit card balance gives you a VASTLY better return than anything else.

    Or you could, you know, buy lottery tickets.

  9. Inflation is your friend.

    VISA is on to you. They make sure they’ve got the rate spread in their favor.

    1. I hereby retire from financial advising.

  10. If you add inflation to the fact that the capital gains tax ignores inflation, it starts to feel a lot like a dry rear-end violation.

    So last year I set some cash aside, like the financial planners say I should. At 1.3% interest, I watched inflation eat up my savings, then I got to enjoy the pleasure of paying taxes on the 1.3% I managed to eke out. Swell.

    1. You shouldn’t be investing in money, you should be investing in capital.

    2. Growing at 1.3% by the time you’re dead that right there is going to be worth something.

    3. Look on the bright side, the dollars you paid in taxes are inflated too.

  11. Buy physical Silver and/or Gold. It dosen’t pay a dividend, and it costs money to store it. But Brother Ben can’t print it. And the Anointed One one can’t tax it until you sell it.

    1. But the mofo can confiscate it if he knows you have it and where you keep it. If things get bad enough, he will, too.

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