Simple question, why save money in any bank? At half a percent interest your money will double in 142 years. Wow, start saving at these terrific rates! There are people saving dollars in IRA’s and 401K’s to avoid paying taxes. Most of these people are in the 50 to 65 age bracket. The 20 to 45 age bracket are immortal and don’t even need to think of retirement, plus they pay into Social Security. So where are we with this mess? We have a government that can’t pay its bills. 17 Trillion In debt is just a number, it has no association or concept of understanding with the man on the street.
Where will the new rich come from? It certainly isn’t going to come from a savings account built up over 40 years. A million dollars in 1964 was a lot of money. At 3.5 percent interest, you would have had an interest income of $35,000 and never touched the principle. That was about 5 times more than what my dad at the time made in a year, to support our family of 4. In today’s world, that million will get you about $10,000 in interest income and the principle will be completely consumed in retirement after 35 years. This assumes you can live unassisted in your own home and need very little medical financing.
From 1964 to 2004, a zero was added to the price of everything. Houses went from 30K to 300K, and cigarettes went from 25 cents to $2.50 a pack. If that wasn’t bad enough, the price of Cigarettes, steak, beer, charcoal and gasoline have doubled in the last 10 years. The schools don’t teach concepts dealing with inflation and I can see why, it’s a meaningless exercise when the student’s world revolves around sex and music and hanging out. Our government is printing dollars, a lot of them, and inflation is a concept you begin to understand with age, it is a tax on long term savers.
So if we go back to the 1920’s, the banks loaned real money and got real money back. The dollar was backed by gold. In today’s world the dollar is backed by nothing. Why should I loan $100,000 to someone for 20 years at 3 percent interest and at the end of the transaction, the 100K now has the buying power of 10K from inflation?
There does appear to be a way to avoid the inflation produced by government spending when you are projecting for retirement income 40 years away. What you really need to do is buy gold and silver. They are worthless as income generators, but they preserve your savings from the Congressional printing tax (which is a lot higher than most investment returns). Our government has joked around and thinks that the national debt will never be a problem. Call it financial irresponsibility.
Normally in an inflation driven market, real estate is the best medium to be in, but, it is nothing more than a registered tax base, a piggy bank, that can be taxed as needed by the government with no say so from you. If you’re a landlord, the government could even freeze the rent you can charge. Buy a car in California and pay 8% sales tax on drive out. Buy a home, and pay 1% real estate tax every year you own it.
From the 1900’s to the 1960’s gold was about 32 dollars an ounce. Then for the next 40 years it never went below $300. 60 years of 30 dollar gold then 40 years of $300 dollar gold kind of suggests that maybe we are due for $3,000 gold a lot sooner than we think.
The increase in the price of gold only reflects the loss of purchasing power of the dollar. My grandfather lived to be 98 and died in 1964 and he understood inflation quite well. It took me 50 years to understand why his blood would boil when he explained how a loaf a bread was a nickel when he was a kid. He knew what the government had done to him and there was nothing he could do about it. Of course at the time in 1964 I was only 17 years old, and didn’t understand why the increase in the price of a loaf of bread could upset him so much, he had plenty of money.
So if you are starting a retirement plan that spans 40 years, Gold and Silver make more cents at these interest rates. If you don’t give a damn, spend it now and enjoy yourself, the government always seems to have money for those that have none or conveniently run out. Our government wants you to stimulate the economy and buy something. That way when you grow old, you can tell your grandson how you bought a loaf of bread for a dollar when you were a kid. Come to think of it, I just paid $4.29 for a loaf of Russian Rye bread the other day (Jewish Rye would have been more politically correct but the Russian rye has a stronger flavor).
The thing to realize at retirement age, is the value of assets that are visible. The house, the car, the bank account. Your visible assets can ultimately determine what future benefits you are entitled to and the taxes you have to pay.
So what do you want to save, Dollars or Gold and Silver? The older you are the more meaningless the decision becomes; time becomes your enemy. Congress can promise the moon with printed dollars, the poor will follow and the rich will get handed the bill.
In Europe they are proposing negative banking interest rates to induce investors to build new businesses. At the same time, we can get more money back on our credit cards by spending dollars than we can by saving them in a bank. This sort logic reminds me of an incident many years ago when my young nephew was using a hammer, he accidently hit his thumb with it. He was crying and I suggested with a serious face to do the same thing to the other thumb and make them both match. He stopped crying, kind of looked at me and backed away. To this day, I think he considers me to be a few cards shy of a full deck. You have to consider the secondary implications of any logical solution. The future pain might not be immediately apparent.
Compound interest is still the 8th wonder of the world, and we can all wonder where it went!