Wednesday, April 30, 2014

Accumulating Real Wealth

There are people out there that are fabulously rich. Usually it’s through sports entertainment or invention. But most people get rich the old fashioned way by saving. They don’t get real rich, but nobody ever has enough money no matter how much they make.

There is a conundrum here that the politicians don’t quite understand. Once you get to the “rich” level, you don’t really spend any more than a poor person. The extra goes into savings. This is where the economy is dragging. The massive infusion of Fed funds into the economy has really gone nowhere. A lot of the funds have made it into retirement fund real estate investing or the stock market. Neither of these creates very many new jobs. Real estate investing in good years returned about 21% on the investment, and in today’s market, 10 percent is a very optimistic expectation. Stocks are doing a lot better than cash in the bank, but there is the question of “Why?” The economy is not in great shape.

Then there is the time element. Given 40 years, $100 a week for 20 years at 8% and then sitting on it for another 20 resulted in a million dollars. That was the expected in the 1960’s. In today’s world a million dollars might buy two tear down homes in Los Angeles. Notice one thing, the people that started saving 40 years ago, don’t have the buying power with their savings from 40 years ago. And it is too late for them to save more now.

We are also at a point with nonexistent interest rates, why even save? There is no added value for surrendering your immediate gratification for later consumption. Buy it now!

So basically we have a bunch of new savers looking down the road to retirement 40 years away, and reality hits them. The money in the bank is going nowhere. Whereas the old people that have saved for 40 years notice that inflation has reduced their buying power of their savings by a great amount. If your 20 years old, this concept is way over your head and makes no sense. Aggravatingly so, if you are over 65 nobody cares when you complain about inflation, you are invisible, you are an “Old Fart,”---- and what do they know.

The thing that really cracks me up lately, is all the ads for medications for the senior citizens. For the drug companies, it is a given, that old people are the target for buying these new pills that they want to sell. Take Preparation H, Cialis, and Viagra. I can’t figure out how the medications know where to go, you certainly don’t want erect hemorrhoids or a member with no sensation. But I digress.

Where to from here? We have a problem, the money not being spent by savers is squirreled away for retirement and is being eaten alive by government printing (inflation). Congress knows the syndrome, too old to complain—nothing to worry about they will die soon, so blow them off. Inflation is only a game; through time you will understand it’s consequences but until then, it will be too late to do anything about it. So grab a deck chair, and move it to another spot on the deck, give yourself that slight feeling that you are still in control.


Sackerson said...

Agreed, Jim.

NB please note my active website is now:

Would you consider adjusting your bloglist?

Best wishes


Like (or dread) the notion of erect exploding haemorrhoids, you should out a warning up before telling us!

Jim in San Marcos said...

Hi Sack

I changed your web link and I toned down the the mental visual.

Take care

Joseph Oppenheim said...

Sorry, but the US is now 5 years into an economic boom. Halliburton is hiring up to 11k workers, starting salaries $70k, $100k after 2 years. McDonald's starting salaries abt $18/hourin ND.

Housing, especially rental, is booming. Workers, especially starting ones, now must be more mobile.

Minimum wages are rising all over. The last time inflation adjusted wages started rising significantly was around 1950.

As far as wealth creation, it's everywhere for those who have saved and stayed away from debt. Plenty of great corporations with better balance sheets than most governments. That's the real future, even with the billionaires they have created, Bill Gates and 100+ billionaires have pledged their wealth to philanthropy, and have been changing the world already.

Jim in San Marcos said...

Hi Joseph

Your examples can be misleading. I once many years back wanted to open up a McDucks and the only locations available were in North Dakota and Montana and I didn't want to move there, so the wage might be right to get labor there. Oil rigs pay a hell of a lot more in the area.

Halliburton does a lot work in the Middle East, and as even an oil worker over there, those wages are pretty low.

Minimum wage I agree needs to be adjusted, to account for inflation, but I would not key that to new prosperity.

I don't see any economic boom as you alluded to. As a computer tech, I setup a teleconference the other day for our higher ups and the whole thing revolved around what was next to be cut, and I am talking serious cuts. I am not privy to the budgets, but this is as serious as I have seen it since working here for 10 years.

Joseph Oppenheim said...

Yes, that's my point, governments are cutting back because of debt, but corporations are mostly in great financial shape and booming, leading the overall boom. And, basically any average person who has saved and stayed out of debt is riding the boom. Eventually, corporate/investor profits do lead to tax revenues to finance streamlined governments. The future is the private economy, like NEVER, greater trade means less war.

Anonymous said...

Average person and no debt ? What country are you talking about? Certainly not America.