Sunday, June 12, 2016

Faux Government Investment Reality and Retirement Income

Short term interest rates all over the world are about to go negative. Which means, you’ll have to pay more now for a T- bill that will mature with a value less than the original investment. Common sense suggests that lead poisoning is rampant in world financial markets.

Let’s suppose that there is a different reason for lowering Treasury rates that allows us to arrive to the same conclusion. What if the governments don’t have enough money to pay the interest on the debt and declared a moratorium on interest payments? Hmmmm. Notice doing it this way affects both government and private debt. By just lowering the interest rates to zero for government obligations leaves private debt untouched.

Either way, nobody is going to add any additional money to their savings, you mise well go for immediate gratification of your desires. Notice that those who have saved over 40 years are in a different boat. The money that they have saved for retirement is no longer generating investment income.

If we reasonalbly assume that the average retired couple can save 200K in their lifetime, at 8% interest, that would return about $16,000 a year in retirement income. Or about $1,333 per month for perputitiy. The average monthly social Security pension is about $1,335. So with a married couple, net benefits would be about $4,000 a month with everything added in. Change the interest rate to 1% and the story changes. Their savings are depleted in 13 years. And then when they really might need additional funds, they do not have them.

Unfortunately, the retiree’s kids will never even comprehend what the government did to their parents. The kids usually have no idea as to their parent’s money management skills. All they may be able to surmise is that they ran out of savings. The kids would never guess that the government ripped their parents off of about 300K in interest. This is money that they would have inherited. This is the Ultimate government coup de grace, of people that saved for retirement. The neat thing is that it is invisible. Old people are considered inept and incompetent by the young. So complaining about what the government is doing to them falls on deaf ears. Of course without schooling in economics, the elderly have a pretty good idea that they have been ripped off but don’t understand how it was accomplished.

The Federal Reserve has removed compound interest from the retirement community’s reach. This step eliminates the cost of government borrowing. With this spread between government borrowing and private sector borrowing, it is possible to generate a new income stream for Congress to spend. The vehicle of choice, student loans. Here is how it works; Congress borrows one trillion dollars of old folk’s money at 1 percent interest and loans it to students at 8%. The interest generated using the rule of 72, says that the government will double their money in 10 years. Then they return the money borrowed to the seniors while still having the 1 trillion of student loan debt still on the books. The neat thing about this income stream is that the government can gouge the young for a lifetime, not just their retirement years.

I’d never accuse the people in government of being intelligent enough to formulate the above plan, but it does illustrate the idea that “The road to hell is paved with good intensions.” The young are not saving because they can’t afford to and the old are dying off, broke and destitute. Kind of makes you wonder, is it time to avoid government retirement programs? I think so, gold and silver keep the politicians honest only because they can’t print either one of them.

An added bonus, the rest home cannot see the assets in your bank deposit box. The Gold and Silver can dance until you want the cows come home.


AIM said...

The government uses inflation and taxes to rob you of your production, savings and wealth. And now they've added ZIRP and NIRP into the mix to expand upon and intensify their robbery of our wealth and lifetime of hard work and saving. The American people are too distracted, dumbed-down and apathetic to even realize what is happening to them, let alone DO something about it. We've allowed the power elite (psychopaths) and their minions (Congress, Fed Reserve, White House, Supreme Court, Military-Industrial Complex, CIA, NSA, etc.) to rob us blind and destroy our country. We deserve the moniker of "the sheeple".

Jim in San Marcos said...


I think I can paraphrase your comments as, "Socialism is killing us."

I think that ZIRP and NIRP are indicators that the government has lost control. Misdirected investment money from everywhere is pouring into real estate rentals (12% return with 4% financing). A bubble of biblical proportions.

The American people are like a sleeping dragon. Donald Trump may stir this dragon enough to awaken it. We have a whole nation ready to kick ass if you give them a real leader.

Reagan did it, Trump can too.

I tend to refrain from being political in my blog for the simple reason that I understand that I will never convert anyone only piss them off. But in the comments section, I give a little leeway for open discussion.

dearieme said...

The problems go back to Greenspan's time at the Fed, and to some of the stupider law changes in Slick Willie's time. Though W was, and O is, a bad President, the problems didn't start under them.

I have no idea whether Trump could make things better, I only know that Hillary is guaranteed to make them worse. More war, for a start.

AIM said...

I don't believe that anyone can ride in on a white horse and change or save our country from our government. Reagan didn't, Trump won't. Our government was hi-jacked a long time ago. The system has been hacked and it is infected with corruption. Cronyism, Corporatism, Egalitarianism, Socialism all sitting atop the Military-Industrial-Congressional- Security - Media Complex, all riding on a Super Debt Cycle begun in the 50s (and just the debt cycle alone will bury us in the future) . It's a runaway train Jim. No hope for reform or change. It needs to crash and burn. And then we need to build a new train. This will happen eventually. Maybe even after a long new "Dark Ages". But until it does happen we will be descending slowly into more socialism > fascism > authoritarianism > fearism > political correctnessism > surveillanceism > povertyism > civil unrestism. (I think I just invented some new words.)

Jim in San Marcos said...

Hi dearieme

I agree, but I would go back much further to FDR.
Before him, most of our tax revenue came from imports and excise taxes. Back then our government was very small.

Fast forward to today and our government is huge and has spent way beyond the existing tax base and could care less.

It took a war to bring us out of the last depression. This time a war could lead to global starvation. That would certainly reduce the carbon footprint and maybe halt global warming. Not quite the solution I envisioned.

Jim in San Marcos said...


I think that there may be hope. FDR started public works programs with very little money in the budget to finance it. These QE 1,2,3 have done nothing but make the rich richer. Rebuilding our infrastructure, our electric grid, water, highways, bridges and sewage are very intensive and beneficial to all. Programs like these could bring our economy back to productivity.

As you suggest, there is a financial train wreck in the cards. Our hundred-dollar bill could become the new one-dollar bill or in a worst case scenario a dime. The rich are toast. The net effect for the poor, a wage raise or a new currency and a loss of free benefits.

Notice that gold, platinum and silver would retain value. An ounce of silver might be a day’s wages and an ounce of gold could probably be a week’s wages. My values could be way off, but holding them before the transformation might just ease your adjustment into the new future world of finance.

Your new words, crack me up, spellcheck doesn't know what to do with them. Take care.