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.