Sunday, March 27, 2016

Government Stealing from the Elderly

Since I am getting close to the age of 70, I have to take money out of my IRA or I will be penalized. So I cranked up an IRA withdrawal calculator and went about figuring out what I have to withdraw. I used 100k for the illustration, I started late and I'm a couple of thousand short. Didn't think much of it. I used an interest rate of 1/2 of a percent. I Wrote down what I needed to withdraw in order to not get penalized. Then I decided to try different interest rates. You can double click on the pics for a better view. Anyone remember the saying, "Compound interest is the 8th wonder of the world?" And then there is the rule of 72. Divide the interest rate into 72 to calculate the number of years it would take for your investment to double without adding any money to it. A half a percent divided into 72 is 144 years. You kind of have to wonder "Do I have the time to wait for it to double?" The return on investment is totally meaningless. I'm hoping to live to 90 and I can't even afford age 80. Kinda sucks and it isn't even my fault.

Here is where it started to grab my attention, I plugged in 3 percent interest and generated the second printout. The amount I had to withdraw each year was more than the year before.

When a person enters retirement age, Their savings are the "worker" that they will depend on for their benefits. It is the interest rate earned on those savings that will determine their comfort level in retirement. The Federal Reserve by lowering interest rates to zero, has stripped the elderly of their full retirement income. Retires can have back what they put in, but no more than that. The Federal Reserve has changed the rules after the card game started.

Notice that the withdrawal amounts of $4,000 a year on my account, even at a 3% return is not a real game changer. And nobody is paying 3 percent.

Then when I typed in 8 percent interest, I realized that the politicians had found a way to rip off the elderly by manipulating the interest rates through Federal Reserve policy. We are in the middle of a Great Depression and how do they fix it? They rob me of the interest on my hard earned savings. 8 percent would have been a reasonable return on my savings, not 1/2 of one percent. If I'd have known that I was going to get such a lousy rate of return, I would have put my money elsewhere 20 years ago.

I have observed that a zero drops off of our purchasing power every 20 years. What cost a penny in 1964 cost 10 cents in 1984 and now a dollar in 2004 and probably $10 in 2024. The trouble is, my example is a linear progression and government spending and inflation is more of a logarithmic progression. Common sense suggests that precious metals will more than hold their value over the next twenty years. At todays interest rates, it could become the only game in town.

Half the world is looking at 30% unemployment and the stock market is roaring to absurd new highs. Housing is back to the highs of the bubble year of 2007, totally unaffordable. The present interest rate so low that there is no reason to save, even for retirement. Once you realize what the government has done to our retirement financing, you'll be too old to do anything about it. Real compound interest is a thing of the past. Its still a wonder; you just get to wonder where it went.

Friday, March 18, 2016

The Great Depression, We Have Arrived!

I was reading about Janet Yellen the other day and unfortunately didn’t note the article. It referred to our present economic place in time as that akin to 1937. I’ve read from several sources that the Great Recession of 2007 ended years back and that people are afraid we might sink into a new recession. I’m of the opinion that we have never left the last recession.

There’s an election coming up and a person by the name of Donald Trump is upsetting Congress to no end. They are worried that this guy is not into smoke and mirrors and all their hard work sweeping the mess under the rug will be exposed. They are claiming he is unqualified to be President. The only requirements I know of; are to be over the age of 35 and be a US citizen. Whereas the minimum requirements to qualify for a job to clean toilets on a school campus might be greater than those needed to run for the political office of President--go figure.

When will this house of cards fall down? With interest rates at zero, the only investments that make sense are real estate rentals, credit card loans, and student loans.

On the books, a 6 % return on rental real estate looks good, but if you have ever been a landlord, you would demand 15 %. Until the reality sets in as to how a renter can destroy rental property, housing prices will stay artificially high. There is a place a few blocks down from us with three story condos, maybe about 400 of them. Asking rental is about $2,500 for a two bedroom. Detached houses in this area are renting for about $2,200, I can’t quite figure that out, on a cash flow basis for the condos. The loud parties, music and crying babies, I don’t see anyone moving into them.

Student loans are still a big draw, but most now recognize them as sucker loans. I expect this institutional program to be ripped from ear to ear with fraud. You can probably register for Cocaine University and get 40K a year from the government if you can sober up enough to fill out the forms correctly.

Credit card debt is a real walk in the dark. During our working years most people are a good risk on credit cards. What happens when you get to be 75 years old and a card holder with great credit? I’ve heard of people 30 years old being told they have a terminal condition and go and rack up 200K in bills. only to be told later, they were misdiagnosed and weren't going to die any time soon. 75 going on 80, go ahead max it out on all 10 cards, they can’t garnish your wages.

We need to realize that zero percent interest rates is an upside down process. Low rates imply there is very little risk (how does that reasoning work?). We see all of these companies moving out of the US and at the same time the unemployment figures get better? The newspapers report, what they are fed. I get a little irate with people that quote print without reading between the lines.

The stock market is the key; will it collapse before the election or after it? At some point Congress is going to have to acknowledge the Great Depression we are in. FDR did it after the election in 1933. Only then did Congress begin to march to a different drum beat.

That will be the turning point, where we move from Wall Street for our earnings, to Main Street for our paychecks and the construction of badly needed infrastructure. It sound rather innocuous, but when Wall Street's hypothecation hits a brick wall, we are talking about a financial Train Wreck. If you have no savings it will be painless. Otherwise your massive heart attack is only one bank statement away.