I’ve witnessed two of the most radical developments in my lifetime the last four years — changes far greater than those brought on by the massive new increases in the national debt, the soaring gas costs, the radical decrease in average family income, the insolvent Medicare and Social Security trajectories, or the flat housing market.
One is the fact of less than 1% interest rates on most savings (well below the rate of inflation), and the other is an epidemic of 20-something unemployment. All that is the new normal.
The hallmark advice of retirement planning was always to scrimp, save, and put away enough money to make up for retirement’s lost salary, increasing medical bills, and the supposed good life of the “golden years.” If a couple had saved, say, $300,000 over a lifetime (again, say, putting $500 away each month for 30 years at modest compounded interest), then they might expect a so-so annual return at 5% of about $15,000 a year on their stash, or about $1,250 per month.
In other words, perhaps Mr. and Mrs. Retiree could find enough with Social Security to live okay and pass on the principal to their kids. But well aside from the fact that many Americans have been laid off, taken pay cuts, lost home equity, had their 401(k)s pruned, or had to take care of out-of-work relatives, there is no 5% any more on anything, not even 2% or in most cases 1%. Saving money means nothing really in terms of return, only the realization that inflation eats away the principal each year.
To earn a decent return, the retiree has had to wade into bonds, stocks, and real estate buying and selling, with all their attendant risks that loom larger after 65. The old American idea of receiving a fair so-so interest on a little money in the savings account vanished. And no one seems to care.
The Federal Reserve perhaps had its reasons to keep interest rates low, given the massive spending, 2008 collapse, and the anemic “recovery,” but whatever the purported aims, the policy is not working. Yet cheap money proves to be no stimulus, even at rock-bottom interest rates. Firms don’t seem to think that near-zero interest (and the banks now have a rather scandalous margin between what they charge for ordinary loans and what they pay in interest) balances out the new anxiety over tax hikes, more regulations, and spiking energy costs. (Did Obama believe that employers simply existed to pay ever more taxes for his growing technocracy to redistribute?)
In classical Roman Republican terms, near-zero interest (and calls for “cancellation of debt and redistribution of property”) represented a vast transfer of wealth from those who saved to those who owe. Imagine a contemporary version of Catiline yelling, “If elected, I promise we won’t pay those SOB one-percenters any more than a third of a percent on their not-pay-their-fair-share stashes.” At least that way we might have known what we were dealing with.