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How Near-Zero Interest Rates Are Killing the Economy and Threatening Your Retirement

5 | By Shah Gilani

The Federal Reserve’s low interest rates – the same ones that caused the credit crisis and Great Recession – are absolutely killing savers, retirees, and the economy.

A landmark report from insurance giant Swiss Re shows how the Fed’s misguided interest rate policies cost savers $470 billion in forsaken interest income between 2008 and 2013.

Based on Swiss Re’s math, by the end of 2016 savers, retirees, and pension funds will have been shortchanged by an astounding $752 billion.

Swiss Re calls the Fed’s actions “financial repression.”

I call it tyranny.

And it’s getting worse. In fact, it’s about to feel like torture.

Here’s how savers, retirees, and the economy are being repressed by the Fed’s manipulation of interest rates and what’s about to happen that’s going to turn tyranny into outright torture…

Let’s get to it…

 

Keeping Interest Rates Low Hurts Savers

By the end of 2016 Americans will have lost out on $752 billion of interest income they should have banked.

Not only have they not made money on their savings and fixed income investments, they’ve been cannibalizing their principal to buy food, pay rent and mortgages, utilities, and live.

The population segment suffering most are folks nearing retirement and, of course, retirees.

That’s because every financial lesson ever taught, every investment plan laid bare before investors tells them to reduce their exposure to risky equities and load up on safer fixed-income products, and bonds as they head into their later years.

In fact the old rule of thumb used to be subtract your age from 100 to determine the percent of equities you own, keeping the rest of your savings in bonds. So, every year we get older we’re holding more and more bonds, collecting less and less income.

In fact, fewer households and individuals are invested in the stock market than ever before. The market’s almost 60% drop in 2008 through early 2009 sidelined millions of investors who’ve totally missed out on the market’s astounding rise since March 2009.

Right now, if you have a nest egg of $1 million parked in super-safe 10-year U.S. Treasuries – yielding 1.55% right now – your interest income per year would be a whopping $15,500 a year.

Not only can’t you live on that, I’m about to show you how that won’t even pay your health insurance premiums starting in 2017.

Here’s How Things Will Go From Bad to Worse

It would be one thing, maybe, if the Fed’s low- and zero-interest rate policies stimulated economic growth enough to lift rates, give investors confidence in the stock market, and power the economy so “all boats rise with the tide.”

But that’s not happening.

Imagine how the public’s lost income of $752 billion would have affected economic growth.

That’s a lot of capital that would have been available for long-term investment, which would have gone to businesses to expand, hire workers, and increase the velocity of money throughout the economy and power growth.

Instead, low rates allow corporations to borrow cheaply to buy back their shares, as opposed to them planning long-term capital improvements, expending capital, hiring and growing earnings. But earnings are shrinking and buybacks, or so-called shareholder payouts, that are supposed to benefit equity stakeholders, get almost completely erased when the market falls and artificially pumped-up share prices fall back to earth.

No wonder the economy isn’t growing.

According to the Swiss Re report:

Financial repression is likely to remain a key tool for policymakers given the moderate global growth outlook and high public debt overhang. Whether the costs outweigh the benefits largely depends on the ability of governments to take advantage of the low interest rate environment by implementing the right structural reforms. So far the record for doing so hasn’t been comforting.

Sadly, that’s the good news.

The bad news is healthcare costs are increasing so rapidly that whatever savings low-income workers and retirees have is about to be decimated.

According to ZeroHedge:

A new study by independent analyst Charles Gaba – who has crunched the numbers for insurers participating in the ACA exchanges in all 50 states – we can also calculate what the average Obamacare premium increase across the entire US will be: using proposed and approved rate increase requests, the average Obamacare premium is expected to surge by a whopping 24% this year.

How does that translate into dollars and cents, you ask?

Fidelity Investments crunched the numbers into the future for us. Keep in mind these numbers came out before the latest calculation of premium increases expected by year end and in 2017.

Assuming a woman lives 22 years after retiring, Fidelity calculates her insurance premiums, co-pays, and standard medical costs for things like eye exams and glasses will cost $135,000.

A man’s cost will be $125,000, because men live on average only 20 years after retirement.

If you’re a couple, you’ll need to have about $260,000 to cover healthcare.

These numbers don’t include any long-term care or nursing home costs, because they aren’t even covered.

That’s torture on top of tyranny.

The truth is the Federal Reserve hasn’t just imposed financial repression on America’s savers, its retirees and the whole economy – it has doomed us to a future of low rates, a widening income and wealth gap, and probably another Great Depression.

On Friday I’ll tell you what you can do about it.

Sincerely,

Shah

5 Responses to How Near-Zero Interest Rates Are Killing the Economy and Threatening Your Retirement

  1. Jeff says:

    This is part of the bigger plan to destabilize the United States and move more to a government controlled health care system whereby everybody suffers.

    Unfortunately, it seems we have passed the tipping point. It is all about wealth distribution and reliance on crushing centralized government control of the masses.

    We are like the proverbial frog being slowly boiled to death…and it really accelerated under Obama…

  2. Rick Yearout says:

    Obama and Congress should be paid minimum wage which
    may be or equivalent to their skill at making anything close
    to the right choice in managing this country.
    And then see how they can afford to pay for healthcare like the rest
    of the country.
    And they don’t get the sweet health package as now,
    and no insider trading.
    Maybe soon they will all be trying to get unemployment checks
    and foodstamps.

  3. Robert says:

    I am happy to see that someone is writing the truth about all this “economic stimulus” that low rates have given us for the last decade. I am amazed that we have not had riots. I assume this is because most of the people that have been robbed are older and not the riotous type. The longer this drags out, the more that is changing, and it will come to pass. Even the younger people will have no hope for retirement since they have no incentive to ever save money, and what they do save gives negative returns. I believe that is one of the reasons for this treasonous ZIRP policy. Not only can no one retire and take their social security benefits, they are forced to work and continue to pay into the system. How nice. That is what happens when you trust government with your finances and future. I say if congress doesn’t have to pay social security, why should the rest of us? And those who have destroyed the free market banking and credit system should be appropriately punished for treason. Think about it. Banks are not even banks any more. The idea of a bank is to take money in from savers, distribute it to people who need it for economic development, and make a nice little profit in the process. Everyone wins. That system no longer exists. We are no longer a capitalist society and we certainly don’t have any free markets.

  4. Geoffrey says:

    One’s impulsive side may say “dump bond positions” but sober side says “market timing is stupid.” No one knows what Fed will do. Stock timing is high risk and average saver is not vigilant enough to keep tabs on a dozen or so equity holdings with stop loss positions. Agree a really bad time for savers of modest means in and/or entering retirement. Looking at average net savings of Americans in 2015 at age sixty is frieghtening. Without pension income stream to bolster Social Security income, many are going to be on canned tuna fish and beans and franks diet and trying to keep their 15-20 year old vehicles running.These days you need $200K SPIA just to acheive a meager $900 or so extra income stream, not that I care for annuities in any flavor. We aren’t all so crafty as Senator McCain and Speaker Ryan to have married our spouse with deep pockets, not to mention the inside investment advice they gather that no average American is privvy to.

  5. Jerry Bradshaw says:

    What we have is the proverbial horse designed by committee that turned out to be a camel. Obamacare, despite more people being covered, is turning into a tragedy capped disaster. But, no one is talking about what costs would have been without it. The old model with pre-existing conditions and lifetime maximums served no one except insurance companies very well. Obamacare repeal would lead to 24 million more people without health insurance and the costs of that would shake a lot of rafters. There has to be a better way.

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