Are you a retiree living on the savings you’d responsibly accumulated from a lifetime of hard work and frugality?
Are you currently among the 64.3% of adult Americans — a 30-year low — actually working who’s trying to save for your retirement, knowing how tenuous the Social Security system is (and knowing full well Social Security was never meant to provide for all of our retirement years anyway)?
Then you should know that we are being screwed by our government, via the Federal Reserve’s near-zero interest rate policy.
Tyler Durden writes for Zero Hedge, Sept. 5, 2012:
Exceptionally low interest rates are bad for banks, insurers, and, more generically, anyone wishing to save money. Of the three, it’s the situation of the savers that is most untenable. In particular, Citi notes in a recent report, those wishing to retire at 65 or thereabouts are in for a nasty surprise when they start to run the numbers.
Citi: US Credit Outlook
Given that real yields are negative for Treasury bonds inside of 20-years, the steady stream of inflows into investment grade bond fund that hold a mixture of government, agency, and high grade corporate securities, will simply fail to return an adequate rate of return commensurate with the current savings rates of most retirement savers. What savers need to do is find higher asset returns or increase their personal savings rate.
And therein lies the crux of the problem facing the central banks.
Ideally, the Fed and ECB [European Central Bank] want to encourage investors to buy riskier assets and corporates to borrow more with the hope being that wealth effects, corporate risk taking, and Keynes’ animal spirits will revive the economy.
But so far the US has failed to respond to Fed’s treatment plan and the inflows into bond funds continue unabated while corporate net issuance is nonplused. One presumes investors are wary of returning to an asset class, like equities [stock market], that performed so miserably over the last decade amid global growth concerns.
But an unintended consequence to resisting the Fed is that the average retirement saver will need to double their rate of savings in order to be able to retire even five years later than originally planned. If and when that sort of analysis enters into the collective consciousness of the typical American, the economic impact is likely to be grim.
As we’ve seen in the UK, higher savings rates lead to lower consumption, a decline in corporate profits, and recession.
Put simply, the Federal Reserve’s near-zero interest rate policy is a backdoor tax on savers and retirees. The Obama administration is counting on both groups, being responsible people, to not cause trouble like rioting. The federal government’s policy is to do whatever is necessary to keep its deficit spending affordable because if the entitlement spigot were to turn off, half the population will riot.
Meanwhile, retirees will have to make do by eating into their principal, while those who are planning to retire will need to double-triple-quadruple their savings, as well as postpone your retirement years further into the future.
But the Catch-22 is that if the American worker tries to be responsible by saving more, that means we buy less, which means businesses have lower sales, which in turn means another recession.
The only way out of this vicious circle is a double-pronged approach:
Grow the economy and cut deficit spending!
And that’s precisely what Obama — who’d never worked in business his entire life and who had zero executive experience before entering the Oval Office — had NOT done these past 3+ years. So what makes you think he’ll do that if he gets another 4 years?
On November 6, vote for a successful businessman with a Harvard MBA and executive experience (70th Governor of Massachusetts).
On November 6, vote for a man with a degree in economics and is the chair of the House BUDGET Committee.
Vote for Romney-Ryan!