The further to the left or the right you move, the more your lens on life distorts.

Sunday, October 04, 2015

Zero Percent

There is a tendency among those on the Left, many Democrats who are sympathetic to Leftist ideology, and the trained hamsters in the media who reinforce their narrative, to encourage a feeling of victimization among almost every class of people. Victimization, of course, is attributed to a male dominated society, profit-mongering corporations, and uncaring conservatives. It's interesting that the list of victimizers never seems to include Big Intrusive Government (BIG). After all, the Left and its supporters believe that BIG is part of the solution, not part of the problem. Right?

Yet BIG—through policies that encourage dependency and demand higher and higher taxes to fund  its growth—can ravage the "victims" groups that its supporters purport care so much about.

As an example, consider fiscal policy over the past seven years and it's affect on senior citizens. For the past seven years, the government has held interest rates at about 0 percent. The reason for this is simple: in order to continue profligate spending (on entitlements and on discretionary items), we have to borrow huge sums of money. We pay off our ever-increasing debt by printing money (can you say: "quantitative easing"?), and the best way to keep ourselves solvent is to keep our debt service quasi-managable. That means 0% interest rates.

A four-year old article (even more true today) by Glen Reynolds described the problem:
CDs and money market accounts — staples of the retirement crowd's portfolio — are at historic lows. (I'm always shocked to see what banks are touting. Really? 0.35% — that is, 35/100 of a percent — on a money market? 0.90% on a CD? Yep.) Stocks are nothing to write home about, still well below their highs of five years ago [2007]. ...

The squeeze is real. Some years ago, when earning say 5% on your money was realistic, a $360,000 portfolio of CDs would produce $18,000 a year in interest — that's $1500 a month. Couple that with an unexceptional Social Security payment of about the same amount, and that's $36,000 a year, $3,000 a month. Nothing fancy, but enough to get by.

Now change that 5% to 0.9% and you're earning $3,240 per year, or about $270 a month. Add that to $1,500 a month in Social Security and you've got $1,770 a month to live on; just $21,240 a year. That's a brutal 41% cut in income. And it is why many senior citizens around the country are being forced to draw down savings to make ends meet.

The Federal Reserve's low interest rates are a boon to overextended banks and to the borrowers who owe them money. (As well as the world's greatest debtor, the U.S. Treasury). But these benefits come at the expense of savers — both those who hope to see their savings grow enough that they can retire someday, and those who have already retired expecting to live on interest at rates far higher than those that prevail today. The low rates are, basically, a tax on savers for the benefit of borrowers and those who made bad loans.
It appears that BIG advocates don't understand that uncontrolled spending and debt reduces the flexibility of government to act when it must, limits the degrees of freedom that ordinary citizens can exercise, and reduces our ability as a nation to act as a safety net for those who are truly in need, improve infrastructure, and ensure security—the three primary roles of government.

Uncontrolled spending and debt that feeds BIG is a recipe for defining specific winners and losers. Government connected elites win. Crony capitalists win. Big Banks and Wall Street players win. Politicians from both parties win. Bureaucrats win.

Seniors and the rest of us, including most businesses? L-O-S-E.

Is that really what the broader population of progressives want?