Well, at least you have to give the mandarins at the Bank of England points for honesty. They’ve actually admitted they don’t give a rat’s ass for the welfare of old people who had prudently hoped to live off income from their investments. Admittedly, the retirees might have been kidding themselves a wee bit, since the pre-bust interest rates had an modest inflation component built into their nominal yield, which served to compensate for gradual erosion of principal. But savers are now suffering because we’ve had not just a reduction in yields due to lower inflation but an even bigger fall due to central banks going into ZIRP-land, with the result that savers get paltry yields that are clearly in negative real interest rate territory.
This is the Bank of England’s version of the Charlie Munger “banks get theirs first, the rest of you suck it up and cope” message, courtesy the Telegraph:
Older households could afford to suffer because they had benefited from previous property price rises, Charles Bean, the deputy governor, suggested.
They should “not expect” to live off interest, he added, admitting that low returns were part of a strategy.
His remarks are likely to infuriate savers, who are among the biggest victims of the recession. About five million retired people are thought to rely on the interest earned by their nest-eggs. But almost all savings accounts now pay less than inflation.
The typical savings rate has fallen from more than 2.8 per cent before the financial crisis to 0.23 per cent last month.
Mr Bean said he “fully sympathised”. But he continued: “Savers shouldn’t necessarily expect to be able to live just off their income in times when interest rates are low. It may make sense for them to eat into their capital a bit.”
He added: “Very often older households have actually benefited from the fact that they’ve seen capital gains on their houses.”
Yves here. So how exactly do old people “benefit” from capital gains in their houses? This is the sort of “house as a financial asset” walking dead idea that needs a silver stake plunged in its heart. In the old days, housing was a vehicle for forced savings and shelter. You took a 20 to 30 year mortgage when you were young, which coincided nicely with a normal time in the workforce, and then you retired mortgage-free, paying only more modest real estate taxes and upkeep. More job mobility and overly cheap housing finance encouraged people to refi and move a lot more often than was good for anyone outside the banking and real estate industries.
So the Bank of England is basically saying old people need to monetize their houses, which is probably NOT going to be in the form of putting on a home equity line. It means selling their house and moving into a smaller house or a rental. Do you know how hard that is for old people?
Now this is clearly the way the world is going. There is no denying that many people are continuing to make unpleasant adjustments to the post financial crisis world. But what is offensive is the cavalierness of these remarks. The Bank also gives happy talk that savers can expect high rates again, which given the continued fragility of the banking system, I wouldn’t bet on any time soon.
Funny, I knew there was a reason I ran a video of now 114 year old Walter Breuning over the weekend. One of his bits of advice was to keep working as long as you can, you might need some extra money.
81 comments
Comments are closed.
There is no god-given right to be a rentier, old or young.
Furthermore, a lot of the savers that are today crying murder would not have been in a position to save anything had the economy not gone into a credit frenzy for the last twenty to thirty years. The principal they are forced to eat now is simply the couterparty of the undeserved income (be it from capital or labor) that they received in the past.
The public in western countries is in denial when it thinks that it is ONLY bankers who were overpaid.
With all due respect, I believe you are projecting the US love affair with stocks onto the British. If you were a fixed income investor, the story was unduly low risk spreads, remember? That’s why everyone went so far out on the risk curve.
You are assuming ordinary people who are now retired in the UK were taking on a lot of extra risk knowingly. Not sure they were going out on the wild side in terms of risk assumption, and certainly not understanding the tradeoff if they did.
Indeed, your “rentier” goes even further and suggests these savers never worked but were members of the idle rich. Huh? Most people who are retired and have a stash have saved it out of labor income.
Yes, and the bankers in the city, their servants, and the people that produced their luxury goods, and others also gathered their savings as “labor income” !
Consider for instance a craftsman working for say, Hermes, would he have had a job with the credit bubble and the extension of the wealthy class that came with it ? Same thing with the Mercedes builder, etc…
When credit excesses having lasted for so long, very few workers can claim with certainty that 100% of their labor income could have existed in a sustainable economy. Remember that it is the marginal income that is the source of savings : if I am saving 30% of my income but in reality I should be paid 15%, it means that 50% of my saving should not exist.
I meant : ” if I am saving 30% of my income but in reality I should be paid 15% less, it means that 50% of my savings should not exist.”
charles 2 says; “There is no god-given right to be a rentier, old or young.”
This is victim bashing!
There is no god given right for the wealthy ruling elite to control the destiny of the many, and make that destiny dependent on “rentier” crumbs and the misdirection of the use of resources in the production of shit goods for the benefit of the wealthy. Further, there is no god given right for the wealthy ruling elite to then cut that crumb supply when those same people are older.
Had the wealthy ruling elite pigs at the top not misdirected the use of resources and created the enslaving credit bubbles — read intentional debt traps — the people may very well have created a more sustainable future for themselves.
Your point is good that the public in western countries have ‘benefited’ to some degree by the excesses, but it deflects from the fact that some pigs are more equal than others in creating and controlling the conditions in which those false ‘benefits’ were created.
The public, in western countries and in all other countries on the planet, is in denial when it thinks that it has a say in its governments. That is the problem.
Deception is the strongest political force on the planet.
>>When credit excesses having lasted for so long, very few workers can claim with certainty that 100% of their labor income could have existed in a sustainable economy.
You could have been right, if the the “credit excesses” had spread their wealth around in proportion. It is absolutely not so.
The gains during the boom disproportionately went to a small group. The losses during the bust are spread around.
The entire Greenspan “pump-n-dump” scheme is a giant wealth transfer upwards. During the pump, the wealthy get almost all the benefits. During the dump, they lose less.
This is exactly like saying Bear Strearn’s Cayne lost money and was punished by that. Hello? Cayne amassed a few hundred millions, and lost most of it. He still comes out of the pump and dump with about 100 million. Your average pensioner earned next to nothing from the pump, and now is supposed to lose what he has.
Now if you were going to make another kind of argument – that savings are illusory, or that you can’t take it with you, ..
Amazing how the end result of all this is that labor’s share of the pie grows progressively smaller, while the banksters’ share grows progressively larger.
Despite all your high-sounding sophistries, this old saw still seems to pack a lot of wisdom: “The proof is in the pudding.”
I agree with you that the FIRE sector share has been and is still to high, but it is not my point.
My point is that it is the whole pie itself that has been considered to be unrealistically large, and just shaving the excessive incomes of the FIRE sector won’t be enough to restore sustainability in the economy. Everybody is tainted, why is why eroding everybody’s savings through inflation may be more fair than what people think.
charles 2,
Unfairness destroys the pie.
Not even monkeys, much less human beings, will participate in endeavors where rewards are perceived to be disproportionate to achievement. They withdraw from participaton.
A-teams always outperform B-teams, and the quickest way to destroy the one-for-all and all-for-one comraderie that is the hallmark of A-teams is to:
1) Have unfair compensation
2) Fail to punish non-producers and free-riders
In an environment where the rewards to the top 1% have grown spectaclarly, where blatant fraud, deceit and perfidy go unpunished, while at the same time the bottom 99% are expected to suck hind tit, your arguments are completely detached from any factual reality.
The banksters are like a common thief who will bash in a $300 windshield to steal a stereo that you paid $500 for so he can pawn it for $50.
Many years ago we had a saying. “Don’t make fun of old people, because someday you might be one.”
I am not making fun of anyone, but I don’t see why the generation who enabled this predicament should not bear the consequences.
What do you suggest ? Putting all young people in debt slavery ? I wouldn’t want to do that to my kids, nor everybody else’s.
Perhaps not, but then yours is a rather obvious false either/or equation, isn’t it? You replace one victim with another, thereby missing the point; or is that intentional?
Clawbacks, confiscatory taxes on unearned wealth and on speculation windfalls, aristocracy (inheritance/estate) taxes, lifting payroll tax cap entirely, ending myriad bankster bailouts and corporate welfare, ending offshore/secrecy in banking etc., would be a good modest start, along with prison sentences, maybe guillotines (cheaper) for egregious fraud … oh, and hey, how about ending eternally self-perpetuating wars?
@Doug
It will be a modest start and I agree with most of it. Maybe not the guillotine part : I come from the country that invented it and used it widely, and all we got for it was Napoleon and the return of the Bourbons (the ones that “forgot nothing and learnt nothing”), so I can attest that it didn’t work. Sticking to existing law and RICO indictment seems a more civilized and efficient ways IMHO.
This being said, even after all that happens and you shave all the bad guys wealth, it still won’t get you back to the fairy land of 3 to 5% real interest rate for everyone. THAT was my point.
charles 2,
I don’t know that anyone here is attacking capitalism. What they are attacking is crony capitalism, corporatism or fascism.
The issue is fairness and justice, and whether our current political regime achieves that.
Actually, I’d assert that there IS a God-given right to be a rentier at market-based interest rates.
Before the Federal Reserve struck up the band in 1913, financial crises produced HIGHER overnight rates. Zero percent rates during a period of blown-out credit spreads are profoundly abnormal. Only a deluded central planner could regard such a market distortion as a benefit.
And the pity is that easy money can no longer fix the structural problems of Ponzi economies in their tertiary phase. The misbegotten central bankster cartel has reached its sell-by date. Off with their pointy heads!
People falsely believe they are putting their faith in money, in savings. But really what they are putting their faith in is sound public policy, in the conviction that government will live up to the promises it has made, that it will achieve some sort of fair distribution of real resources.
The usefulness of money can evaporate overnight. It all depends on government policy. The usefulness of your money can be destroyed just as easily with ZIRP as it can with inflation.
As done by the Fed, ZIRP is inflation. ZIRP is the debasement of credit money. QE1, QE2 ad infinitum is the debasement of the already debased fiat money.
The Bank of England recognizes that the cohort that is immediately affected by the spending of home equity or that amount of savings that is necessary because of ZIRP is a form of taxation thru the mechanism of devaluing the purchasing power of the currency.
It may well be that there is a more cogent message being delivered by the Bank of England; to wit, get a life you are being made poorer so suck it up and carry on old chap.
Summary DownSouth… I would like to expand a
bit on your point on government policy. We all know that expansion of
money and credit( the much bigger animal
of the two). But it is extremely important to protect the real resources and the real Capitol of the country. I’ll provide a couple of examples…What I mean is this… when GM move to china… we lose the capacity to make cars(physical Capitol), we also lose the industrial capacity to produce the technology to produce cars( knowledge Capitol) and more importantly we lose the opportunity for our young people to develop skills and experience to develop build and maintain the technology( human Capitol). We should not also forget resource Capitol…. like the gulf of Mexico which is rich in ecosystems and which could provide us food…. it is a treasure, that if it is destroyed, no amount of money( be it credit or gold based money) can ever restore. All of these elements are real Capitol,
which what will provide for our real needs in the future… this is what makes money meaningful.
This is precisely what Keynes denounced : rentiers are functionless agents in the economy, they consume but do not work. The economy is more productive when everybody is doing is share. You can live off your capital if you want, but interest must be associated with some work. The correct risk free real rate is zero
By all means.
When working people get too old to work, just take them out and shoot them. It matters little whether the resources they consume derive from their savings or from a social security check.
But heaven forbid should their meager existence deprive the top 1% of their Gulfstreams and second and third and fourth homes.
There is no god-given right to be a rent seeker either, bankster or not.
BTW, perhaps you can explain to us why the REMFs banksters don’t have to suffer.
You one of them?
I totally agree with you. “rentiers” are not only banksters and coupon clipping retirees, but are pervasive at multiple levels in the society : rent-seeking behavior must be fought relentlessly at all levels. This is what competition and free markets are supposed to achieve.
This is why I will not try to sort out between “good rentier” (the retiree that lives on interest income) from the “bad rentier” (the big fat banker with the cigar), because the latter uses the existence of the former as a justification of his role and of his rent.
The reason why bankers don’t have to suffer is that once you got rid of them, you realize they are still lots of pigs in the room, and no easy scapegoat left. A bad reason for sure, but people are more comfortable pointing fingers that looking at a mirror.
Charles 2, are you a communist or a fool?
Looking in the mirror is not the American way and neither will it get you any friends among the commenters here. They are all in deep denial. However, from me you get a hearty Bravo! It takes two to tango.
Its not about “good rentier” or “bad rentier”, its about controller and controlled.
Its about non responsive to the will of the people governments — globally — that have been hijacked by the wealthy ruling elite through aggregate generational corruption and used to create and control central banks, and then using that financial control to create a Vanilla Greed “rentier” system that misused resources, and worse, a pliable populace with a mindset that “Vanilla Greed for profit is good!”.
Those good old days are now over!
We now have a wealthy ruling elite global game plan shift to Pernicious Greed – for control as opposed to profit. The new Pernicious Greed plan is to pit the masses one against the other in a perpetual conflict so as to create a two tier ruler and ruled world. And the marks are not in on the new game plan this time around, other than to be told they now must lose their pre promised crumb supply even as the old game plan; “Don’t worry it will all turn around soon.” is still being touted.
When you blame the controlled, as equally as the few controllers who are responsible for creating the mess in the first place, you feed the controllers well orchestrated perpetual conflict plan and at the same time deflect from the fact that the governments are rogue gangster governments that have been hijacked and DO NOT serve the will of the people.
Taking the big pigs out at the top WILL be a game changer if it is done properly. It won’t happen if you are feeding the perpetual conflict and blaming the homeless under the bridges as equal parties in the current crisis and not discussing how to regain control of your hijacked governments.
Deception is the strongest political force on the planet.
First homeless living under the bridge or in their car don’t have any capital, so they couldn’t care less if interest rates were at zero.
Second, nothing that I wrote precludes the necessity of getting rid of the “big pigs”. You are right to point out that bringing more fairness is a compulsory requirement. Let’s do it, and let’s do it first.
But again, my point is that it won’t be sufficient, as they are many “little pigs” around here, and people who think they are entitled to receive significant risk-free real interest rate on their capital belong to this category.
charles,
You have persistently refused to consider the comments from people in the UK, who clearly describe why the people the Bank of England is hectoring in the majority, likely the overwhelming majority of cases, do not hew to your stereotype of “little pigs.” Yet you keep insistently going on about a pet fantasy.
Let’s spell it out for the third and final time …
charles 2 says: “First homeless living under the bridge or in their car don’t have any capital, so they couldn’t care less if interest rates were at zero.”
The homeless are under the bridges because of the greed and faulty gangster leadership of the wealthy ruling elite. Those citizens who are still solvent will soon be joining them there because of the broken promises and top down orchestrated game change instituted by the gangster wealthy ruling elite. .
charles 2 says further: “Second, nothing that I wrote precludes the necessity of getting rid of the “big pigs”. You are right to point out that bringing more fairness is a compulsory requirement. Let’s do it, and let’s do it first.”
If you want to do it first be true to what you say and stop blaming the little victim pigs and INTENTIONALLY trying to give the big pigs a ‘hidden in the crowd’ pass. You are either drinking the kool aid or selling it! I suspect you are selling it.
charles 2 says further: “But again, my point is that it won’t be sufficient, as they are many “little pigs” around here, and people who think they are entitled to receive significant risk-free real interest rate on their capital belong to this category.”
Your point is at the top of your head.
And for the record Charles 2, I believe an honest government would loan money to all citizens equally at ZERO interest.
Deception is the strongest political force on the planet.
Silly rabbit, only banks are allowed to live on interest.
There’s denial of so much of ‘the bigger picture’, really if you think of it. Consumerism was 70% of the economy, after all. There is no shortage of gluttony on these shores… enticed along by the system’s machinations to keep the public insatiably consuming – always hungry for the next thing.
Had not so many of us used their home equity to satisfy their uncontrolled, fleeting ‘needs’ [- I’ve seen first hand the so-called up-standing citizens who daily took out home equity to buy starbuck’s, etc. Meaning, living off their credit, without the slightest thought given to how it would be paid, or what benefit it would give to the long-term picture. Momentary satisfaction. I know it’s cliche – but for a plurality, it was/is standard culture. I forgive them when I remember the culture was/is being manipulated.
This is not to blame people who genuinely got misled, or were forced into credit-lifestyle due to something that justifies it, like illness.
One interesting timing-factor is that during the mortgage bubble debacle there was a mood in the public that “I can have anything I want just by believing”. When these ‘magical-thinking’ individuals went into get a mortgage, thinking…”I think I can, I think I can, I think I can,” and the mortgage broker said: “Yes you can”… What were they supposed to think?
It’s a morass, to be sure.
…There are way more justifiable reasons for going on credit-lifestyle than just illness, like – hello – losing your job and we could name probably millions of justifiable reasons to end up in ‘a bad way’.
I do not mean to victim bash, and I now notice that is how the sentiment is being taken. I just agree that many people who were highly-educated [who were not bankers but still should have known better,] were incredibly profligate. Looking at it from my perspective, that is an aspect that should not be taken for granted. The mood of the ‘American Consumer’ matters to the whole enchilada. As resources become more scarce(?) excessive waste is anathema to a sustainable system. If we don’t, as a culture, say – hey – we were off-base! How can we make a future homerun?
Any time this $##%@%% Bean tries to speak in public throw shoes at him to show the respect this %$#^^& deserves.
Oh if this is democracy then it is time to run amok and throw such a government and government officials out!
F%$^ U Mr.Bean
Yeah, stock investment in the UK is near zero for the bulk of the currently retired. Cash deposits and pension annuities are income/buffer. In the UK, you must buy an annuity with your pension fund when you retire. You can take a cash sum out, which most retirees then put on deposit, as annuity rates are very low and the cash sum provides an emergency buffer. Rumours of socialist cradle-to-grave are just that.
Anyway, more ‘jam today’ economics. So much for the pensions timebomb. So much for prudence; I guess she’s not being asked to come out to play, more to go on a bender to Vegas.
It sounds like the final culmination of the process that Hannah Arendt observed—-the dispossession and removal of the peasants from their property.
As long as a family had its 40 acres and a mule, free and clear, as a base of operations, it stood a good chance of surviving, even during hard times.
There used to be people who understood this, the concept and importance of a homestead.
Now, to use Skippy’s turn of phrase, the peasants’ “Terra Firma” has been replaced by a mountain of bankster-created abstractions—-derivatives being the most notorious. So the banksters end up with the Terra Firma, and the peasants end up with the worthless abstractions.
Not to kick on your dog, but.
Your fiat currency is the ultimate abstraction.
Now while forty acres and mule was the the oft employed aphorism, forty acres and a milk cow was a better investment.
Bankers of yore were well cognizant of this fact and therefore demanded a lien on the forty acres, the milk cow and the indentured servitude of the first born male child.
Apart from that, your point is well made.
“means selling their house and moving into a smaller house or a rental. Do you know how hard that is for old people? ”
Downsizing when you’re older is considered normal in most cultures. For one thing, maintenance becomes a big issue for older people; it’s just far better for many if not most to move into something smaller. It sounds harsh, but it’s also the truth.
How many old people do you know personally? I know quite a few over 80 and even those who buy into the idea of moving are very loath to do it, and my experience is that the majority stay put until they are nursing home candidates.
Downsizing takes a tremendous amount of effort; it’s very easy for a young person to talk about it and forget the work involved. If you don’t have kids to help (and kids in America are often at a physical remove and too busy with their own lives to provide much assistance), it’s easier to stay put.
If you wait to downsize when you’re 80, you won’t be able to do it. You need to do it much younger, in the 60s for most people, once the children have gone.
And yes I do know many people who have done it. None in America, though.
I did it when I turned fifty. I’m still doing it, but not by choice. I am being forced to reduce consumption by inexorably increasing costs.
ZIRP is killing me and I’m mad as hell about that. The bloody banks don’t need to be saved, the body politic needs to be saved from a corrupt and corrupting financial system.
That fella that opined that one should work as long as possible is saying what I concluded forty years ago. Today I am in forced retirement because my former employer, a GS subsidiary, needed a 10% solution and I was an easy target due to rate of pay and age. I’ll never win an age discrimination suit because I wasn’t the only oldster cut.
I remember in socialist East Germany everybody paid very little of their income for rent. For this reason single old ladies would sit in 5 bedroom apartments while young families couldn’t find 2 bedrooms. Hence I don’t agree with you. Downsizing in age is just what a society with finite resources needs.
Furthermore, yes, old people did benefit from growing property prizes even if not using it as a financial tool themselves. Ignoring everything else, if only by not going as deeply into debt and having the later generation pay for their (extra) savings. This is how the pyramid scheme worked.
Somehow you don’t want to see that the old are main benefactors (ignoring the self enriching banksters) of the current situation (30 years of falling long term interest). And what is the problem if spending savings slower than deflation? I don’t see the situation as dire for them as you do. Even if not, what are the old going to do with their savings? Take it as seed corn to their grave? Or give it to their heirs keeping imbalances in society high. While I agree with many things you write, sometimes you are just inconsistent with issues that are close to your heart.
Well I don’t know how it was in communist East German or how it is in capitalist Great Britain, but here in the good ole USA those retired workers are living the high life on their $1500-a-month social security checks, drawing 2% interest on their modest savings and rambling around in their three-bedroom tract house.
Sounds like a fairly reasonable life to me. Lots of people would kill for that.
IF,
Would you kill for it?
But what is offensive is the cavalierness of these remarks.
In a way I love these quotes – this one, Munger, Obama and Gibbs and Rahm, etc. (Goldman was a fount for a while there, but seems to have dried up lately.)
If the people are at all capable of learning the true nature of these criminals and what has to be done with them, quotes like this should help with the educational process.
So I say keep ’em comin’.
BOE wants to destroy the pound? That is one way to do it. Recommend Brits to switch their savings back into M1 money supply, the fast cash based one and when the pound collapses, watch the hyperinflation wipe out the society.
We heard the bank’s comments before. It used to be “let them eat cakes.”
I find it funny that people discuss stocks and history. We hear similar comment everyday from the haves who are always short tempered when talking about the have nots.
That’s about the financial advice I’d expect from Mr. Bean. Seems like he should have kept it at a few grunts. Did he drive away in his mini?
OTOH, while he didn’t need to be so callous, there isn’t a much better way to say it. Sometimes, for the greater good, people will have to make sacrifices. Right now it’s anyone expecting to live off savings interest, since the central bank needs to keep rates low to encourage growth. He probably should have stopped with “fully sympathize” and had the Bank not acted, “unemployment would have been higher, wage growth would have been lower”. He may have scored some points with the “tough love” crowd by saying the rest, but pensioners are frequent voters.
“…the central bank needs to keep rates low to encourage growth…”
Hogwash. The central banks are supposedly keeping rates low to rebuild the balance sheets of the banks. The low rates never make it to mainstreet, the entity that creates jobs and growth. But the biggest crime is this: the banks’ windfall profits—-a gift to banks from the central bankers who have engineered the high yield curve—-never reach the banks’ balance sheets. Instead they are paid out in obscene salaries and bonuses to the banksters.
Full marks for that!
You’ve got that backward. “The central banks are supposedly keeping rates low to” encourage growth. In reality, they’re doing it to “rebuild the balance sheets of the banks.” I agree with the rest of it, but no good politician or central banker will *claim* that the point is to pay off their friends in the banks, even though that’s mostly what they’re up to.
Low interest to encourage growth?
The only growth that is “encourage” here is the balance sheet of the banksters, that asshats like Mr. Bean let deteriorate beyond redemption.
By “redemption” I meant a normal market climate, an environment without accounting skullfuckery like extend and pretend.
“Sometimes, for the greater good, people will have to make sacrifices. Right now it’s anyone expecting to live off savings interest, since the central bank needs to keep rates low to encourage growth.”
Two things.
First, when have the banksters made sacrifices for the greater good? Why is it only “the little people” who have to sacrifice?
Second, low interest rates don’t encourage growth. Under appropriate circumstances that do not currently exist, low interest rates can encourage borrowing. Whether or not borrowing leads to growth depends entirely upon how the borrowed funds are used. If they are used to pay off existing debt at a lower interest rate, there’s no net growth (although there are fees in the quarter incurred). The only way that borrowing leads to real economic growth is if the borrowed funds are invested in a way that creates jobs.
One thing that the last decade should have taught is that GDP growth fueled by debt-financed consumer spending does not lead to real economic growth.
When the rich are simply callous, it’s hateful and repulsive. But I accept life is harsh, and few care for the struggles of others–especially when they live in a world so far removed from the masses.
When they are sorry for themselves or think they are being fair…then the urge to pick up a pitchfork rises.
The solution is obvious to anyone who has read the Old Testament; debt forgiveness (Deuteronomy 15). However, since artificially suppressed interest rates cheats savers too then a better solution is a debtor AND saver BAILOUT.
So, abolish fractional reserve lending and send every British adult a big fat check of new debt-free, legal tender fiat. Borrowers could pay down their mortgages to market price levels and savers would be compensated for years of suppressed interest rates.
Also, isn’t the equity of those British homes an illusion that is bound to disappear as the economy continues to contract? Low interest rates won’t spur an economy if no one borrows.
My $0.02:
Many selfish baby boomers (Gen X here – yes I’m being stereotypical, and possibly redundant, here) have been loath to allow their parents (depression generation) to eat their seed corn because for many boomers the inheritance is their only hope to fill their saving hole for retirement/college funds. As Yves noted above for most older folk downsizing means some form of assisted living (of whatever degree of intensity) which isn’t cheap. I’ve seen people think ‘gee maybe mom can stay in the apartment in a few more months’ for this reason.
Second is that from the perspective of a retiree the loss of income is huge – I know we financial types think of real rates but pensioners will see a maturing 4% CD rolled over at say 1% – that is a 75% reduction in interest. For a middle class retiree with say $250k of CD (which may be more upper middle, not sure the wealth distribution of retirees offhand) that is going from $10k/year to $2.5k/year, and they will be cutting spending in response.
Scott,
I don’t know who you are dealing with, but if your friends think they are getting some kind of bargain by keeping their folks at home, they’ve done the math wrong.
In a lot of areas of the country, space in nursing homes that are decent is scarce. So old folks have to go into INDEPENDENT living, which is basically an apartment, usually with weekly cleaning, a meal or two a day, and hopefully some services in the complex. Assisted living in those places is just if you need help for a few days, it’s quasi hospital care on an as needed basis. I don’t know of places that offer it separately.
For the most part, the places that offer this sort of care make their money on independent living. They LOSE money on assisted living and nursing home care. That is why most stand alone nursing homes are poor and even the ones affiliated with decent places can have bad or such highly variable ratings as to make them worrisome. (And another issue is if you are smart, you only want to go with a not for profit, with the for profits, you have a greater risk of being stuck in a place and seeing the service level get cut. Pretty much no one switches once in, particularly because many require large non-refundable or only partially refundable deposits).
And the issue….ta dah…at least in the areas of the country I’m familiar with, you can’t get into a semi decent nursing home unless you’ve been in their independent living.
If the parent in question refuses to go into assisted living (or a variant I see, no facility in the area that is any good and a refusal to move) and stay in their home, it’s a false economy. If they need care, you need to hire nurses to come in. That’s way more expensive.
And I do know a lot of old people who refuse to move, and it’s their refusal to go, not the kids. They won’t even look at facilities.
Every ten years or so the central bank bleeds savers to bail out debtors until even the stubbornest catch on, and then everybody wrings their hands about the low savings rate and consequent imbalances. The first recourse of prudent but desperate savers is to take on more risk and get wiped out but then capital flight makes more and more sense. And all of a sudden you see why the tax authorities went after UBS with its mass-affluent niche, and why FINCEN now wants all international remittances reported. It’s not drugs, it’s not terror. It’s beggar thy masses, and it won’t work if you can’t pen people’s money in. Money follows freedom and rule of law, it must be stopped.
the problem is, that even if they would go and spend the last penny, it would be of no lasting importance to the UK economy. With the openness of the economy (and lack of home produced consumer goods/food/etc.), the money would just flow out pretty quick, increasing inflation in the process. If one looks at the consumer basket, I’d be willing to bet that 60+% of the money spent (ex VAT) finds its way out of the UK.
In fact, that’s pretty much what’s happening already (UK being one of the few places which has above-normal inflation, and probably will have for a while).
Conversely, if there were savings, and instead of being pumped into yet more real estate the banks would be willing to take more risks and push them into SMEs, it may stand a chance of long-term gain. It’s still a chance, but at least it’s a realistic one as opposed to the tinkerbell thinking saying that we should go back to what was there before.
> Of course, when it comes time to sell grandma’s house after
> she dies, the kids see nothing wrong with pocketing all the
> gain in capitalized land rent (which, it must be understood,
> is never earned).
The purchase money 30-50 years prior was a whole lot
more valuable than the money at time of sale. It is never earned because it’s all dollar devaluation. A house is
a depreciating asset with yearly maintenance costs, which ends up in a lot worse shape than a NEW house after 30-50 years of wear (and neighborhood gentfication). Anyone who looks at the nominal price in dollars and decides the house must’ve gained value, is a shill or an incompetent.
Yves Smith wrote, It means selling their house and moving into a smaller house or a rental. Do you know how hard that is for old people?
But it’s this kind of sentiment that leads to people advocating a lowering of property taxes. “You can’t kick grandma out of her house for not paying property tax!”
Of course, when it comes time to sell grandma’s house after she dies, the kids see nothing wrong with pocketing all the gain in capitalized land rent (which, it must be understood, is never earned).
It’s not clear to me that old people with savings are worse off after tax than they were before ZIRP. In deflation, the real return may be 1 or 2%, but it’s effectively tax free at 0% nominal in a savings account. A real 1% or 2% tax free is not bad for an FDIC insured investment in this environment.
UK is not US. You’re lucky to get 3% on just about anything, and the inflation is running at 3-4% (depending on which measures you look). In other words, the real interest is zilch, nada, nothing.
Ah yes, the bank of england rather enjoys the squabbling amongst the little people as they fight over the scraps thrown from the table. Imagine if the people united and decided to throw the parasitical pretenders;monarchy onto the street and confiscate the hoarded ill gotten wealth. Next, the dethroned Queen Elizabeth’s personal tax haven islands such as Isle of Man is confiscated along with the offshored treasure trove of hedge fund wealth protected by HRH. England and USA for that matter could easily fund a recovery by sending the Navy to these tax cheat havens.
“Now this is clearly the way the world is going. There is no denying that many people are continuing to make unpleasant adjustments to the post financial crisis world. But what is offensive is the cavalierness of these remarks.”
I think the last thing we need is more dissembling politicans.
Same British government that had the honesty to recommend that smoking not be banned so that retirees would die sooner and not overwhelm the Health Service.
A good book on the history of money and powerful ammunition against the gold-bugs is The Lost Science of Money by Stephan Zarlenga
One of the primary reasons that FDR was able to accomplish many of the New Deal reforms, including those that flowed from the Pecora Commission (e.g., creation of the SEC and the Galss-Steagall Act) is he had “inside help” from members of the rentier class who realized that the system that had benefitted them would inevitably consume them, after it got done consuming “the little people.”
In the absence of a modern day Pecora Commission, the kind of hubris displayed by the Bank of England is our best hope of waking the ire and passions of members of the economic elite, whose wealth translates into political power.
By the way, in general, I refuse to think of elderly people as “rentiers,” particularly if what they’ve saved came from the fruits of their labor. That being said, if they’ve saved enough to live off the interest in a savings account, it’s hard to imagine that all of that money came from being a middle-class working stiff. Regardless, we shouldn’t be penalizing savers to reward banksters.
There are huge negative consequences of the current very low interest rate policy. Among them are:
1.much higher poverty rates among older people
2.Much lower pensions even for defined benefit programs.It is absolutely inevitable that public pensions will have to change radically either voluntarily or through the court system.
3. accelerated pressure on housing prices with all of the resulting negative feedbacks.
4 depressionary spending patterns for decades in retirement areas like FLA. and AZ
5.lower wages and less availibilty of jobs for younger workers.
For those abhoring the rentier class,you have to realize that the ZIRP benefits mainly the banks.basically we have a policy where everyone is subsidizing the banks;savers directly and consumers by fewer jobs and lower rates of investment
Another way to look at it: having savings does not make you a “rentier.”
For example, my 13 year old daughter has $350 in a savings account. She ain’t a rentier by any stretch of the imagination.
In the face of QE, the Fed’s ZIRP seems aimed to encourage savers to chase higher yield by speculating in the secondary markets. Financial specualtion is the hallmark of the rentier, not savings that earns interest as part of the essential bargain of commercial banking.
One blogger, at the site “Early Warning”, had an amazing post up last week which argued, in effect, that of course there are going to be no investments with returns higher than inflation in the future. That means that a dollar you save today will be worth exactly that, a dollar, when you retire so you better be saving at least 50% of your income.
Of course, if a dollar I save today is worth exactly that, a dollar, thirty years from now this means I shouldn’t be saving anything. Because I may not be alive in thirty years. It makes no sense for a 40 year old to not consume to support a 70 year old who may not exist, if the choice is spending exactly the same amount on the 40 year old and the 70 year old. Not to mention the risk of losing the saved dollar anyway.
An economy that has effectively zero interest rates, with only bubble investments available, is an economy that is not friendly to savings. If this is what we are going to have, expect no one to save for their old age.
But the implications go further, because as “structural unemployment” creeps up, there is an increased likelihood that an old person may not be able to work even if he wants to and is physically capable of doing so. So no income.
For an individual, I don’t have any answer other than muddling through. As a society, there are hard questions to be asked why wealth is draining from the middle class and working class and how long this will last. Plus there is the question of managing the transition. Once the pie is no longer getting bigger, the question of who gets the slices becomes much more critical.
I don’t get your reasoning. Whatever the age you are going to die, there is a high probability (more than 90%), that you will spend at least the last ten years of your life unable to work for health reasons, so you need savings in most cases.
It’s dickensian but then Dickens was English. Surprising how little changes over time. I wonder what the American equivalent would be. It’s not like we don’t suffer from the same affliction.
The Guardian appended a survey button to their report of these comments: 15% said, “Spend your savings”, 85% said “Hang onto them”.
So if a squirrel squirrelled away a few acorns while the other squirrels were partying away, he should acknowledge his debt to their indolence (and the resulting lack of competition for acorns) and be ready lend his acorns at zero percent interest rate when winter comes?
Look at the issue in a logical and unemotional way: Is it possible that savings only accumulate? Is it not more rationale that, ON THE AVERAGE, people save during their productive years so that they can live while they are not working?
Those who invested in stocks, bonds, or real estate between 1982 and 2000 did marvelously and many may consider themselves very smart — it is human psychology to attribute misfortunes to bad luck and successes to our own genius. Those who graduate from college nowadays face a much tougher world where there is a lot of wealth in other people’s bank accounts — and these people, whether obscenely rich or just comfortable — believe that they should keep it in perpetuity for themselves and their trust funds… Something has to give…
Amen. Welcome to the “communist/fool” fraternity !
Serves them right… old people that is. Just kidding…
In England there are also 50 year mortgages, and even multi-generational mortgages. Not to mention that across most of the UK, most land is still owned by all sorts of parasitical lords, earls, kings, queens, and other types of like dirt-bag blood suckers. As such, one regular red-blooded chap may buy a house, but not the land it sits on, and eventually that land will have to return to the aforementioned dirt bag, with HIS house sitting on it. Talk about feudal backwardness, huh?…
Psychoanalystus
The rulers in your confederation of empires have one thing in common – they don’t give a rats ass about the common man. Never have and never will for the most part. Empire building, wealth, and power are the pursuits of the rulling class. And if you don’t believe that I have some securitized loans for sale. Suckers. The U.S is on the march.
I have visions of the conversations i had with my grandparents that lived though the great depression. Late in their 90’s, they still feared outliving their money or losing it. They never trusted the government or stock market again. Renovating their home in later years, cash was found plastered inside walls and tucked behind base moldings, significant amounts i might add. Now, 20 years later i think i have an appreciation of my grandfathers mindset. Not that it was necessarily rational to hoard cash, but i understand. My grandparents were lucky, they had a family support structure and money to sustain themselves.
What people may have missed recently, and I saw this in my own locality, exponential property tax increases followed the exponential rise in property values, that fell upon these older homeowners – and priced them out. On a fixed income, in many places property values skyrocketed so high, they were literally forced to sell.
Over the last 8 years much of this was missed. They worked a lifetime to pay off their home free and clear, then could not afford to pay the property taxes. How can you when your paying hundreds of dollars a month in pills and health-care costs to big pharma and insurance companies. Indeed, savers have been penalized, many have, years ago already.
Short memories or lessons not soon forgotten? You now have a lay people that have been taught a huge economics lesson. Sectors of the economy that are run-away and outpace inflation, and or incomes, are not sustainable. Housing, Health-care, and soon to be Higher Education. Sooner or later we all have to pay the piper.
So, now, how will behavioral changes embedded in the minds of generations of Americans impact the stock market, and the economy in future decades. Amazing how everyone is hording cash now is it not, banks, business AND the public.
Its often said people have short memories, then again, how many generations have endured a recession/depression this severe. Recovering from this won’t take a couple years, more like decades.
Banks get theirs first!!! How arrogant !!! Free liquidity from Gov’t coffers , then buy bonds with it . Instant 2% gain on trillions , while as stated interest on savings is 1/4 % . Same in USA . The goal is obvious , confiscation of property and material wealth across the board , through historically low rates , held there to help the crooks out of the mess they have gotten us in . People are only going to put up with being robbed so long , then its time to pay the piper . Anger pent for years , released is a powerful thing . Europe has done so many times . We in the states may learn a thing or two from them . Damn the banks and their prostitutes the politicians . May they reap 100 fold what they have sowed
… i’m just plain old scared. i can endure most anything, can make do with less, sacrifice……….but, i cannot bear the thought of me or my kids being hungry. i fear the elderly & innocent will starve to death when the food shortages come to the U.S. i’ve read that there will be PURPOSEFUL FOOD SHORTAGES here in the U.S. by our own government to bring us to our knees to accept a new currency. Ms. Smith, you have a voice, a platform, please speak for us older people.