Standard and Poor -

For the last two years we’ve heard the PIIGS (Portugal, Italy, Ireland, Greece, Spain) must cut social programs and fire government workers to cut their debt levels and get their financial houses in order. Germany has been playing hardball with these fiscally porcine countries by threatening to push them out of the European Union if they don’t enact austerity programs. Here’s the catch: what happens when voters in the PIIGS, as well as in the Netherlands and France, choose growth over austerity? Will the Germans play a game of chicken with the euro zone? I don’t think they will.

Recent elections will force Germany to back down from their hardline austerity stance, and the European Central Bank will lower interest rates and start controlled stimulus programs. What does this mean? It means more stock market volatility here and in Europe and continued rock-bottom interest rates in the U.S. for the next few years. When the world gets spooked, where do they run? To U.S. Treasuries because they’re safe, and the Treasury market is very liquid. (Right now, the U.S. is the best house in the worst neighborhood.) Not only will Treasuries be in demand, causing rates to decrease, but all yields will stay low. Expect bank CD and fixed annuity rates to stay in the crapper as well.

In fact, fixed annuity rates are as low as I’ve ever seen them. Some 10-year rates are at 2% right now. Insurance companies can’t purchase bonds because the world is running to the U.S. bond market. Keep in mind, the world is not rushing to invest in the U.S. because investors believe the U.S. economy is strong. They’re coming here only because our bond markets can handle volume. But, hell, our rates stay low as a result, correct? Americans now can refinance their mortgages or buy a house at lower interest rates, resulting in lower payments. Problems and volatility in the world seem to create opportunity in the U.S. by lowering our interest rates. Sounds great, right? Not really.

Interest rates are definitely low, but how many Americans can refinance their existing mortgages or buy a new house? Can they really qualify for a loan? Yes, the world is buying Treasuries and the Fed continues to buy our bonds as well. The Fed’s main purpose right now is keeping rates as low as possible to stimulate the economy. The huge disconnect is Joe Six Pack and his friends can’t get loans through our financial institutions. So where are bond investors’ funds going?

A funny thing happened on the way to the bank. All the money the Fed thought Middle America would put to work helping themselves and the economy just sits in bank vaults gathering dust. Some people have taken advantage of the virtually “free money” interest rates and those folks are the wealthy. Just look at high-end real estate prices. Top properties in New York City have continued their ascent while the rest of the country flounders. In fact, even Manhattan properties, except for those elite addresses, have been down for two years. In a nutshell, what the Fed had hoped for with “cheap money” for average Americans hasn’t panned out. Instead, it has freed up hundreds of billions of dollars that the top 1% use freely for fun and profit. And, as we know, the 99% feel the pain. You could make the argument that the real culprit in the 99% vs. 1% societal chasm is the Fed. Thank you, Mr. Bernanke. You, sir, have created a national divide and made our greatest hero, the American saver, dig deeper into their nest eggs to pay bills.

The bottom line is the Fed has been ripping off the American saver. And, of course, most savers in America are seniors. Not only is the Fed mostly responsible for zero percent rates, they have concealed the hidden effects of inflation. Did you know that beef prices are up about 15% from last year? Don’t be fooled by the politicians and the media. Inflation is all around us, and it will only get worse. Who loses? Yup, you guessed it, the American saver, whom I call our “Standard and Poor.”

Pay-it Forward:

I’m not one to recommend unnecessary post-graduate education, but if your son is having a hard time gaining traction after college, he should consider a law degree. Yes, a law degree. Find a reasonably priced program and go for it. Having an education in general or business law will be invaluable during his lifetime, especially when you think how law affects every business and transaction these days. It’s better than a bogus MBA, and it beats the hell out of wallowing in your basement playing video games.


Earl E Bird

I'm Earl E. Bird and I am very concerned about saving for my senior years. I am amazed at the stumbling blocks that exist when saving for retirement. That's why I take my time when making decisions on building my nest egg.

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