Even before this negative interest trend, the Banks were paying measly interest on our deposits - most times not even compensating for inflation. Directly below is a chart depicting these puny rates over the last several years:
| 2015 | 1.40 |
| 2014 | 1.48 |
| 2013 | 1.75 |
| 2012 | 2.80 |
| 2011 | 2.75 |
| 2010 | 2.80 |
| 2009 | 2.21 |
If you think the Banks in turn invest this out at double or triple those rates - you'd be partially correct - in fact they are recouping 30% and more on your investment.
How is that possible you might ask.
Permit me to explain - say you invest $50,000 with your Bank - Banking rules permit your Bank to lend that $50,000 out Ten (10) Times and say they pay you 1.5 % annually; the Banks then lend it out at 3% annually (or more) - 10 separate times - and that, in turn, totals a very healthy return of 30%. A 5 % loan would realize a staggering 50% return.
Not bad for a deposit paying you or me a chintzy 1.5%.
And with that rate - we are not even keeping up with Inflation - that is to say, each year when the dust settles on our Bank Investment - it is worth less than when the year started.
The New Motto - 'keep your money in investments as long as it lasts'.
But it is even worse than that - YOU are obliged to Pay Taxes on the earned interest so in the case at hand, 1.5% interest on $50K generates $150 and you will be expected to declare that sum in your annual income tax return.
Talk about adding insult to injury.
So what to do?
Invest in Banks of course - since as you can see from the above, they are making money hand over fist - on the backs of our investments and not only that - they pay out dividends of between 4 and 5%.
So not only do Banks make money - big money - they also pay out good dividends - dividends which themselves exceed the rate of inflation.
But this Blog is not really about the value of Banks nor the healthy dividends they pay - nor even about investing in Banks to stay ahead of the curve.
Rather, it is about the slow motion trend in world economies to drain the value out of our nest eggs.
To prove this, let's go back to the 2007 / 08 Melt Down of Mortgage Backed Securities which nearly caused the collapse of the World Wide Banking System - a Melt Down caused by reckless and greedy US Mortgage Lending and Worthless Security Selling activities sanctioned by both the US Government and by America's Financial Institutions themselves.
Neither has even bothered to apologize to the world for their massive fraud..
In the face of this meltdown - the US Fed's reaction was to print money - $$$ Billions of it - better known as "Monetary Easing".
And better known by you and me - as Making Money out of Worthless Paper.
And with this devaluation comes the diminished value of your Nest Egg - especially for Seniors' - Notice that Septuagenarians and Octogenarians are still in the work force because the return of their investments is spit. .
So why are the Fed and the Central Banks doing this?
Surprisingly, to help non-investors - primarily the young - get mortgages - buy cars - furniture - trips and so on in the belief that this will stimulate their moribund economies. It won't.
These borrowers are not stupid - why would they not borrow when the money they pay back next year on their loans - is in fact worth less than when they initially took the loan out?
They do though fail to think what will happen if interest rates rise as little as 1 or 2 %. And heaven help them if it goes 5% or more. The House of Cards will come tumbling down.
But they need not worry too much since the Powers That Be seem quite adept at keeping rates artificially low.
But it is not just the young and starting out who benefit from low or negative interest rates - the numbers on social welfare are also growing:
- 50 Million are on Food Stamps ( 1 in 6) 45%+ since Obama became Prez
- 100 Million on Welfare (1 in 3) This represents a growth of 19% since Obama became President and accounts annually for some 1 Trillion Dollars (USD $)
- the labour participation rate is approx. 62% the lowest it has been in 36 years (the official unemployment rate is 5.9 % but when one factors in those who have quit looking for work - the rate is double digits)
- 45% pay no income taxes
- 50% of Americans have incomes of less than $30,000 per year
And to top it all off, the US Debt now stands at some $20 Trillion Dollars - a figure that is greater than the country's annual Gross Domestic Product.
In other words, to fund this Social Service Morass the US Government is borrowing against its future while desperately pulling all the levers it can to keep rates low.
I leave it to you mathematicians out there to figure out what would happen to the interest payments on this massive US Debt if rates were to increase even marginally.
And does anyone still think the best days are still ahead for the United States of America?
Tomorrow I will sum up.
As I see it...
'K.D. Galagher'
Tomorrow I will sum up.
As I see it...
'K.D. Galagher'
