The US Federal Reserve policy of artificially forcing interest rates to near zero and leaving it there for close to eight years has put a terrible burden on the “savers” in our society. They were the middle class. They worked hard and put money away for retirement.
This policy allowed our government to float bond after bond to pay off the entitlement programs they promised their constituency. No serious investor would buy bonds with little or no return so the government had to turn to the buyer of last resort—that’s right, themselves! The US Treasury had to print up huge sums of money to buy their own bonds.
The “saver”, many of whom are Baby Boomers and had hoped to be clipping coupons for 6% or 7%, have been put into a very precarious position. A decade of stagnant wages and no interest income has pressured their ability to put money away for the future. They can spend their saving and/or they can try to make up “lost income” in far more risky investments like stocks or lower quality bonds, often called junk bonds. Keep in mind that the Baby Boomers are retiring at the rate of 10,000 per day.
A recurring message from Trump on the campaign trail was that the stock market was in a “big fat bubble.” Trump fears that the savers that put their money in the stock market could take crippling loses. Unfortunately, conditions could go from bad to worse for America’s once great middle class.
“Americans tend to think of their middle class as being the richest in the world, but it turns out, in terms of wealth, they rank fairly low among major industrialized countries,” said Edward Wolff, a New York University economics professor who studies net worth.
Americans’ median wealth is a mere $44,900 per adult — half have more, half have less. That’s only good enough for 19th place, below Japan, Canada, Australia and much of Western Europe. Americans, meanwhile, are having trouble building wealth because wages have stagnated for more than a decade. Many Americans today are literally spending everything they make. They are putting nothing aside to build wealth or provide for their future.
Here’s the not so funny joke.
In Japan, the elderly is on a crime spree. In 2005, 5.8% of the arrests were people 65 years old and older. Today that number is 20%. One fifth of all arrests are old people. At first blush it seems comical to have that percentage old people committing crimes, but the sad reality is that prison is an upgrade. Once arrested you’re guaranteed a roof over your head, fed three times a day and health checkups and treatment. Prisons in Japan are becoming government run nursing homes. One of the main reasons that so many Japanese seniors have become so desperate is that they stopped saving. The mid 1970s marked the peak saving percentage of 23%. Today Japan’s household savings rate is 5%.
Sadly, America is experiencing something very similar. US saving has been in a decline since the 1970s and currently is around 5%.
The dire straits of the Japanese senior citizens should be a warning. Too many Americans are falling behind in their retirement planning and investing. To exacerbate the problem a great percentage of corporate and state pension funds are desperately underfunded because of eight years of QE. A carefully selected portfolio of low correlated asset classes of stocks, bonds and managed futures may make a critical difference to your long term economic health.
As a final thought, you may want to give your support to the politicians that are willing to do the hard work of addressing our soaring debt—if you can find one.
Tom Reavis
President
Worldwide Capital Strategies
The content of this article is based upon the research and opinions of Tom Reavis.