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How does a low interest rate hurt retirees and someone who wants to save?
Low interest rates hurt people who want to save, because it reduces the incentive to save. When CD's are paying only two percent interest, why would anyone save their money? $1,000 put into a CD at 2% has more buying power now than ithe $1,020 will have when it is redeemed.
In general, retirees do not buy durable goods. Their monthly expenditures consist almost entirely of maintenance costs---rent, utilities, grocereis, gas. Retirees are disinclined to replace their old TV with HD Plasma, and wold rather save their discretionary income. But at 2%, their savings do not grow, while their cost of living does increase, so saving is a step backwards.
Conversely, those inclined to squander every penny even before it is earned are rewarded for doing so, because they expect their income to grow faster than what they borrow, with zero interest and no payments due until 2048.
The cost of living allowance for retirees is largely based on manufactured goods, which keep going down in price owing to outsourcing and economy of scale. But those are the things retirees don't buy. So the social security check goes up very little, because the cost of cars and electronics are not increasing. But the cost of rent and utilities and food are increasing, which impact the cost of living for retirees, but these things are not counted in the COLA.
So they wont put there money in a savings account or Cd oe whatever because it doesn't earn enough interest? That sounds greedy to me. This is what I hear - If I put my money aside somebody else better come along and add to it for me.
I do agree that the cost of living and wage adjustment is a joke. If my cost of utilities jumps $100 a year and I only get $20 more in my pension that presents a problem.
The one thing that Americans demand of their government is to foster a system in which every adult is forced to work at least one full time job. So, the economic strategy of choice is to create as many jobs as possible. This can only be done by consumption, not saving. If there is a person who is not working, he must be punished with hunger, cold, indignity and shame, so phony busy-work must be created to make sure nobody ever gets a day away from the steady grind of some mindless task to enrich the bosses.
And if somebody IS working, we tax the living he*ll out of him in order to pay for all the people who are NOT working.
So they wont put there money in a savings account or Cd oe whatever because it doesn't earn enough interest? That sounds greedy to me. This is what I hear - If I put my money aside somebody else better come along and add to it for me.
I do agree that the cost of living and wage adjustment is a joke. If my cost of utilities jumps $100 a year and I only get $20 more in my pension that presents a problem.
Due to inflation, if you save it without any increase, the purchasing power of the money actually goes down. In 1950, $1,000 was a lot of money, and would pay the rent on a nice house for a year. But if it had been put under your mattress, now it wouldn't even pay the rent for a month, in spite of your thrifty intentions. That is why interest is an incentive to save.
Government wants to spur spending again so they keep prime rates low so that svaings isn't encouaged. But people overall know when they don't need to save by what is happening all around them.The comon consumer is the keep economic indictors spread thru millons of human minds.
I agree we should raise the interest rates later, but right now, no.
Herbert Hoover tried raising interest rates and raising taxes to pay down the national debt during the Great Depression, that only made things worse.
I've been a proponent for some time now that when the economy turns around, and things are going well, we need to raise interest rates and raise taxes. Thats the problem, its politically unpopular to raise taxes when things are going well nationally.
And if somebody IS working, we tax the living he*ll out of him in order to pay for all the people who are NOT working.
Exactly on point. And we also reduce the interest rate to encourage them to spend on credit as well as force those who save to put money into stocks or real estate.
It's a vicious circle and it seems that the gains go only to those who refuse to be productive.
Here's another take. So you buy a house, more than you can rightfully afford, and the only way to get into it is to take the teaser rate with an ARM. Wow nelly, if you can't afford the house at an extra half of a percent then why should those who save be burdened by your activity?
I'm all for stable increases in the interest rate. It will pull money away from stocks and real estate and into a solid capital base to provide for productivity. But then I'm thinking those who don't want to be productive have the bully pulpit's attention and we should all feel sorry for their inability to produce.
I agree we should raise the interest rates later, but right now, no.
Herbert Hoover tried raising interest rates and raising taxes to pay down the national debt during the Great Depression, that only made things worse.
I've been a proponent for some time now that when the economy turns around, and things are going well, we need to raise interest rates and raise taxes. Thats the problem, its politically unpopular to raise taxes when things are going well nationally.
So we can't raise interest rates when things are going south and nobody wants to do when things are looking up.
When, then, should interest rates rise?
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