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12-31-2011, 12:29 PM
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#1
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2011
Location: West of the Mississippi
Posts: 17,173
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Low Interest Rate Damage
Here is a quote from George Melloan in today's WSJ
"The Fed's low interest policy is doing little to help banks and doing a lot to put public pension funds in jeopardy."
I am glad somebody is starting to see that the ultra low interest policy is doing some harm. I know many retired folks who have severaly cut back their spending because their interest income has dropped by many thousands of dollars, some by tens of thousands of dollars. I also know middle aged people who were using interest income to suppliment earnings. This has been wiped out by the ultra-low interest policy we are following. I think some balance is in order. My 2 cents.
__________________
Comparison is the thief of joy
The worst decisions are usually made in times of anger and impatience.
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12-31-2011, 12:49 PM
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#2
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Thinks s/he gets paid by the post
Join Date: Mar 2009
Posts: 2,983
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I'm not sure how all of this works. I notice that CD's are yielding higher rates than US Treasuries. The yields of Treasuries are set at auction. Right now there's a lot of $$$ going into Treasuries from around the world and various institutions. Until the economy starts rolling along and investing rather than sitting on $$$ takes place we're stuck.
I don't see what the Fed does with extremely short term rates will do for savers. Of course there's a lot I don't know. Right now I'm sitting on about 16% cash as I have for the last few years,
__________________
Took SS at 62 and hope I live long enough to regret the decision.
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12-31-2011, 02:34 PM
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#3
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Recycles dryer sheets
Join Date: Feb 2011
Location: anywhere usa
Posts: 246
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I can only imagine what housing prices would do if mortgage rates jumped back up to 6-7%...
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12-31-2011, 02:51 PM
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#4
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Recycles dryer sheets
Join Date: Mar 2011
Posts: 225
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Maybe the Fed could consider using some wisdom out of the advice Jerry gave to George: "if every instinct you have is wrong, then the opposite would have to be right".
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12-31-2011, 03:29 PM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2011
Location: NC Triangle
Posts: 5,807
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I recently heard an interview with an Illinois finance professor who pointed out that increases in interest rates would also have the effect of increasing the interest expense that must be paid on the outstanding debt, and given the current situation, that's not very appetizing to the Fed.
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12-31-2011, 10:35 PM
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#6
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Thinks s/he gets paid by the post
Join Date: Feb 2003
Posts: 2,395
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In a couple of articles Scott Burns has pointed out the hit that the elderly and others have taken because of the low low CD rates. I never heard anyone else being concerned about it. Scott has been a lone voice in the wilderness.
__________________
-- Telly, the D-I-Y guy --
Two fools dancing on the hands of time
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12-31-2011, 11:55 PM
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#7
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Confused about dryer sheets
Join Date: Aug 2011
Location: Palm Springs
Posts: 7
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The Fed is keeping interest rates low to prop up our banking system. I think that is the only reason they are doing it, despite whatever else they say. Banks are borrowing at essentially no cost to them, and making money off the unprecedented spread they can now exploit. And they need that money to deal with their massive portfolios of underwater mortgages.
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01-01-2012, 05:23 AM
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#8
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Thinks s/he gets paid by the post
Join Date: Jan 2010
Location: dubuque
Posts: 1,169
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and what do the savers, who depend on cd income use to cover the spread and pay their mortgages? look at any people that invest. universities have to raise tuition because their trust funds get no interest. all the pension funds are in trouble because the money they are sitting on collects no interest. banks are not the only ones in trouble and need to be considered.
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01-01-2012, 06:40 AM
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#9
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Administrator
Join Date: Jan 2008
Location: Chicagoland
Posts: 40,591
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A question to those critical of the Fed low interest rate policy: what actions do you suggest?
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01-01-2012, 07:03 AM
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#10
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Recycles dryer sheets
Join Date: Jun 2007
Posts: 413
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This won't be popular to some but I'd like to see progressive interest benefits.
Today, if you have more money in a financial institution, you earn higher interest (1-1.5%) than those how have less (0-.5%). Although, I personally benefit by the status quo, I'd like to see this substantially reversed. Those with less money should earn substantially higher interest on their funds. Not sure what the clip level should be but you get the idea.
__________________
Retired - Class of 2011
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01-01-2012, 07:54 AM
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#11
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Thinks s/he gets paid by the post
Join Date: Jan 2010
Location: 5-sided building
Posts: 1,183
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Quote:
Originally Posted by Beryl
This won't be popular to some but I'd like to see progressive interest benefits.
Today, if you have more money in a financial institution, you earn higher interest (1-1.5%) than those how have less (0-.5%). Although, I personally benefit by the status quo, I'd like to see this substantially reversed. Those with less money should earn substantially higher interest on their funds. Not sure what the clip level should be but you get the idea.
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On the surface, that is a disincentive to save. But if that were the setup, I'd just open more accounts.
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01-01-2012, 08:42 AM
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#12
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,014
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Quote:
Originally Posted by frank
and what do the savers, who depend on cd income use to cover the spread and pay their mortgages? look at any people that invest. universities have to raise tuition because their trust funds get no interest. all the pension funds are in trouble because the money they are sitting on collects no interest. banks are not the only ones in trouble and need to be considered.
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Um, maybe they should have paid off their mortgage before relying on CDs for income?
I see the super low interest rate as mainly keeping the economy from collapsing during a period of high unemployment and dropping home prices while many individuals and corporations pay off the debt they overaccumulated during the 2000s. We don't have a booming economy or moderate to high inflation right now, and we have pretty high unemployment, so I don't see how higher interest rates are justified?
Audrey
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Retired since summer 1999.
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01-01-2012, 09:14 AM
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#13
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Administrator
Join Date: Apr 2006
Posts: 22,974
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Here is an interesting recent post from Reuters' Felix Salmon regarding ZIRP. The comments affixed to this blog entry are as interesting as Felix himself.
Why ZIRP doesn’t work | Felix Salmon
__________________
Living an analog life in the Digital Age.
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01-01-2012, 09:49 AM
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#14
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Thinks s/he gets paid by the post
Join Date: Sep 2006
Posts: 2,842
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Quote:
Originally Posted by MichaelB
A question to those critical of the Fed low interest rate policy: what actions do you suggest?
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I would suggest an immediate increase to 1 percent for short term interest rates. This would be met with immediate pain but the problem with a zero interest rate policy is that inflicts no pain on politicians in addressing serious issues and merely is a mechanism to defer addressing the real problem. An example is the 2 percent "payroll tax" cut, which really is just reducing the social security holdings from jobholders and borrowing at zero percent interest by the federal government to make up for the lost revenue. There is no "pain" from this actual inaction on the issue of social security because the "solution" actually has no cost today. But those 2 percent's are being accumulated in the total national debt. A few percentage points of interest would force politicians to make real choices.
The longer one stays at zero interest, the policy will act as a block hole and like Japan there will be no way out of it as you can create huge deficits while your interest bill on a total countries debt actually falls for a time.
__________________
But then what do I really know?
https://www.early-retirement.org/forums/f44/why-i-believe-we-are-about-to-embark-on-a-historic-bull-market-run-101268.html
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01-01-2012, 09:58 AM
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#15
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Recycles dryer sheets
Join Date: Mar 2011
Posts: 225
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To be honest, I don't think anyone in the Fed can do anything now to quickly turn things around. The current economy is like a patient with multiple chronicle illnesses due to bad life style and poor choices gradually accumulated for decades. The doctor who's treating the patient should not play god in trying to mask or remedy one symptom at the expense of others. The recovery process will be slow, challenging and even painful; it will be totally fruitless just with doctor's treatment alone without strong will and commitment from the patient as well.
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01-01-2012, 10:01 AM
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#16
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Recycles dryer sheets
Join Date: Mar 2011
Posts: 225
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A symbolic rate hike might not be a bad idea, at least it forces policy makers to face ugly reality check sooner instead of later.
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01-01-2012, 10:20 AM
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#17
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Thinks s/he gets paid by the post
Join Date: Aug 2004
Location: Houston
Posts: 1,448
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Can most people agree that much of the financial crisis was brought on by too much debt? Both banks and households were over leveraged. So how exactly does providing even cheaper debt get us out of this mess? Hasn't the last three years shown us that you can't refi your way to long-term prosperity?
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01-01-2012, 11:07 AM
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#18
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2003
Location: Hooverville
Posts: 22,983
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Quote:
Originally Posted by soupcxan
Can most people agree that much of the financial crisis was brought on by too much debt? Both banks and households were over leveraged. So how exactly does providing even cheaper debt get us out of this mess? Hasn't the last three years shown us that you can't refi your way to long-term prosperity?
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There is no way to get out of this mess, other than to let some protected players go down. Which the best congress money can buy is not going to allow.
All the talk and posturing is just theater.
Therefore, we are screwed.
Ha
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"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
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01-01-2012, 11:16 AM
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#19
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2011
Location: West of the Mississippi
Posts: 17,173
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Quote:
Originally Posted by MichaelB
A question to those critical of the Fed low interest rate policy: what actions do you suggest?
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Hmm.... how about low interest rates instead of the ultra-low ones we now have. What if the 1 year T-bill yielded 1/2 of the inflation rate, for starters.
The more i think about this the more I go back to the age old advice of diversification. There is simply no way to control or predict the future so one gets exactly what one wants.
__________________
Comparison is the thief of joy
The worst decisions are usually made in times of anger and impatience.
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01-01-2012, 12:03 PM
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#20
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Thinks s/he gets paid by the post
Join Date: Jul 2009
Location: Miraflores,Peru
Posts: 1,992
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Quote:
Originally Posted by haha
Therefore, we are screwed.
Ha
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For many years I carried a condom around in my wallet and never understood why as all coeds were using BC. It was only years later when I realized Karma/guvmint was going to turn the tables and I was about to be the one getting it. Since that point in time I realized how important it was to "protect my ASSets"!
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