A mid 60s woman was chatting with two friends at a Starbucks. I overheard the conversation. It went something like this…
“When my husband and I retired, our financial advisor said we had enough money to last until we were both 95 years old. Now he is concerned that our savings might not last until we are 80.”
It gets worse.
“But if either of us dies then our pension income is reduced and the survivor has to make a choice – pay the mortgage or eat.”
It gets worse.
“And we still have to worry about healthcare.” She went on about sky-high health care costs, Obamacare, and her pre-existing conditions that prevented her from changing insurance.
She probably does not see how much worse it can become.
WHAT IS THE PROBLEM?
In simple terms the Federal Reserve has lowered short term interest rates to nearly zero (ZIRP – Zero Interest Rate Policy) and is “printing” $85 Billion per month (QE) to bail out bankers and our politicians who can’t balance the government budget or even pass a budget.
So What? Aren’t low interest rates good for the economy and for home prices?
Well, maybe in the short term they appear to be beneficial. The politicians and bankers have assured us of such. But politicians and bankers are benefitting from QE so perhaps we should question their assessment. Consider these points:
– Would you loan your money for 30 years to an insolvent government that chronically spends far more than it collects in taxes? Would you consider that 30 year bond a wise investment if the government paid you less than 4% per year? Think back to what your expenses for gasoline, housing, food, and health care were in 1983 to help determine if 4% per year is enough to compensate for your guaranteed higher expenses and for the decline in the value of the dollar in the years to come. (Hint: NO!)