Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
British Pound GBP Trend Analysis - 14th Oct 19
A Guide to Financing Your Next Car - 14th Oct 19
America's Ruling Class - Underestimating Them & Overestimating Us - 14th Oct 19
Stock Market Range Bound - 14th Oct 19
Gold, Silver Bonds - Inflation in the Offing? - 14th Oct 19
East-West Trade War: Never Take a Knife to a Gunfight - 14th Oct 19
Consider Precious Metals for Insurance First, Profit Second... - 14th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - 13th Oct 19
The Most Successful IPOs Have This One Thing in Common - 13th Oct 19
Precious Metals & Stock Market VIX Are Set To Launch Dramatically Higher - 13th Oct 19
Discovery Sport EGR Valve Gasket Problems - Land Rover Dealer Fix - 13th Oct 19
Stock Market US Presidential Cycle - Video - 12th Oct 19
Social Security Is Screwing Millennials - 12th Oct 19
Gold Gifts Traders With Another Rotation Below $1500 - 12th Oct 19
US Dollar Index Trend Analysis - 11th Oct 19
China Golden Week Sales Exceed Expectations - 11th Oct 19
Stock Market Short-term Consolidation Does Not change Secular Bullish Trend - 11th Oct 19
The Allure of Upswings in Silver Mining Stocks - 11th Oct 19
US Housing Market 2018-2019 and 2006-2007: Similarities & Differences - 11th Oct 19
Now Is the Time to Load Up on 5G Stocks - 11th Oct 19
Why the Law Can’t Protect Your Money - 11th Oct 19
Will Miami be the First U.S. Real Estate Bubble to Burst? - 11th Oct 19
How Online Casinos Maximise Profits - 11th Oct 19
3 Tips for Picking Junior Gold Stocks - 10th Oct 19
How Does Inflation Affect Exchange Rates? - 10th Oct 19
This Is the Best Time to Load Up on These 3 Value Stocks - 10th Oct 19
What Makes this Gold Market Rally Different From All Others - 10th Oct 19
Stock Market US Presidential Cycle - 9th Oct 19
The IPO Market Is Nowhere Near a Bubble - 9th Oct 19
US Stock Markets Trade Sideways – Waiting on News/Guidance  - 9th Oct 19
Amazon Selling Fake Hard Drives - 4tb WD Blue - How to Check Your Drive is Genuine  - 9th Oct 19
Whatever Happened to Philippines Debt Slavery?  - 9th Oct 19
Gold in the Negative Real Interest Rates Environment - 9th Oct 19
The Later United States Empire - 9th Oct 19
Gold It’s All About Real Interest Rates Not the US Dollar - 8th Oct 19
A Trump Impeachment Would Cause The Stock Market To Rally - 8th Oct 19
The Benefits of Applying for Online Loans - 8th Oct 19
Is There Life Left In Cannabis - 8th Oct 19
Yield Curve Inversion Current State - 7th Oct 19
Silver Is Cheap – And Getting Cheaper - 7th Oct 19
Stock Market Back to Neutral - 7th Oct 19
Free Market Capitalism: Laughably Predictable - 7th Oct 19
Four Fundamental Reasons to Buy Gold and Silver - 7th Oct 19
Gold and Silver Taking a Breather - 7th Oct 19
Check Engine Warning Light ECU Dealer Diagnostic Cost - Land Rover Discovery Sport - 6th Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

Trying to Beat the Rate of Inflation With Your Savings?

Interest-Rates / Inflation Apr 17, 2010 - 05:36 AM GMT

By: Adrian_Ash

Interest-Rates

Best Financial Markets Analysis ArticleWhat the New York Times can't even see in today's record-low bank interest rates...

LESTER BANGS getting loaded on speed, brandy and casual violence...throwing empty bottles down onto the street and assaulting a good friend's long-time partner...before reviewing Lou Reed's Metal Machine Music...


That was high-risk behavior.

Phillipe Petit walking a tight-rope between the Twin Towers of the World Trade Center...That was high-risk behavior.

Just being Simon Cowell, especially in public! That's risk-seeking behavior of the most reckless kind...

But trying to beat the rate of inflation with your savings? Does that really have to carry the same thrills and spills as putting a gun to your head and wincing in hope that the chamber is empty?

At current US bank interest rates, "If you wanted to put away enough to produce a retirement income of $50,000 a year without touching the principal, you would need $100 million on deposit," writes Floyd Norris, chief financial correspondent of the New York Times.

"To be sure, you could get a better rate with that kind of money. But not that much better."

Norris notes how, with interest rates pegged near zero, the US banking sector is literally printing money. Between Jan. and March, J.P.Morgan Chase paid just over 0.8% to raise funds. It then lent out that money at better than 4.0% on average.

"Perhaps the toll on savers should get some attention," says Norris. Yet remarkably – incredibly – he doesn't mention the true toll on cash savers in his little exposé. Not once.

Last month you needed to tie-up your money for 3 years minimum before beating inflation with a certificate of deposit (CD).

That's official inflation of 2.3% per year, by the way, rather than the 5.7% rate pegged by pre-Clinton CPI calculations, or the 9.5% rate pegged by John Williams ShadowStats' maths.

That inflation-beating lock-up also means giving your money to Aurora Bank FSB as well. Which just happens to be all that's left of Lehman Bros.

But hey – Aurora's just a bank looking for funds, and willing to pay more than anyone else (according to BankRate.com) to get them. And besides, you got to take chances in life to get the big knock-out returns, right?

 

Average Real Rate of Interest on 6-month CD

Gold price
change (%)

1964-1971 2.36% + 7%
1971-1981 0.14% + 1477%
1981-2002 3.61% – 54%
2002-2010 0.35% + 312%

"At some point in the future, we're going to need to begin to adjust the language, to begin to see changes in the substance of the policy," said one Federal Reserve policy-maker this week.

Meantime, however, the current Fed language – "exceptionally low for an extended period" – condemns cash-savers to sub-zero returns, even with inflation at barely half its 45-year average on the official CPI measure.

"I'm comfortable with interest rates where they are now," agreed another Fed chief, also on Thursday. "Everything depends on economic performance," said a third, confirming what chairman Ben Bernanke said in his congressional testimony on Wednesday.

What does that mean for savers? The longer that interest rates stay below the pace of inflation, the more risk you'll be forced to take to defend what savings you've got. Cash, after all, is only for shopping and spending....not holding its value as a store of wealth. Or at least, that's how zero-rates make it seem. Which I guess is the point of the Fed's anti-deflation policy.

So out in the zero-crazed world of trying to scrape an income, "Investors go exotic for esoteric asset-backed yields," reports EuroMoney. Institutional investors are piling into securitized debt backed by rental-car fleets, transportation, mobile phones, aircraft, shipping containers, copyright and other intellectual property, time-share mortgages and casualty insurance. Because "Investors can earn higher yields for these assets because they're less liquid and require extra due diligence," says the magazine.

"Though here, too, spreads have narrowed, investors can pocket 100 to 150 basis points more, on average, than they would buying plain-vanilla consumer asset-backed securities."

And over in Tokyo, where rates have been pegged at zero – again, "dependent on the economy" – for almost 10 years, "Japanese go wild for Brazil" reports the Financial Times. Long-time Japan watchers will wince to recall what happened when Mr. and Mrs Watanabe last bought South American bonds...just in time for the Argentine default of 2002.

But sub-zero returns paid to cash make you do weird and dangerous things with your money. Like forgetting how bad things turned out the last time that sub-zero rates forced you – and your pension fund manager – into high-risk behavior.

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules