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UK Government Pulls Plug on Savers Inflation Theft Protection NS&I Index Linked Certificates

Personal_Finance / Savings Accounts Jul 19, 2010 - 08:07 PM GMT

By: Nadeem_Walayat

Personal_Finance

Best Financial Markets Analysis ArticleOne of the few defences against the governments inflation stealth tax, the NS&I Index Linked Savings certificates has been withdrawn from the market. The certificates paid RPI +1% resulting in an current tax free return of 6% per annum which is typically double the rate offered by the banks.


The NS&I cites record inflows of more than £5 billion during the first 3 months of 2010 as savers woke up to the reality of the Inflation Mega Trend (FREE EBook Download) that ensures that savers would pay the price for the banking sector bailout and reduction of the budget deficit in real terms as the government used inflation AND low interest rates as a measure to erode the value of the total debt and ongoing deficit.

One small snippet of good news is that existing holders of the index linked certificates will be allowed to roll over into the same issue term, though this may also change at a later date.

The NS&I not happy to just pull one of the remaining protections against inflation theft available, also cut the rate on savings income bonds to between 1.45 and 1.75%, which is more than 3% below the RPI inflation rate i.e. savers are losing over 3% per annum of the real value of their wealth to hold their cash at NS&I. This is typically inline with the rest of the bankrupt tax payer bailed out banking sector that similarly seeks to defraud savers of the real value of their wealth whilst at the same time receiving free risk free cash from the Bank of England in the form of borrowing at 0.5% or marginally higher in the interbank market, which is then used to buy government bonds yielding as much as 3.5%, thus banking 3% in pure risk free profit at the expense of savers.

UK Inflation Forecast 2010

UK Inflation of CPI at 3.2% for June 2010 is exactly in line with my trend forecast for 2010 as of December 2009 that projected June inflation data of 3.2%. My analysis since November has been warning of a spike in UK inflation as part of an anticipated inflation mega-trend (18 Nov 2009 - Deflationists Are WRONG, Prepare for the INFLATION Mega-Trend ) that culminated in the forecast of 27th December 2009 (UK CPI Inflation Forecast 2010, Imminent and Sustained Spike Above 3%) and the Inflation Mega-trend Ebook of January 2010 (FREE DOWNLOAD) as illustrated by the below graph.

UK Inflation May 2010

One could conclude that the governments move to detach the economy from the RPI index is suggestive of a surge in RPI to come as a consequence of money printing, the VAT increase due in January 2011 and the need to inflate the country out of debt therefore suggestive of higher forward inflation for many years.

Inflation Is a Government Stealth Tax On / Theft From Savers and Workers

The price of high inflation and low interest rates is being paid for by ordinary savers and workers who are in effect being robbed by the banks and the government as inflation is a stealth tax on savers and earners that seeks to stealthily destroy the real value of accumulated life time savings and erode the real purchasing power of earnings.

Add to this that savings are TAXED at 20% then savers should be enraged and demonstrating in the streets as to why they are receiving a pittance of interest rates at just 2% on even the top ranked savings accounts when inflation as measured by RPI is at 5%, and when tax is taken into account savings interest rates would need to be at 6% JUST to break even against inflation. So basically the Government, Bank of England in collusion with the bankster's are STEALING more than 60% of the earnings capacity of savings and therefore theft of the real capital value.

Readers don't be under any illusion, the Bank of England has lost control of inflation as the normal response to high inflation is to raise interest rates, instead of a UK base rate of 0.5% it should be at least at 3.5%. The reason why rates remain at 0.5% is as part of the process of transferring bankrupt bank debts off the bank balance sheets and onto the tax payers, that's you the tax payer who is picking up the tab by taking on the liabilities and debts of the bankrupt banking sector, which STILL more or less remains BANKRUPT, that only survives as a consequence of government support by means printing money and keeping interest rates at 0.5%. This means that savers and wage earners are being forced to a. subsidise the bankrupt banking sector and b. finance the governments budget deficit and total growing debt mountain by means of the stealth tax called INFLATION, which seeks to eat away the value of the total debt, as elaborated at length in the Inflation Mega-Trend Ebook (FREE DOWNLOAD)

Protect Your Savings and Wealth

Now that one of the safest hedges against the inflation stealth tax has gone, this leaves the more advanced mechanisms for protecting your wealth such as investing in safe big cap cap dividend paying stocks, commodities such as oil and gold and silver and wheat which is particularly cheap at the moment, and other fiat currencies that are expected to appreciate in the long-run such as the Chinese Yuan, Aussie Dollar are covered at length in the Inflation Mega-Trend Ebook (FREE DOWNLOAD).

What Next for Index Linked Certificates?

Following on from the ConDem governments plans to short change everyone by making the switch from indexing using RPI to CPI which under records the UK's real inflation rate, it is therefore highly likely that once the NS&I certificates return they will index for CPI inflation which tends to be between 1% and 2% below the RPI measure, and therefore makes a huge difference over the long-run.

Comments and Source: http://www.marketoracle.co.uk/Article21232.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-10 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on UK inflation, economy, interest rates and the housing market and he is the author of the NEW Inflation Mega-Trend ebook that can be downloaded for Free. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 500 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

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


Comments

Witheld
20 Jul 10, 03:23
General comment

Nadeem, you're impossible to get hold of, which is a great shame because I daresay there are thousands of people out there who are as gobsmacked as I am by your unerring ability to read the markets and produce almost flawless forecasts. God knows how you do it; you're either a gifted clairvoyant or you've got something which the (paid) newsletters I subscribe to simply don't have. And above all, you're generous enough not to charge for your services.

Believe me, it is HUGELY appreciated. Thank you.


Lewis Pincott
21 Jul 10, 11:00
Absolutely

Well Said!!


Eyeball
24 Jul 10, 17:45
Try ZOPA

One other way of earning good interest rates is to use ZOPA. You can lend money to other people at about 7-8% even for good credit rated borowers. I have used it for one year and am highly impressed by the company


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