If this happens, how does an ordinary someone, with a solid buffer in a regular savings account, protect the value of that buffer?
That's an investment in financial stability, with returns valued in peace of mind rather than dollars. I'm not rich enough or reckless enough to qualify for a bailout. So how do I protect myself?
Um dividends reduce the price of the shares. But, investing in a stable blue chip company to preserve wealth is a good idea. But 'stable, blue chip' doesn't mean dividend paying. They're two disjoint groups.
With the immense amount of deficit the gov is currently under and will be under in the future, and the monetary policy of printing money, I'd say high inflation is much more likely. Even in the last several years, we've been having near 2%, or even over 2% inflation.
That's not high. We've been desperately trying to get inflation up and have taken extraordinary measures to try and raise inflation, but we're actually in a historic low inflation regime that's quite concerning - the fed would be thrilled if we'd be at 2-3 percent inflation consistently and easily. It's the reason we haven't been able to raise rates as high as they used to be, making government borrowing cheap, and why we've kept printing money. We're trying to get inflation up, its just not working that well.
2% is historically low, and is in fact below what the Federal Reserve has been trying mightily to achieve. Inflation has been below target since the 2008 crash, more or less.
There is a massive deflationary force acting on the economy. Anyone bringing up inflation fears, except to dismiss them, is not tracking any known factual reality.
there's no way to protect yourself from it. You either Risk up and get into equities or have everything taken from you via inflation and low interest rates: that's the whole point. this is a wealth transfer from savers to non-savers.
Do you think it's fair, that the government issues you a Dollar one year, and the next year, they devalue it by 2% or more? then they devalue it some more every year 2% or more?
If we can't even rely on a stable currency, what is the point of government? we might as well go back to bartering. In fact, this is what is happening. As people can't rely on money to hold it's value anymore, they're going back to hard assets like stocks, and real estate.
Those things cost more relative to other things. Inflation is everything costs more, specifically including wages, because dollars aren't worth as much.
The reason e.g. rents are high is that there is high demand for housing in cities and zoning restricts new construction. That's not inflation.
Look up consumer price index. You can do this yourself if you really want, but I'm guessing you don't churn your own butter for the same reason you wouldn't want to do this:
Go to the super market, pick out a bunch of items, average the cost of them and chart that average over time.
There is no conspiracy here. Measuring inflation is very straight forward.
Measuring inflation is not straight forward. How do you calculate inflation of completely new products, like smartphones? How do you measure inflation on a car that is superior in every attribute (fuel economy, safety, reliability) to a car of 10 years ago? How do you measure inflation on non-rival goods, like access to wikipedia?
Yes there is conspiracy here. We have changed the way we measure inflation over the years. It completely changed how we count housing costs and technology.
"if we calculated inflation today the same way we did during Carter’sadministration, CPI would be closer to 10% rather than the 1.5% calculated as of 12/31/10 by the government."
You're acting like the government invented inflation; it didn't. Before central banks, inflation fluctuated freely in the economy, sometimes very high, sometimes into significant deflation. This volatility exacerbated other economic or financial fluctuations, causing a lot of problems. The goal of central banking is not to introduce or create inflation, but to manage it for greater certainty in long-term investment. A steady 2%/year inflation is a stable currency.
If you think it's bad knowing that your dollar will devalue 2% every year, imagine trying to make plans not know whether it was going to drop or go up 7% next year--or anything in between.
That sounds overly simplistic. There are many savers who currently rent, and through sacrifice/discipline scrape an extra thousand or two per month in an effort to save for a down payment on a house. That is not "hoarding", that is capital that will be deployed in the "real" economy, just not right this instant.
Nobody says you have to buy the house right now, but in the meantime you have the choice between keeping it as cash in a bank account or stock in a brokerage account. A disincentive to hoard currency in the midst of turmoil is not a bad thing.
Somebody has to if you want companies to be able to raise capital and carry on forming new businesses and employing people etc. It's your choice whether you prefer that or the moths and rust.
Hard times aren't as safe as good times, all around.
Sure, I think I understand the spirit of your point and agree that a healthy economy relies upon capital circulating through the system. That said, there is a wide spectrum of people with different financial situations and risk appetites. There are lots of institutional and individual investors who are in a better position to take on the risk of putting their low-yield savings into equities and accept significant volatility. The small-time saver who is desperately trying to break out of the rent cycle is probably not going to have the stomach for that, and I don't think that is the cohort that is going to impede the free flow of capital into and out of the stock market anyway.
Small time savers don't get higher interest rates on their savings accounts than institutional investors. If you give high guaranteed interest rates on savings accounts during turmoil, all the money goes there, which is problematic.
Investors get paid to take risks. The less risk you want, the less you get paid, and there is a point at which you're taking so little risk that you get paid less than you lose to moths and rust. During hard times, the level of risk required to get a positive return is higher.
I'm not sure I follow your argument. Don't most savers put their money in banks who then have to redeploy it to make a profit? In fact, isn't it more useful to have banks utilize this capital instead of a crowds of ordinary people moving small sums? Banks aggregating wealth to be redeployed seems more efficient.
The Fed just cut the banks' reserve requirements to zero, which means they don't require any deposits in order to make loans anymore. They have no use for your money. That's why you may have to pay them to hold it for you.
My understanding of the reserve requirements were that they set how much of the total amount deposited the banks had to hold on to at any given time. Setting the requirement to zero means that banks can deploy all of the capital they have in loans. If anything, shouldn't this be the other way around? They want more deposits because they can use the full amount instead of say 90%(holding on to a 10% reserve) or whatever the number was and make more money while paying savers the same amount. Or are you relating this to interest rates going to zero which seems like a better point for why banks wouldn't need deposits? Though the amount of interest savers get from banks is close to zero anyways right? So it still seems to me that banks want as many people deposited with them as possible since they can now use all of the money given to them.
Suppose you take your $5000 in cash into the bank and deposit it. They put the cash in their vault and credit your account with $5000. Now they have 100% reserves.
Alice, Bob and Carol come into the bank and each take out a $5000 loan. The bank credits each of their accounts with $5000, but there is still only $5000 in their vault, so now they have 25% reserves. As long as the reserve requirement is below 25%, this is fine. If the reserve requirement was 30%, they couldn't make that many loans.
With a 0% reserve requirement, they could loan your $5000 to a million different people and have 0.000001% reserves and still be allowed because 0.000001% is more than 0%. They could send you away and the bank manager could deposit a dollar and they could make unlimited loans from it. They have no use for your money.
"Either put the capital to use in the real economy, or moths and rust will destroy your hoard."
I'd like to explain this to my elderly parents, who have cash sitting around in savings accounts and don't invest, but don't think trying to scare them with "moths and rust" is going to be very convincing.
What's a more convincing way to explain this?
Also, are money market accounts also going to be hit hard by negative interest rates, or would that be considered investing?
With the caveats that I don't know more than the basics of investing and have a few years for funds to grow, I found the audiobook "The Simple Path to Wealth: Your Road Map to Financial Independence and a Rich, Free Life" by JL Collins to be very useful.
I don't think it'll touch strongly on saving your money being a bad idea, and I really don't remember anything about negative interest rates, but it does make investing seem much less scary.
That’s only fair if the economy was run responsibly. Is the government going to bail out retail “savers” who invest in equities after the next disastrous credit bubble?
If you can't get ahead, why even try? Easier to fall back to simpler ways of living - and in the end that certainly doesn't keep rich folks in private jets etc.
That’s stupid. People don’t save so they can die with lots of zeros in their bank account, they save because they want to inject that money into your so-called “real economy” but at a later date, perhaps when they’ve retired or when they’ve amassed sufficient savings to make that large purchase they’ve been eyeing.
You can’t punish people for saving on one hand and then charge them exorbitant rates or deny them loans altogether when they want to purchase a house without that down payment at hand.
That's going away soon. so better get in quick. If they hold ZIRP as long as they did last time, it'll be a very long time before we see rates go back up again.
You could consider high yield bonds, some of those pay out 4% to 5%. But, they are EXTREMELY risky. As, you can see from the huge equity drop in the last few days. In times of great stress, any kind of fixed income above 3% yield, will drop down 15% to 25% (at least in the latest example). Not, quite as huge of a drop as equities but still enough to make you worry.
The traditional answer to this question, for centuries, has been: if you're poor, buy gold, by weight — although acid for the acid test is getting harder to come by these days, very precise electronic scales are easy; if you're rich, open a Swiss bank account — no longer an option available to US citizens.
At US$1534 per troy ounce, 20 kg of gold is worth US$986400, so you can carry your entire savings in a backpack in the form of gold if necessary. To a great extent this was illegal in the US from 1933, when the government confiscated all the gold and silver coins it could find, until 1974.
If you're buying today as opposed to two weeks ago you might consider some silver, because its price has been driven sharply down relative to gold by the recent flight to cash.
There are other options. You can use banknotes; although a US$100 bill has lost >90% of its value relative to gold since the end of the gold standard, 15 hundred-dollar bills still weigh less than an ounce. As we saw a couple of years ago in India, though, the government can declare your savings illegal with the stroke of a pen ("demonetization"), and then nobody in other countries will accept them anymore; less drastically, they can just print more money, producing inflation and having the same effect as a negative interest rate.
Gold and banknotes have the disadvantage that they're easy for bad people to steal from you, whether those bad people are the police ("asset forfeiture") or just have poor impulse control. Alternatives that are harder to steal: Bitcoin (although on Thursday it lost 50% of its value); treasury bonds (although they'll also lose value with negative interest rates and inflation); real estate (although some friends of mine had their house bulldozed by the government last year while they were fighting in court to keep it).
Diversify. And try to live somewhere that thinks that financial stability is more important than fighting drug trafficking or pedophiles or computer criminals or whatever excuse they're giving this year to take money from the poor and give it to the rich.
Gold is fairly illiquid when you need cash in an emergency. There’s also some volatility to it. Those are two things you really don’t want in a store of value.
You'll likely still be able to sell gold for something in all but the very worst SHTF scenario. I'm not sure you can say the same about many other types of investment. Those ETFs won't buy many rabbits for the pot.
"if you're poor, buy gold, by weight — although acid for the acid test is getting harder to come by these days, very precise electronic scales are easy"
If you were really intent on buying physical gold, I don't know why you would bother with this instead of just buying gold coins from the US Mint. I don't think you'd have to worry about getting counterfeit gold in that case.
But why own physical gold? Why not just trade in gold futures or buy gold mining shares?
Same with silver.
"if you're rich, open a Swiss bank account — no longer an option available to US citizens"
If you want the stability of the Swiss Franc, it can be traded on the foreign exchange market.
> I don't know why you would bother with this instead of just buying gold coins from the US Mint
Heavy gold chains under your clothes are a lot safer when you're traveling than a bunch of coins. Moreover, the 1933 Executive Order confiscated the coins but not the chains.
> But why own physical gold? Why not just trade in gold futures or buy gold mining shares?
It's harder to confiscate, especially at scale.
> If you want the stability of the Swiss Franc, it can be traded on the foreign exchange market.
What does the franc have to do with anything? This is a non sequitur.
Also, I'd like to point out that historically speaking it's quite common for mints to substitute cheaper metals in new issues of the same coins; this has happened since at least the Roman empire. The most conspicuous case of this in the US was when in 1965 the mint replaced the silver quarter and dime with silver-plated copper and the copper penny with copper-plated zinc; of course silver-plated copper quarters had existed in the US since at least the 1800s, but at that time they were called "counterfeit quarters". You can read about them in Huckleberry Finn.
Of course coin collectors and anyone dealing in bullion will not treat the coins as equivalent, and historically speaking this is one of the reasons for stamping the year and mint mark on the coins, but this is entirely at the discretion of the mint; there's nothing stopping them from issuing new "gold" coins with a lower percentage of gold and the same year mark, except for the same kind of social pressures that prevent the government from simply expropriating the contents of your bank account (as they did here in Argentina in 2001) or refusing to pay its bonds (as is happening here in Argentina right now.)
You might object that the United States isn't Argentina. But until just before 2001 Argentina wasn't Argentina either, not as we know it today; its troubles were behind it and it was the model country the IMF would show off to demonstrate how effective its economic recovery plans could be, even as the economy was gradually hollowed out. People living in the US, a country whose stock market just fell by 30% in a month and which didn't manage to produce or allow the importation of a reasonable number of COVID-19 tests until this weekend (although Korea, Japan, Germany, Taiwan, and China had no trouble with this) may find this sounds familiar.
If someone is concerned about the banking system expropriating their savings, it is not a reasonable response to offer them an alternative that makes it easy for banks, stockbrokers, or the government to expropriate their savings. That's precisely the kind of threat they want to defend against.
>> "For instance, German household savings have jumped to 11.2% of income, the highest in over a decade, and savings rates in Denmark and Sweden are near all-time highs."
Of course people are saving very aggressively. With rates going lower and lower, it means, you need to hunker down and cut your spending as much as possible because your retirement money isn't going to grow, at all, it's decreasing.
With every step interest rate goes lower, their just putting another nail in the coffin. The whole world is drunk on keynesian economics and it's not working, one bit.
What goes around, comes around. if you turn the screws on people and continue to hurt them financially, they'll have less and less money to spend, and it keeps making the economy even worse.
Keynesianism only works (in theory) if an economy pumps the breaks a bit during the good times. Failure to do that isn’t really Keynesian, and the US has done nothing but hit the gas during the past few years of growth.
By electing people that save responsibility. Post WWII the US paid down huge amounts of debt. Now it seems like Republicans want to loot the place whenever they get power and Democrats are willing to trade spending for more spending.
The EU via the EMF have been doing aggressive QE upon the Euro for years now, just to keep the EUro competitive for exports as well as imports. A high euro value makes imports cheap, but kills exports as they come more expensive export wise. A low currency makes imports expensive, but makes exports cheap.
So they have been interjecting to keep the balance right.
Before QE you had country interest rates, but with many of those low, the new tool on the block is negative interest rates.
Sadly all these have produced two decades of fiscal responsibility that has seen saver mentality die and buy today, pay tomorrow increase. Which i'm sure looks great on some balance sheet and allows politicians and accountants to say hey, look at the growth, ain't we doing well and the market perception just nods and agree.
Any dent in that perception and a whole raft of cards quickly start to fall and with that in mind, interesting times ahead and let us see what happens.
This. It works with some discipline, but our current politicians (and by reflection ourselves) lack that discipline. We should have been raising rates and even taxes during the last boom, to slow it down so it would last longer, and to build a reserve for the next bust. A bust is a great time to hire and build, a boom is a not so great time to do that, and I’m not just referring to that from a stimulus perspective.
> What goes around, comes around. if you turn the screws on people and continue to hurt them financially, they'll have less and less money to spend, and it keeps making the economy even worse.
Sorry, that actually made me laugh. Not "off with their heads!" anymore, but more like "I am not shopping anymore!" I am sure they tremble!
If people's retirement money is shrinking, it's not just "I'm not shopping anymore" it's "I have to save as much as I can to try to make up for attrition to just keep my rainy day fund afloat." I can't see how I'd want to invest when I know that the money I'm saving "just in case" is quickly disappearing on me. I need to keep putting money in my bank account to just to stay in the same place on the treadmill. It's basically putting in a constant overdraft fee.
Household savings would be lower if governments take on more debt, but they insist on running surpluses. Germany in particular has kept wages for workers depressed as part of their "economic model". Germany should be cutting taxes for workers significantly and investing in infrastructure, defense, and social programs.
In fact a lot of the rich EU members should be doing that, but they all have a misguided notion of "fiscal prudence". As if the government's budget is the same as a household's budget.
Isn't it the opposite? Money goes from government into the economy through spending, and thus through debt. More debt results in more household savings, not less.
Households wouldn't feel like they have to save so much if they felt their economic situation wasn't so precarious. If their incomes were growing faster and they had more safety nets they'd be consuming more.
Does this act as the catalyst for American and the EU embracing communism? If we are wiping out assets, will the people want to centralize wealth into the works hands?
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[ 3.0 ms ] story [ 159 ms ] threadThat's an investment in financial stability, with returns valued in peace of mind rather than dollars. I'm not rich enough or reckless enough to qualify for a bailout. So how do I protect myself?
There is a massive deflationary force acting on the economy. Anyone bringing up inflation fears, except to dismiss them, is not tracking any known factual reality.
That's fair.
If we can't even rely on a stable currency, what is the point of government? we might as well go back to bartering. In fact, this is what is happening. As people can't rely on money to hold it's value anymore, they're going back to hard assets like stocks, and real estate.
Inflation is at record lows. If anything, deflation is rearing its ugly head.
The reason e.g. rents are high is that there is high demand for housing in cities and zoning restricts new construction. That's not inflation.
Look up consumer price index. You can do this yourself if you really want, but I'm guessing you don't churn your own butter for the same reason you wouldn't want to do this:
Go to the super market, pick out a bunch of items, average the cost of them and chart that average over time.
There is no conspiracy here. Measuring inflation is very straight forward.
"if we calculated inflation today the same way we did during Carter’sadministration, CPI would be closer to 10% rather than the 1.5% calculated as of 12/31/10 by the government."
https://www.cornerstonewm.com/downloads/measuring-inflation....
Inflation is much closer to whats listed here for many americans. https://chapwoodindex.com/
If you think it's bad knowing that your dollar will devalue 2% every year, imagine trying to make plans not know whether it was going to drop or go up 7% next year--or anything in between.
Hard times aren't as safe as good times, all around.
Investors get paid to take risks. The less risk you want, the less you get paid, and there is a point at which you're taking so little risk that you get paid less than you lose to moths and rust. During hard times, the level of risk required to get a positive return is higher.
Alice, Bob and Carol come into the bank and each take out a $5000 loan. The bank credits each of their accounts with $5000, but there is still only $5000 in their vault, so now they have 25% reserves. As long as the reserve requirement is below 25%, this is fine. If the reserve requirement was 30%, they couldn't make that many loans.
With a 0% reserve requirement, they could loan your $5000 to a million different people and have 0.000001% reserves and still be allowed because 0.000001% is more than 0%. They could send you away and the bank manager could deposit a dollar and they could make unlimited loans from it. They have no use for your money.
I'd like to explain this to my elderly parents, who have cash sitting around in savings accounts and don't invest, but don't think trying to scare them with "moths and rust" is going to be very convincing.
What's a more convincing way to explain this?
Also, are money market accounts also going to be hit hard by negative interest rates, or would that be considered investing?
I don't think it'll touch strongly on saving your money being a bad idea, and I really don't remember anything about negative interest rates, but it does make investing seem much less scary.
You can’t punish people for saving on one hand and then charge them exorbitant rates or deny them loans altogether when they want to purchase a house without that down payment at hand.
If you're buying today as opposed to two weeks ago you might consider some silver, because its price has been driven sharply down relative to gold by the recent flight to cash.
There are other options. You can use banknotes; although a US$100 bill has lost >90% of its value relative to gold since the end of the gold standard, 15 hundred-dollar bills still weigh less than an ounce. As we saw a couple of years ago in India, though, the government can declare your savings illegal with the stroke of a pen ("demonetization"), and then nobody in other countries will accept them anymore; less drastically, they can just print more money, producing inflation and having the same effect as a negative interest rate.
Gold and banknotes have the disadvantage that they're easy for bad people to steal from you, whether those bad people are the police ("asset forfeiture") or just have poor impulse control. Alternatives that are harder to steal: Bitcoin (although on Thursday it lost 50% of its value); treasury bonds (although they'll also lose value with negative interest rates and inflation); real estate (although some friends of mine had their house bulldozed by the government last year while they were fighting in court to keep it).
Diversify. And try to live somewhere that thinks that financial stability is more important than fighting drug trafficking or pedophiles or computer criminals or whatever excuse they're giving this year to take money from the poor and give it to the rich.
If you were really intent on buying physical gold, I don't know why you would bother with this instead of just buying gold coins from the US Mint. I don't think you'd have to worry about getting counterfeit gold in that case.
But why own physical gold? Why not just trade in gold futures or buy gold mining shares?
Same with silver.
"if you're rich, open a Swiss bank account — no longer an option available to US citizens"
If you want the stability of the Swiss Franc, it can be traded on the foreign exchange market.
Heavy gold chains under your clothes are a lot safer when you're traveling than a bunch of coins. Moreover, the 1933 Executive Order confiscated the coins but not the chains.
> But why own physical gold? Why not just trade in gold futures or buy gold mining shares?
It's harder to confiscate, especially at scale.
> If you want the stability of the Swiss Franc, it can be traded on the foreign exchange market.
What does the franc have to do with anything? This is a non sequitur.
Of course coin collectors and anyone dealing in bullion will not treat the coins as equivalent, and historically speaking this is one of the reasons for stamping the year and mint mark on the coins, but this is entirely at the discretion of the mint; there's nothing stopping them from issuing new "gold" coins with a lower percentage of gold and the same year mark, except for the same kind of social pressures that prevent the government from simply expropriating the contents of your bank account (as they did here in Argentina in 2001) or refusing to pay its bonds (as is happening here in Argentina right now.)
You might object that the United States isn't Argentina. But until just before 2001 Argentina wasn't Argentina either, not as we know it today; its troubles were behind it and it was the model country the IMF would show off to demonstrate how effective its economic recovery plans could be, even as the economy was gradually hollowed out. People living in the US, a country whose stock market just fell by 30% in a month and which didn't manage to produce or allow the importation of a reasonable number of COVID-19 tests until this weekend (although Korea, Japan, Germany, Taiwan, and China had no trouble with this) may find this sounds familiar.
If someone is concerned about the banking system expropriating their savings, it is not a reasonable response to offer them an alternative that makes it easy for banks, stockbrokers, or the government to expropriate their savings. That's precisely the kind of threat they want to defend against.
Pretty sure this will get downvoted, but just 5% Bitcoin + 95% cash has historically beaten equities with less risk.
Of course people are saving very aggressively. With rates going lower and lower, it means, you need to hunker down and cut your spending as much as possible because your retirement money isn't going to grow, at all, it's decreasing.
With every step interest rate goes lower, their just putting another nail in the coffin. The whole world is drunk on keynesian economics and it's not working, one bit.
What goes around, comes around. if you turn the screws on people and continue to hurt them financially, they'll have less and less money to spend, and it keeps making the economy even worse.
Two issues:
- How do we identify good times? EU would for sure said we have not had them since the last crisis.
- How do we get humans to save in good times. Not regular people but politicians that wants to get reelected more than anything else
By looking at the employment rate, not the meaningless unemployment rate numbers. https://tradingeconomics.com/united-states/employment-rate
> How do we get humans to save in good times.
By electing people that save responsibility. Post WWII the US paid down huge amounts of debt. Now it seems like Republicans want to loot the place whenever they get power and Democrats are willing to trade spending for more spending.
So they have been interjecting to keep the balance right.
Before QE you had country interest rates, but with many of those low, the new tool on the block is negative interest rates.
Sadly all these have produced two decades of fiscal responsibility that has seen saver mentality die and buy today, pay tomorrow increase. Which i'm sure looks great on some balance sheet and allows politicians and accountants to say hey, look at the growth, ain't we doing well and the market perception just nods and agree.
Any dent in that perception and a whole raft of cards quickly start to fall and with that in mind, interesting times ahead and let us see what happens.
Sorry, that actually made me laugh. Not "off with their heads!" anymore, but more like "I am not shopping anymore!" I am sure they tremble!
In fact a lot of the rich EU members should be doing that, but they all have a misguided notion of "fiscal prudence". As if the government's budget is the same as a household's budget.