Some of you may remember that I write a column for the U. S. News Retirement website. Last week I wrote a piece titled "Why Higher Interest Rates Could Hurt Retirees."
In the article I was trying to point out the silver lining to the cloud of low interest rates for retirees. Many retirees, myself included, bemoan the fact that because of low interest rates their retirement savings are producing little or no income. Back in the mid-2000s, when interest rates were around 5 percent, I received about $700 a month from my savings account. Today, with rates close to zero, I receive less than $10 a month. That's quite a salary cut.
But the silver lining is the current low inflation rate, which comes along with low interest rates and benefits retirees more than anyone else. Low inflation tightens up the job market and puts downward pressure on salaries (one reason why wages have not grown for the last 10 or 15 years). But it helps people who are on a fixed income. And most retirees are on a fixed income.
Pensions are typically not indexed to inflation, and while Social Security does offer an inflation adjustment, the increase is usually taken back by the increase in Medicare payments. Now, if you own rental property, you can protect yourself from inflation because you can raise the rent. But only 7 to 8 percent of retirees own a rental property. So that doesn't help most of us. The bottom line: Retirees are hurt by high inflation; and they benefit from low inflation.
Honestly, I thought this was mostly a beside-the-point economic argument. I was trying to make people like me feel better. Instead, when the piece got picked by by Yahoo Finance, I got a lot of vitriolic reaction to the article.
A few people actually agreed with me. One reader wrote, "The war on savers has continued for years. Savers who are trying to get historical levels of interest on "safe" investments -- t-bills, CDs, etc., have been crushed."
But most people thought I was an idiot. Some figured I was part of a government conspiracy, in league with Janet Yellen and the hated Federal Reserve. Still others felt that I was shilling for the banks.
Why? Because most people don't believe the government when it says there's no inflation.
One person responded: "This guy is clearly an idiot. The first sign is that he believes inflation is near zero. I keep asking the Fed governors what universe they live in with their 2 percent inflation rate, because I would sure like to move there. Virtually everything I pay goes up by at least 10 percent a year."
Someone else added, more mildly, "If inflation is virtually zero, how come so many things these days have gone up considerably in price, and companies are giving us less product?"
Another wrote, "What does he mean there is no inflation? Doesn't he ever buy groceries? Doesn't he ever pay medical bills, property taxes, utility bills or insurance premiums? The Federal Reserve has been raping old people dependent upon savings for ten years by holding interest rates artificially low. The elderly are paying a huge tax in the form of no income while their money is used by the banks."
If you like reading nasty comments, you can go over to the article and find more. They are mostly along the same lines. But I don't take them personally. I just think people are angry and frustrated, because they don't understand how the world is working these days. (I know I sure don't.)
For so many people, their perceptions are different from the reality reported by the government. They don't trust government numbers. They don't trust the government at all. You can find the same distrust when the government reports employment figures. A lot of people simply do not believe, based on their own experience, that the unemployment rate is 5.5 percent as the government claims.
Anyway, just for the record -- and you can look it up -- according to the June 2015 report from the U. S. Bureau of Labor Statistics, "Over the last 12 months the Consumer Price Index was unchanged before seasonal adjustment." In other words, the U. S government says that for the past year inflation is at zero percent. There is no inflation.
But it's not just regular people who don't believe it. Legendary investor Jim Rogers said recently, "Right now, there is inflation, but the U.S. Bureau of Labor Statistics
says there is no inflation. I don’t know where they go to shop, or where
they send their kids to school, or go to baseball games. There is
inflation all over the world."
As for me, honestly, I don't know what to believe. My home insurance bill just arrived. It's up by 7 percent over last year. But I still pay $40 to play golf -- the same rate I've been paying for years.