"An empty man is full of himself." -- Edward Abbey

Tuesday, July 7, 2015

I Am an Idiot, and Janet Yellen Is a Liar

     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.


Anonymous said...

OMG Tom, you really should lay off writing about anything financial. You said:
"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."

Here's where you don't get the point: everyone needs insurance! Practically no one, except elitists play golf!!!!! Of course the golf course people know that so if they want to stay in business they keep the prices steady to retain the select few. Prices have increased for human beings' necessities such as food, gas, insurance, medical, clothing, restaurant meals, etc. probably to the tune of 30%. Unemployment, once we calculate the 92 million human beings who have voluntarily given up looking for work, is around 10%. Just take a walk through the streets of NYC and you will see the hundreds of newly unemployed sleeping on the sidewalk streets. Or eat out at a NYC restaurant and try to walk out of there NOT being accosted by the homeless who want either your food leftovers or your restaurant bill change.
Grow up.
Our government is lying to us and have been for years.
Hopefully, once a Republican is elected back into office, most of us will finally see the truth.

Rosaria Williams said...

We all have a version of who the bad guy is! Inflation is perceived and felt by most of us, retired or not. Gone to the grocery store today?

Barb said...

Well, first, my experience on those sites is that the negative folk always seem to be the bunch complaining, so I would not take it personally.

And second, it's not only elitists who play golf, or my barely self employed college student would never play it, lol.

Having that said, there are a few studies that show that necessities (health care food, gas, child care, food and utilities) have all increased above inflation. And the price of many of these things are more than the actual cost (see college). Whereas many non necessities have stayed at the same price or gone down (toys, cheap clothing, cell phone service, even TVs). Housing is a real variant of what you live. So for people living on a fixed income, the increases in the basic expenses may mean that even those items that have gone down in price are out of reach after paying the basics.

As someone who gets a pension, I can say yes, I get a cost of living increase almost ever year, by the way.

As for the jobless issue, its the way they do the math. My son cannot get a job and looks. However, he is not getting unemployment (the primary statistic they look for) and they do not count anyone who has stopped looking, gone from a business job to a mcjob, is working ten hours a week because it is all they can get, or re-tooling, although of course all of this people are really still unemployed.

Its a sore subject in this house.

DJan said...

I am not going to get into an argument with anyone, but gosh it seems to me that everyone is dumping on you, Tom, unnecessarily. Yes, things have gone up in price, but when I think back of those years when inflation was running rampant, I can easily see that we are not there any more. It's better now, at least for me on a fixed income. In 2008, I lost a huge amount on my annuities, but they are back to where they were before, and a little bit better. Don't they leave out food and gas when they figure inflation? That's where I notice it the most. :-)

Tom said...

I play golf in a league that includes the cook at a local restaurant, the asst. sales manager at our Ford dealership, two retired teachers, a retired prison guard, a real-estate agent. I don't think anyone would call us elitist ... on the other hand, a lot of people wouldn't call us golfers either, they'd call us hackers instead!

As for necessities ... then how do we explain that the price of gasoline and heating oil has gone down; but I just read that Starbucks is raising prices on its already overpriced coffee?

Tabor said...

Oil has gone down because of the increase in fracking and natural gas availability. Once a global war starts, this will go up again. Maybe Greece default will start that rise. I think we measure the wrong things to track inflation. Food is up even seasonally. Utilities are up in my area if slightly. The things that count are up and investment returns are down.

stephen Hayes said...

At least inflation isn't jacking up the price of your golf game.

Pam said...

I believe these financial times are much more challenging for the younger generation than for those of use who are retired. Yes, I'd love to earn more on our investments, but you're right, Tom, we have no debt, so we can weather the storms much easier than our adult kids--well paid jobs with benefits are becoming a thing of the past. Here's hoping things improve for all of us in the near future!

Barb said...

Agreed. Golf courses are available let to all these days. I can't comment on the skill set because I don't play..Lol

As for necessities..food is up.electric costs are up. Gas being down is a temporary thing. Health care costs are up as is dental care. Property taxes are up almost everywhere, as I'd the cost of schooling from elementary school. Almost every kind of insurance is up. I track all of my costs in quicken and I am not a spender.

Barb said...

Agreed. Golf courses are available let to all these days. I can't comment on the skill set because I don't play..Lol

As for necessities..food is up.electric costs are up. Gas being down is a temporary thing. Health care costs are up as is dental care. Property taxes are up almost everywhere, as I'd the cost of schooling from elementary school. Almost every kind of insurance is up. I track all of my costs in quicken and I am not a spender.

Anonymous said...

I took golf in a junior college in san diego in the 60's! I loved it just never got around to buying the clubs working 3 jobs to graduate from college..No one gave me a dime to play golf and the people who did golf were the people who were in country clubs, still excluding minorities and jewish, etc. I found this out by attending a going away party for my college teacher he lived by a fancy schmancy golf place that excluded him he was jewish! I never got over that, been married almost 42 years to a man of the jewish faith I have heard and seen lots of crap about him being jewish! Our only lives in Brooklyn NY and loves it with our family from my hubs side, they treat her like the princess she is, loving and kind..She hates the west coast a lot, educated here but finds the people just plain plain ass dumb and discriminate..She sees plenty of people with degrees and work experience who are unemployed they are forced to live with their families, Inflation is for real, we get pensions but not a cost of living each year..plus social security..I am paying the HO insurance on our tiny home and don't complain one iota, I know many here in our tiny town in Washington state will never be able to buy a tiny house at all and they are educated, our country has gone down the wrong path and it won't take golfing to solve what is up with homelessness and hunger and unemployment!!!!!!!!!!!!!!!!!!!

Anonymous said...

I read your blog daily and I think you must be really well off, vacations to nice places a lot, golfing, new cars, etc..Most people on pensions and any kind of retirement are not so lucky at all..They barely are able to pay homeowners insurance, taxes and utilities, worst drought in 100 years in Washington state, it is a lovely place to live usually green and inclement weather, not this year, 90's and 100;s and no relief in sight..We have seen many lose their jobs and lose their homes, they did not live lavishly as one gets older one really should be mindful that many suffer in this great country..i volunteer at a food pantry and a domestic violence place, believe you me they don't golf, the country clubs here that have golf places have been hit hard, most of the wealthy people who usually go to the golf places are not gong there so some of the employees were laid off and that was a 2nd job for them..I hope you never know what it is like to have to decide what to pay in a month on a fixed income it is not pleasant..I know I just paid for an elderly lady to have her lights to be on and got her some food, we were surprised because she never mentioned anything happening, she is nearly 93 and worked her whole life outlived many, it was a honor, no I don't golf & I know how, just not interested!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Dick Klade said...

Don't worry, Tom, the ancient adage, "If you laid all the economists end to end they'd each reach a different conclusion," also applies to lay people who comment on economic matters. If the headline on your article had been more moderate and you had billed low inflation as taking some of the sting out of low interest rates for retirees you would have been right on.

A lot of the negative stuff is politically inspired, as the "outs" try to make a difficult situation much worse in their attempts to become "ins."

I'm getting only about 2 percent returns on my laddered CDs now, rather than 5 percent 6 years ago. (If your savings were laddered, your $700 a month 5 years ago now would be about $275, not $10). However, I just filled up our old car for $30 versus $50, the cost in the recent past. Just paid my auto insurance, and it was down $18 from last year. Help wanted ads are sprouting all over the place where we live.

And I was an avid golfer for a long time, and certainly did not have an "elitist" income. Keep on hacking as long as you can!

Kathy @ SMART Living 365.com said...

Hi Tom! Well you certainly got people thinking with this one and that is always good in my opinion. For me, statistics only show what those who put them out want us to believe in most cases. I think this quote describes it fairly well, “There are three types of lies: lies, damned lies, and statistics” (attributed to various people, including 19th century British Prime Minister Benjamin Disraeli). And I have to agree that most of the things I spend money on have gone up quite a bit in the last few years making me think that inflation (at least for things that are necessary) is still going up no matter what anyone says. i.e. house prices are nearly back to where they were before the big housing bubble here on the west coast. And yes, interest on savings is dismal to say the least. Fortunately my husband and I are still working and putting our money to work in other investments that are much better and we're doing okay. ~Kathy

Wisewebwoman said...

I'm seeing it most in groceries - and I barely paid attention before retirement - well partial retirement. I couldn't afford the full. I shopped carefully yesterday, found myself looking at the fruit and shopping the lower priced apples and nectarines. Small changes in me but huge in overall terms for those who are not as well fixed - relatively speaking.

The little luxuries like golf for you are saviours of sanity in my book. My $10 a month Netflix is that for me.


Hattie said...

I'm happy to say I have no money worries. Our home is mortgage free and we own rental property and we have our SS. My husband,age 73,still works and will probably never retire. I don't feel guilty about this mostly good luck. I am not unaware of the plight of less fortunate elders,however.

Douglas said...

Yes, Tom, there really is inflation but the government says there isn't because they changed the items they use to calculate it. Electronics get cheaper but food, rent (or housing), and everything else increases. Meanwhile, as you said, there is downward pressure on wages which means the wage gap widens. Meanwhile, the politicians use that to continue to divide us in order to garner votes. True, gas is much cheaper than it has been but, ask yourself, what did politicians (who take the credit) do to make that happen? Nothing. In fact, most of the policies are designed to increase the cost of energy in order to make alternative energy sources more attractive to investors. And when the Fed loosens its controls on interest rates? rampant and nasty inflation... some say "super inflation"... which will destroy the economy. I am not looking forward to the next decade.