He says: “Just think, for every 100,000 dollars of a citizen’s assets, the international buying power dropped $26,000 this past year vs. the Euro. Not only does that wipe-out incentive for foreigners to invest in dollar assets to help finance our savings-short, deficit economy, (but also it wipe’s out American incentive.) Americans neither”.
Michael W. Hodges – USA.
He wrote further: “I think many scared eyes these days are on the US dollar, now down 26% vs. the Euro past year, also down against many others including 21% vs. Swiss franc. To help place this decline in historic perspective, look at my long term trend chart which comes from my chapter called ‘Grandfather Foreign Exchange Report”. (Read this whole article of 2003 on Gold Eagle/Editorials).
Considering the times and the wish of many for quickies with the numbers, I have created that page called Grandfather Debt Summary Table Report. Financial Sense is publishing my new table as of today, but I encourage you to visit often as the numbers will unfortunately increase. (See all on Dept Summary Table Report).
He writes on Nov. 20, 2004 on on this page of Financial Sense Online: Beginning in 2001, the Federal Reserve reduced short-term interest rates 13 times, dropping the federal funds rate 84% (from 6.5% to a 1% rate, the lowest in generations) and injected massive amounts of liquidity into the monetary system – - all aimed at subsidizing existing debt in all sectors, and promoting even more debt, much more debt – - believing that the U.S. economy and its government cannot function without more and more debt injections, just like a drug junkie needs higher doses each week. These actions devastated interest income from savings upon which seniors depend to pay their cost of living in food, property taxes, prescription drugs, dental care, etc. Such causes health and economic angst for many seniors. (Although the funds rate moved to 2% recently, its still down 70%). If a politician would publicly propose a policy to reduce senior citizen incomes by 84% we know what would happen to him. But not a peep is heard when politicians quietly allow and even encourage government (and its Federal Reserve) policies that devastate senior citizen interest incomes from their savings by 84%, and also trash the international value of the currency in which their savings reside by 43%. Why not? Politicians even brag about ‘the lowest interest rates in generations’ as if they personally created a free lunch for everybody – with zero losers. Why do they brag about devastating senior incomes?
There is no doubt that many senior citizens feel a wave of ‘financial terrorism’ has purposefully been launched against them by their government and the financial sector. They feel their pockets are being picked, each and every day. Interest income from their hard-earned savings has been crushed to rates not seen in their adult life-times, and the international buying power of those savings is also being crushed. Such actions have been promoted by powers-to-be which are in fact confiscating those savings to subsidize more debtors to ’save the economy’ – - as if siphoning-off earnings of savers to subsidize the financial sector and enable others to borrow their ways to prosperity were equitable concepts. What kind of government and what kind of financial system would allow senior savers to be crushed to subsidize more debt by others? Answer: ours. Many believe, wrongly in my view, that a nation can excessively borrow itself to prosperity while crushing the few savers still standing, including many senior citizens. And, many also believe, wrongly in my view, that a nation can resolve surging trade deficits both by promoting soaring debt in all sectors and by devaluing the international value of its currency as ways to reduce imports and drive exports to a positive trade balance of prosperity while continuing to pile on more debt – - even if it means crushing the international value of their savers and sticking the finger in the eye of all those foreign holders of US debt on which this nation desperately depends.
Many senior citizens deferred consumption during their working years to save hard cash to generate income for their retirement. They thought that approach was good for them and for their nation, never believing their planning should consider interest rates of 1-2% or less and a devaluing currency. Would any knowledgeable senior citizen vote for anyone who allowed policies that caused an 84% cut in interest income from their savings PLUS a 43% cut in the international buying power of the principal value of savings? Don’t yawn just because you are not a senior, unless you are certain all your own assets increased at least 43% to compensate for their loss of international buying power. Several years ago a senior’s $100,000 savings invested in a 7% 2-year certificate of deposit produced $7,000 in interest income, which was then equivalent to 7,900 Euros. Today he’s lucky if he realizes $2,000 (2%) on that certificate of deposit, which is equivalent to about 1,500 Euros. This represents a 71% ($5,000) cut in dollar income, and an 81% (6,400 Euro) drop in Euro-equivalent income. Additionally, the principal value of that original $100,000, which used to be worth 110,000 Euros, is now worth just 76,000 Euros – - a 34,000 Euro ($43,000) loss in international buying power via exchange rate loss.
I think everyone will agree these are huge loses – - humungous losses.
Seniors and other savers are taking the hit – - big time – - with no light pointing to the end of this tunnel. Let’s look at this another way. A senior with a $5,000 home property tax bill, or an annual expenditure of $400 per month for prescription drugs, several years ago could cover one of these with the interest earnings from savings invested in a $70,000 (7%) certificate of deposit. Now, with CD rates at 2% or less, he would need (if he could create out of thin air) a $250,000 CD ($180,000 more) to produce the same income – - provided, of course, his prescription prices and property taxes did not go up (have you ever heard of property taxes or prescription drug prices going down?).
So, where does he get that extra $180,000 to produce the required income?
Answer: … (Read the whole long article about FINANCIAL TERRORISM AGAINST SENIORS on this page of Financial Sense Online).