I hear a lot of talk about how a federal government default would mean higher interest rates, and I have to tell you, in one respect, I’m not sure that would be a bad thing.
OK, it would be. Default, I mean. A horrible blow. The nation’s credit rating would suffer, the international economy could tank.
But on the other hand, default would man higher interest rates, and higher interest rates would help a very large segment of the economy.
The GOP folk hate the idea of raising taxes to close the deficit gap, claiming taxes are “job killers.”
But there is an invisible tax levied on everyone in the nation with a savings account. This tax is sucking billions out of the economy, killing millions of jobs.
I’m talking about interest rates.
Have you seen what your average savings account pays for interest these days? Maybe half of one percent, if you are lucky. A five-year CD may get you a bit more, up to one percent or (luxury!) 1.5, but even that’s a pittance.
This has a direct impact on retirees, of which we have a lot. If we don’t want to see increasing demands for Social Security increases, something must be done to raise interest rates.
It’s simple. Retirees live off of invested money. They could spend their principal, but that runs the risk of running out before they die. If they have enough savings, and interest rates good, they can live comfortably and independently.
But with interest rates so horrible, someone with half a million in the bank — a figure on the low end of an adequately funded retirement plan — is still getting diddly. That means retirees have less to spend at the store, which means the stores make less money, which means the stores hire fewer people. Some are having to call back on their children for help.
Inflation is at near zero — officially, but seniors are bearing the brunt of medical cost increases, gasoline increases and food increases because, on their low incomes, that’s pretty much all they buy. With their income fixed at what Social Security will pay — and SS follows the cost of living index for everyone, not just seniors — plus at the tiny amount their investments pay, they’re stuck.
Who benefits from all this?
You know: banks. Not having to pay interest is a huge financial gift to them. Getting use of other people’s money for free makes life very good for them.