Interest rates so low - don't bother saving!

GeorgeHowell

For the young, the debate as to whether to save or spend is usually a relevant one. For many older people, however, especially the retired it is not. Their savings are already in place -- often from commuted pension lump sums, separation payments, or inheritances. Because many people's pensions are inadequate, for a variety of reasons, they need this money, and the interest/returns from it, in order to maintain an acceptable standard of living. In some cases running into the capital may be unavoidable, but it's undesirable if it's going to run out whilst they still need it.

For such individuals today's low interest rates and flat stock market are a disaster. Government policy is to say to them, "Tough, get over it, it's all about stimulating growth." But the real reasons go deeper I think. We are a very ageist society -- probably the most ageist in the developed world -- and politicians see political capital in appeasing the young at the expense of the older, for example by keeping mortgage rates low and inflating away debt. As we have seen from many of the posts on this forum, far from having any sympathy with older people struggling to maintain a reasonably comfortable quality of life, many younger people resent the fact that they don't exacerbate the problem by moving into pokey flats so that their property can be passed to the younger generations now.

lvader

Glen_Clark wrote: »

Commodity values in general are not rising.
Its the value of the pound that is falling.

All they can hope to achieve is to keep pace with a basket of currencies, despite more QE the pound has done well in the last 12 months. Commodity prices are all about demand, not really about the value of currencies. This is proved by the fact that some commodities are still below 2007 peaks despite all the extra money printing in the last 3-4 years.

grey_gym_sock

GeorgeHowell wrote: »

We are a very ageist society -- probably the most ageist in the developed world -- and politicians see political capital in appeasing the young at the expense of the older, for example by keeping mortgage rates low and inflating away debt.

there is certainly an extreme ageist outlook promoted by the advertizing industry. and politicians have sometimes have tried to tap into that. e.g. by claiming that britain is a "young country".

but a lot of that is empty rhetoric. i'm not so sure that ageism is behind governments' economic policies.

if it's about votes, more old ppl than young ppl turn out to vote. and the proportion of old ppl is rising.

i suspect that sub-inflation interest rates are attractive to politicians because either

(a) it keeps public sector debt relatively under control

or (b) it keeps the banks superficially solvent while they slowly deleverage over a few decades

i would also point out that, while it's true that real interest rates have been slightly negative over the last few years, when previously they were slightly positive, i suspect that many pensioners are (mistakenly) more worried about nominal interest rates being very low. some ppl happily spent 10% interest when they could get it, blithely ignoring that fact that inflation was 7% and so their real capital was going down.

GeorgeHowell

grey_gym_sock wrote: »

there is certainly an extreme ageist outlook promoted by the advertizing industry. and politicians have sometimes have tried to tap into that. e.g. by claiming that britain is a "young country".

but a lot of that is empty rhetoric. i'm not so sure that ageism is behind governments' economic policies.

if it's about votes, more old ppl than young ppl turn out to vote. and the proportion of old ppl is rising.

i suspect that sub-inflation interest rates are attractive to politicians because either

(a) it keeps public sector debt relatively under control

or (b) it keeps the banks superficially solvent while they slowly deleverage over a few decades

i would also point out that, while it's true that real interest rates have been slightly negative over the last few years, when previously they were slightly positive, i suspect that many pensioners are (mistakenly) more worried about nominal interest rates being very low. some ppl happily spent 10% interest when they could get it, blithely ignoring that fact that inflation was 7% and so their real capital was going down.

You make some very good points, particularly in the final paragraph. Savers are certainly better off with low rates and low inflation than the other way round.

I do believe however that the prevailing ageist culture makes it easier for these current policies to be maintained. In countries where the older generation is respected and looked after as a matter of course, the opposition to such policies would surely represent a stronger voice and there would be less perceived electoral advantage in pursuing them. It seems to me for example that there is substantially more outcry and adverse publicity in this country about the Jimmy Savile affair than there is about the Liverpool Care Pathway. Whereas both should be treated with equal alarm, dismay, and outrage.

JohnRo

GeorgeHowell wrote: »

Government policy is to say to them, "Tough, get over it, it's all about stimulating growth." But the real reasons go deeper I think.

Government policy is to preserve and maintain the privileges and lifestyles of the people they rely on to survive as much as is possible, and to make everyone else pay for it. Western government is little more than a corporate kleptocracy dressed as something else.

The robbing of savers and pensioners by artificially forcing interest rates to historic lows has nothing to do with helping the younger end of the population and everything to do with propping up the slum lord industry and the value of property assets which is the only substantial piece of flotsam the banking sector have left to cling to, and eventually profit from once all their other toxic speculations have been transferred to the public debt mountain.

Glen_Clark

lvader wrote: »

All they can hope to achieve is to keep pace with a basket of currencies

Is this a joke?
The pound hasn't even kept up with the Euro
We were getting 1.4 Euros to the pound when the Euro was introduced.

Glen_Clark

GeorgeHowell wrote: »

politicians see political capital in appeasing the young at the expense of the older,

Wrong. The old get a much better deal than the young because they are more likely to vote.
They pay less income tax on the same income.- Plus;
State pension much higher than benefits for those of working age.
Plus free TV licence, Winer fuel allowance, Bus Pass, Prescriptions, etc etc irrespective of income. All the figures I have seen show average pensioners with more disposable income than those of working age.

GeorgeHowell wrote: »

for example by keeping mortgage rates low and inflating away debt.

Thats nothing to do with ageism. Its about maintaining inflated property and asset prices, - in fact the old tend to benefit from that more than the young.
Savers invite hostility by trying to demand a real income from savings for doing nothing. Where the savings are not at risk, savers should be satisfied with net interest rates that match inflation. If they asked for that, they would get much more public support.

GeorgeHowell

Glen_Clark wrote: »

Savers invite hostility by trying to demand a real income from savings for doing nothing. Where the savings are not at risk, savers should be satisfied with net interest rates that match inflation. If they asked for that, they would get much more public support.

I've seen some twaddle posted on this site -- on a savings and investments thread in this case -- but this rather takes the biscuit.

Another chip-on-the-shoulder age-warrior it appears.

lvader

Glen_Clark wrote: »

Is this a joke?
The pound hasn't even kept up with the Euro
We were getting 1.4 Euros to the pound when the Euro was introduced.

You could go back further to when the pounds was worth less, at least in USD terms. We have also gone from less than parity with the Euro a few years ago to touching 1.3 Euros a few months ago. Right now the pound looks stable, if commodity prices take off again because of China the stability of the pound will be irrelevant to commodity prices.

Glen_Clark

GeorgeHowell wrote: »

I've seen some twaddle posted on this site -- on a savings and investments thread in this case -- but this rather takes the biscuit.

Another chip-on-the-shoulder age-warrior it appears.

George, I am a pensioner and most of my savings are in cash.
But I can still see that to expect those without money to pay a real income to those who have it is morally indefensible. The fact that you can't defend it is shown by the fact that you can only reply with abuse.
For net interest rates to match the real rate of inflation is all we can realistically ask for. And it is something the country needs so as to encourage people to save for their retirement, and, above all, to restore and maintain confidence in the currency. Because once people lose confidence in the currency, its game over for the economy.