Early Retirement Blog

A shocking headline story by AP reporter Valerie Bauman, citing a Dept. of Agriculture report that seniors seeking food assistance has risen by 81% in just the past year, leads me to conclude that the U.S. Government and Federal Reserve are bailing out Wall Street on the backs of seniors.

Seniors on fixed incomes, who receive most of their income from U.S. Treasury Bonds and CD’s, have been hammered by the U.S. Treasury and Federal Reserve’s decision to prop up Wall Street banks and corporations, by keeping interest rates artificially low.

Seniors who depend on the income they receive from U.S. Treasury Bonds and CD’s, to pay their monthly bills in retirement, have seen their incomes nearly vanish over the last two years, as the Federal Reserve dropped interest rates to virtually zero in a desperate attempt to avert a collapse of the financial industry in the United States.

Not only are desperate seniors seeking food assistance in growing numbers, one senior nicknamed the “Geezer Bandit” and described as being in his seventies, has taken to robbing banks to support his retirement.   If interest rates were not being kept artificially low, seniors would be receiving higher incomes, and would not be forced to make a choice between crime and charity to survive.

Wall Street banks and corporations profit from artificially low interest rates in several ways.   For banks, artificially low interest rates increase their revenues and minimize their losses.   Low interest rates prop up housing values,  allowing banks to avoid writing-off their toxic real estate assets, which would result in banks taking greater losses.

Banks are also profiting from the “Interest Rate Carry-Trade”, where they borrow at near zero and turn around and charge their customers 19% and sometimes much higher rates, on their credit card and other debts.   The margins are tremendous, and it is not only Americans who are paying the price, banks are raking in big profits overseas.

Banks are involved in an international interest rate carry trade, borrowing dollars at zero cost from the U.S. Federal Reserve,   and investing them in foreign currencies at higher interest rates.   Russia recently announced that it would be lowering it’s official interest rates, in an effort to keep foreign institutional investors and banks, from speculating in it’s stock and bond markets.

Corporations profit from artificially low interest rates by having to pay less to finance their corporate debt, and low interest rates benefit their share prices, as investors seeking better than zero rates of return on U.S. Treasuries place their money in the stock market.

In the same way as corporations benefit from artificially low interest rates, paying less on interest charges on the money they borrow, the U.S. Government can maintain larger budget deficits by paying less interest on the money it borrows in the form of U.S. Treasury sales.

Wall Street banks, corporations, and the U.S. Government, all benefit from keeping interest rates artificially low.   The principal group of Americans that suffer from artificially low interest rates are seniors who depend on interest income for their survival.   Wall Street and Washington are being bailed out by America’s seniors.

If interest rates are artificially low, then where should interest rates be, and what can be done to help our struggling seniors?   Although it is impossible to say at what correct interest rate should be, if the Federal Reserve and U.S. Treasury were not manipulating the rates, it is easy to know when correct interest rates have been reached.

Interest rates will be at their correct levels when, the dollar stops falling in value relative to other currencies and commodities, and begins rising against currencies and commodities.

Seniors benefit from higher interest rates and a rising dollar, as higher interest rates increase their income, and a rising dollar decreases their cost for gas, food, and other goods.   Higher interest rates could potentially create a senior stimulus, where seniors spend their increased income on travel, and other purchases.   Increased senior consumption, could help overcome reduced consumption by working Americans, leading to a faster economic recovery.

If you are a senior who depends on interest income from Treasury Bonds and CD’s, there is nothing that will help better improve your financial situation, than a rise in interest rates above their current artificial levels.    Share this article with your congressperson and senator by using the “Share This” button below and entering your Congressperson email address.

Let them know that you oppose bailing-out bankers at the expense of seniors, remind them that elections are around the corner, and that they should oppose the re-confirmation of Ben Bernanke as Chairman of the Federal Reserve.

Seniors should not be standing in soup kitchen lines while the bankers who destroyed and looted our economy are receiving record bonuses.