Posted on Monday, 18th June 2012 by

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My wife and I moved last month and in the process we went through everything to purge what we didn’t need.  We ended up donating, giving away or throwing out many things we accumulated over the decades. I kept all of our check registers back to the late 1960s and as we went through them, Mary and I were amazed at just how things have changed these many years later.

The changes I’m referring to aren’t subtle. I remember my mother telling me that in the early 1930s she could buy an entire meal at a restaurant including a drink for 35 cents! Our Aunt Mamie’s mother, Mary’s grandmother, lost their home in the 1930s because she couldn’t pay the $11 a month mortgage!  In the early 60s I vividly recall stopping at a local drugstore in our neighborhood to order a cherry phosphate for 5 cents.

Back in December of 1971 we paid $15 a week for 5 day a week 9 hours a day childcare; my wife worked while I was in the Air Force.  A typical gas station fill up for our 1963 Chevy Impala with a 20 gallon tank cost $4.60 to $8.70. Here is a list of some of our 1971 typical expenses:

  • Rent  $113
  • Telephone  $15.36
  • Gas (heating) $5.00
  • Electric $7.79
  • Trip to grocery store $8 to $15
  • Doctor visit $5

Our 1971 check register’s balance ranged from $6 to $300 with most days well below $100. In 1975, when I first transferred to the FAA, I was living in a boarding house in Phillipsburg PA, paying $20 a week for rent. A local restaurant offered a breakfast of 2 eggs, home fries, toast, and coffee for 75 cents!

Today prices are something to marvel at especially for those of us who remember the cost of things 40 plus years ago. Many today, especially the young, think nothing of paying $5 for a cup of coffee or $50 for a manicure. We are numb to the cost of things as we pay $70 to fill up our cars and shell out $200 at the grocery.

The reasons for the obvious inflation are diverse and difficult to understand for many. Retirees and savers of all ages get it on both ends. As prices continue to escalate our savings are worth less each day as government continues to print money without any thought to the long term consequences.  Many long for the days when they could get 5% on bank savings accounts and CDs paid more than enough to compensate for inflation.

What many don’t understand is that the low interest rates are a tax. I listen to Hefren Tillotson’s “Your Money and You” show each Sunday morning, hosted by Jim Meredith. Their June 3rd show explained just why interest rates are low and are in effect an onerous tax on all of us.  If you listen to the June 3rd pod cast he addresses this when he answers the first caller’s questions, about 10 minutes into the show.

Jim explains that a tax is a transfer from you and me to the public sector. The loss of earnings on bank deposits is effectively a silent tax. If you had $10,000 in the bank you made 5% ($500 a year) several years ago. The earnings on that $10,000 today is lost due to the artificially low interest rates and is transferred to federal government in the form of lower borrowing costs. This is basically a way for the government to transfer your wealth to them.  The government is keeping interests rates low so they can continue to sell bonds (borrow money) at extremely low interest rates thereby reducing the amount they must pay bond holders (creditors).

Jim also explained that each day the federal government borrows around 5 billion dollars and 3 billion is  purchased by the Federal Reserve with money they simply print out of thin air to reduce the deficit! If interest rates reset to normal levels the deficit would double to 2 trillion a year. The impact is that the federal government is paying less to borrow money and you are earning much less on your money so they can borrow more and pay less.

Here are ways to be better prepared and possibly earn higher yields:

The long and short of it is that we all have to be cautious and watch what we spend to ensure we have a safe and secure retirement. Can you imagine how bad it will get for retirees if costs continue to rise and the value of our savings shrinks drastically with inflation?

The best way to protect ourselves is to have little to no debt and savings and investments available for when you will need them. Hopefully this country will change course and stop trying to borrow its way out of debt, only time will tell.

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