Wednesday, February 1, 2012

29% of Coloradoan's have no savings

This morning there was a news story that said 29% of Coloradoan's have no savings, they cannot weather an unexpected expense. This type of story saddens me tremendously. But these stories also piss me off! They piss me off because the blame is always put on the poor person who doesn't save. To some extent this is where the blames lies, but to a large extent the blame truly lies with the failed monetary policies of the federal reserve and the government.

Currently on Bankrate the highest one year CD earns 1.08% with a 25k minimum! What kind of idiot thinks that investing in savings is a worthwhile mechanism for maintaining or growing wealth? Even by the governments own distorted accounting, inflation is closer to 3% which means every dollar getting a 1% return is losing 2% in purchasing power, and frankly the government is lying about the inflation rate and the true inflation rate is much higher. The incentives are all wrong. If interests rates were higher it would encourage more savings, but the government is forcing interest rates lower than inflation, which encourages more debt and less savings. This policy works out great for those who don't save and have access to borrow at these absurdly low rates, but poor people cannot get into this game, their debt comes mostly in the form of high interest credit card debt, which means the credit card companies are borrowing from the federal reserve at rates at 1% or below and then using that money to pay off their customers credit card charges, and then charging their customers 10-30% interest rates on that money they also borrowed, it is a scam of magnificent proportions.

In a free market interest rates are determined by the availability of money. The more savings that are available to be lent out, the lower interest rates will be, the less savings available to be lent out, the higher interest rates will be.

At the end of the article, they also suggest putting money in savings through a company 401k, this defeats the entire concept of the rest of the article which focuses on the need for savings in the case of emergency. Money saved in a 401k is not useful if your car breaks down, or you have an unexpected medical issue, or lose your job. For these kinds of expenses you need a more liquid form of savings.

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