7 ms·

Upside-Down World of Negative Rates Is Coming for U.S. Savers

45 points by spking 7y ago

throwanem 7y ago
If this happens, how does an ordinary someone, with a solid buffer in a regular savings account, protect the value of that buffer? That's an investment in financial stability, with returns valued in peace of mind rather than dollars. I'm not rich enough or reckless enough to qualify for a bailout. So how do I protect myself?
- tsherr 7y ago
  I'm guessing invest in stocks that pay dividends.
  - tathougies 7y ago
    Um dividends reduce the price of the shares. But, investing in a stable blue chip company to preserve wealth is a good idea. But 'stable, blue chip' doesn't mean dividend paying. They're two disjoint groups.
- gerikson 7y ago
  If we’re looking at a situation like the Great Depression, we might have deflation. In that case your dollars will buy more and more as prices fall.
  - thorwasdfasdf 7y ago
    With the immense amount of deficit the gov is currently under and will be under in the future, and the monetary policy of printing money, I'd say high inflation is much more likely. Even in the last several years, we've been having near 2%, or even over 2% inflation.
    - vikramkr 7y ago
      That's not high. We've been desperately trying to get inflation up and have taken extraordinary measures to try and raise inflation, but we're actually in a historic low inflation regime that's quite concerning - the fed would be thrilled if we'd be at 2-3 percent inflation consistently and easily. It's the reason we haven't been able to raise rates as high as they used to be, making government borrowing cheap, and why we've kept printing money. We're trying to get inflation up, its just not working that well.
      - deleted 7y ago
        [deleted]
      - deleted 7y ago
        [deleted]
    - jhayward 7y ago
      2% is historically low, and is in fact below what the Federal Reserve has been trying mightily to achieve. Inflation has been below target since the 2008 crash, more or less. There is a massive deflationary force acting on the economy. Anyone bringing up inflation fears, except to dismiss them, is not tracking any known factual reality.
- thorwasdfasdf 7y ago
  there's no way to protect yourself from it. You either Risk up and get into equities or have everything taken from you via inflation and low interest rates: that's the whole point. this is a wealth transfer from savers to non-savers.
  - Robotbeat 7y ago
    Either put the capital to use in the real economy, or moths and rust will destroy your hoard. That's fair.
    - thorwasdfasdf 7y ago
      Do you think it's fair, that the government issues you a Dollar one year, and the next year, they devalue it by 2% or more? then they devalue it some more every year 2% or more? If we can't even rely on a stable currency, what is the point of government? we might as well go back to bartering. In fact, this is what is happening. As people can't rely on money to hold it's value anymore, they're going back to hard assets like stocks, and real estate.
      - JumpCrisscross 7y ago
        > Do you think it's fair, that the government issues you a Dollar one year, and the next year, they devalue it by 2% or more? Inflation is at record lows. If anything, deflation is rearing its ugly head.
        isoskeles 7y ago
        Rent doesn’t seem to have gotten cheaper. Food too. And education and health care. How exactly is inflation at record lows, because the BLS said so?
        AnthonyMouse 7y ago
        Those things cost more relative to other things. Inflation is everything costs more, specifically including wages, because dollars aren't worth as much. The reason e.g. rents are high is that there is high demand for housing in cities and zoning restricts new construction. That's not inflation.
- Invictus0 7y ago
  You can still get a decent 1.85% 12 month CD with Marcus.
  - twiceaday 7y ago
    You can make a CD ladder so some money is available more often if its an emergency fund.
  - kevin_thibedeau 7y ago
    Or just get a high interest savings account and enjoy more liquidity.
  - thorwasdfasdf 7y ago
    That's going away soon. so better get in quick. If they hold ZIRP as long as they did last time, it'll be a very long time before we see rates go back up again.
- beamatronic 7y ago
  Pay down your mortgage. Guaranteed to save you money in the long term.
  - tathougies 7y ago
    Or refinance your mortgage and get paid for it...
    - theklub 7y ago
      Is that possible?
- thorwasdfasdf 7y ago
  You could consider high yield bonds, some of those pay out 4% to 5%. But, they are EXTREMELY risky. As, you can see from the huge equity drop in the last few days. In times of great stress, any kind of fixed income above 3% yield, will drop down 15% to 25% (at least in the latest example). Not, quite as huge of a drop as equities but still enough to make you worry.
- hocuspocus 7y ago
  Switzerland here. There hasn't been a reason to keep a savings account in a long time. My retired parents have mid six figures in cash doing nothing.
- kragen 7y ago
  The traditional answer to this question, for centuries, has been: if you're poor, buy gold, by weight — although acid for the acid test is getting harder to come by these days, very precise electronic scales are easy; if you're rich, open a Swiss bank account — no longer an option available to US citizens. At US$1534 per troy ounce, 20 kg of gold is worth US$986400, so you can carry your entire savings in a backpack in the form of gold if necessary. To a great extent this was illegal in the US from 1933, when the government confiscated all the gold and silver coins it could find, until 1974. If you're buying today as opposed to two weeks ago you might consider some silver, because its price has been driven sharply down relative to gold by the recent flight to cash. There are other options. You can use banknotes; although a US$100 bill has lost >90% of its value relative to gold since the end of the gold standard, 15 hundred-dollar bills still weigh less than an ounce. As we saw a couple of years ago in India, though, the government can declare your savings illegal with the stroke of a pen ("demonetization"), and then nobody in other countries will accept them anymore; less drastically, they can just print more money, producing inflation and having the same effect as a negative interest rate. Gold and banknotes have the disadvantage that they're easy for bad people to steal from you, whether those bad people are the police ("asset forfeiture") or just have poor impulse control. Alternatives that are harder to steal: Bitcoin (although on Thursday it lost 50% of its value); treasury bonds (although they'll also lose value with negative interest rates and inflation); real estate (although some friends of mine had their house bulldozed by the government last year while they were fighting in court to keep it). Diversify. And try to live somewhere that thinks that financial stability is more important than fighting drug trafficking or pedophiles or computer criminals or whatever excuse they're giving this year to take money from the poor and give it to the rich.
  - pmiller2 7y ago
    Gold is fairly illiquid when you need cash in an emergency. There’s also some volatility to it. Those are two things you really don’t want in a store of value.
    - growlist 7y ago
      You'll likely still be able to sell gold for something in all but the very worst SHTF scenario. I'm not sure you can say the same about many other types of investment. Those ETFs won't buy many rabbits for the pot.
- ad31mar 7y ago
  > So how do I protect myself? Pretty sure this will get downvoted, but just 5% Bitcoin + 95% cash has historically beaten equities with less risk.
- easymodex 7y ago
  Buy bitcoin, I wish I could say I'm joking.
KWxIUElW8Xt0tD9 7y ago
gold
thorwasdfasdf 7y ago
>> "For instance, German household savings have jumped to 11.2% of income, the highest in over a decade, and savings rates in Denmark and Sweden are near all-time highs." Of course people are saving very aggressively. With rates going lower and lower, it means, you need to hunker down and cut your spending as much as possible because your retirement money isn't going to grow, at all, it's decreasing. With every step interest rate goes lower, their just putting another nail in the coffin. The whole world is drunk on keynesian economics and it's not working, one bit. What goes around, comes around. if you turn the screws on people and continue to hurt them financially, they'll have less and less money to spend, and it keeps making the economy even worse.
- eternalban 7y ago
  > What goes around, comes around. if you turn the screws on people and continue to hurt them financially, they'll have less and less money to spend, and it keeps making the economy even worse. Sorry, that actually made me laugh. Not "off with their heads!" anymore, but more like "I am not shopping anymore!" I am sure they tremble!
  - SketchySeaBeast 7y ago
    If people's retirement money is shrinking, it's not just "I'm not shopping anymore" it's "I have to save as much as I can to try to make up for attrition to just keep my rainy day fund afloat." I can't see how I'd want to invest when I know that the money I'm saving "just in case" is quickly disappearing on me. I need to keep putting money in my bank account to just to stay in the same place on the treadmill. It's basically putting in a constant overdraft fee.
- anthony_romeo 7y ago
  Keynesianism only works (in theory) if an economy pumps the breaks a bit during the good times. Failure to do that isn’t really Keynesian, and the US has done nothing but hit the gas during the past few years of growth.
  - 7y ago
virmundi 7y ago
Does this act as the catalyst for American and the EU embracing communism? If we are wiping out assets, will the people want to centralize wealth into the works hands?

45 points by spking 7y ago

If this happens, how does an ordinary someone, with a solid buffer in a regular savings account, protect the value of that buffer? That's an investment in financial stability, with returns valued in peace of mind rather than dollars. I'm not rich enough or reckless enough to qualify for a bailout. So how do I protect myself?

tsherr 7y ago
I'm guessing invest in stocks that pay dividends.
- tathougies 7y ago
  Um dividends reduce the price of the shares. But, investing in a stable blue chip company to preserve wealth is a good idea. But 'stable, blue chip' doesn't mean dividend paying. They're two disjoint groups.
gerikson 7y ago
If we’re looking at a situation like the Great Depression, we might have deflation. In that case your dollars will buy more and more as prices fall.
- thorwasdfasdf 7y ago
  With the immense amount of deficit the gov is currently under and will be under in the future, and the monetary policy of printing money, I'd say high inflation is much more likely. Even in the last several years, we've been having near 2%, or even over 2% inflation.
  - vikramkr 7y ago
    That's not high. We've been desperately trying to get inflation up and have taken extraordinary measures to try and raise inflation, but we're actually in a historic low inflation regime that's quite concerning - the fed would be thrilled if we'd be at 2-3 percent inflation consistently and easily. It's the reason we haven't been able to raise rates as high as they used to be, making government borrowing cheap, and why we've kept printing money. We're trying to get inflation up, its just not working that well.
    - deleted 7y ago
      [deleted]
    - deleted 7y ago
      [deleted]
  - jhayward 7y ago
    2% is historically low, and is in fact below what the Federal Reserve has been trying mightily to achieve. Inflation has been below target since the 2008 crash, more or less. There is a massive deflationary force acting on the economy. Anyone bringing up inflation fears, except to dismiss them, is not tracking any known factual reality.
thorwasdfasdf 7y ago
there's no way to protect yourself from it. You either Risk up and get into equities or have everything taken from you via inflation and low interest rates: that's the whole point. this is a wealth transfer from savers to non-savers.
- Robotbeat 7y ago
  Either put the capital to use in the real economy, or moths and rust will destroy your hoard. That's fair.
  - thorwasdfasdf 7y ago
    Do you think it's fair, that the government issues you a Dollar one year, and the next year, they devalue it by 2% or more? then they devalue it some more every year 2% or more? If we can't even rely on a stable currency, what is the point of government? we might as well go back to bartering. In fact, this is what is happening. As people can't rely on money to hold it's value anymore, they're going back to hard assets like stocks, and real estate.
    - JumpCrisscross 7y ago
      > Do you think it's fair, that the government issues you a Dollar one year, and the next year, they devalue it by 2% or more? Inflation is at record lows. If anything, deflation is rearing its ugly head.
      - isoskeles 7y ago
        Rent doesn’t seem to have gotten cheaper. Food too. And education and health care. How exactly is inflation at record lows, because the BLS said so?
        AnthonyMouse 7y ago
        Those things cost more relative to other things. Inflation is everything costs more, specifically including wages, because dollars aren't worth as much. The reason e.g. rents are high is that there is high demand for housing in cities and zoning restricts new construction. That's not inflation.
Invictus0 7y ago
You can still get a decent 1.85% 12 month CD with Marcus.
- twiceaday 7y ago
  You can make a CD ladder so some money is available more often if its an emergency fund.
- kevin_thibedeau 7y ago
  Or just get a high interest savings account and enjoy more liquidity.
- thorwasdfasdf 7y ago
  That's going away soon. so better get in quick. If they hold ZIRP as long as they did last time, it'll be a very long time before we see rates go back up again.
beamatronic 7y ago
Pay down your mortgage. Guaranteed to save you money in the long term.
- tathougies 7y ago
  Or refinance your mortgage and get paid for it...
  - theklub 7y ago
    Is that possible?
thorwasdfasdf 7y ago
You could consider high yield bonds, some of those pay out 4% to 5%. But, they are EXTREMELY risky. As, you can see from the huge equity drop in the last few days. In times of great stress, any kind of fixed income above 3% yield, will drop down 15% to 25% (at least in the latest example). Not, quite as huge of a drop as equities but still enough to make you worry.
hocuspocus 7y ago
Switzerland here. There hasn't been a reason to keep a savings account in a long time. My retired parents have mid six figures in cash doing nothing.
kragen 7y ago
The traditional answer to this question, for centuries, has been: if you're poor, buy gold, by weight — although acid for the acid test is getting harder to come by these days, very precise electronic scales are easy; if you're rich, open a Swiss bank account — no longer an option available to US citizens. At US$1534 per troy ounce, 20 kg of gold is worth US$986400, so you can carry your entire savings in a backpack in the form of gold if necessary. To a great extent this was illegal in the US from 1933, when the government confiscated all the gold and silver coins it could find, until 1974. If you're buying today as opposed to two weeks ago you might consider some silver, because its price has been driven sharply down relative to gold by the recent flight to cash. There are other options. You can use banknotes; although a US$100 bill has lost >90% of its value relative to gold since the end of the gold standard, 15 hundred-dollar bills still weigh less than an ounce. As we saw a couple of years ago in India, though, the government can declare your savings illegal with the stroke of a pen ("demonetization"), and then nobody in other countries will accept them anymore; less drastically, they can just print more money, producing inflation and having the same effect as a negative interest rate. Gold and banknotes have the disadvantage that they're easy for bad people to steal from you, whether those bad people are the police ("asset forfeiture") or just have poor impulse control. Alternatives that are harder to steal: Bitcoin (although on Thursday it lost 50% of its value); treasury bonds (although they'll also lose value with negative interest rates and inflation); real estate (although some friends of mine had their house bulldozed by the government last year while they were fighting in court to keep it). Diversify. And try to live somewhere that thinks that financial stability is more important than fighting drug trafficking or pedophiles or computer criminals or whatever excuse they're giving this year to take money from the poor and give it to the rich.
- pmiller2 7y ago
  Gold is fairly illiquid when you need cash in an emergency. There’s also some volatility to it. Those are two things you really don’t want in a store of value.
  - growlist 7y ago
    You'll likely still be able to sell gold for something in all but the very worst SHTF scenario. I'm not sure you can say the same about many other types of investment. Those ETFs won't buy many rabbits for the pot.
ad31mar 7y ago
> So how do I protect myself? Pretty sure this will get downvoted, but just 5% Bitcoin + 95% cash has historically beaten equities with less risk.
easymodex 7y ago
Buy bitcoin, I wish I could say I'm joking.

KWxIUElW8Xt0tD9 7y ago

gold

thorwasdfasdf 7y ago

>> "For instance, German household savings have jumped to 11.2% of income, the highest in over a decade, and savings rates in Denmark and Sweden are near all-time highs." Of course people are saving very aggressively. With rates going lower and lower, it means, you need to hunker down and cut your spending as much as possible because your retirement money isn't going to grow, at all, it's decreasing. With every step interest rate goes lower, their just putting another nail in the coffin. The whole world is drunk on keynesian economics and it's not working, one bit. What goes around, comes around. if you turn the screws on people and continue to hurt them financially, they'll have less and less money to spend, and it keeps making the economy even worse.

eternalban 7y ago
> What goes around, comes around. if you turn the screws on people and continue to hurt them financially, they'll have less and less money to spend, and it keeps making the economy even worse. Sorry, that actually made me laugh. Not "off with their heads!" anymore, but more like "I am not shopping anymore!" I am sure they tremble!
- SketchySeaBeast 7y ago
  If people's retirement money is shrinking, it's not just "I'm not shopping anymore" it's "I have to save as much as I can to try to make up for attrition to just keep my rainy day fund afloat." I can't see how I'd want to invest when I know that the money I'm saving "just in case" is quickly disappearing on me. I need to keep putting money in my bank account to just to stay in the same place on the treadmill. It's basically putting in a constant overdraft fee.
anthony_romeo 7y ago
Keynesianism only works (in theory) if an economy pumps the breaks a bit during the good times. Failure to do that isn’t really Keynesian, and the US has done nothing but hit the gas during the past few years of growth.
- 7y ago

virmundi 7y ago

Does this act as the catalyst for American and the EU embracing communism? If we are wiping out assets, will the people want to centralize wealth into the works hands?