Money for nothing.
Politicians and bureaucrats intensely fancy the notion. The more freebies they give the people — enhanced welfare, higher minimum wages, Obamacare, cash for clunkers — the less apt the people are to rise up and boot a politician’s butt outta office.
Alas, the intensity of one’s desire is no measure of the degree to which success occurs.
I loved the hell out of Dawn Allen in the eighth grade, but Dawn had no interest in me. Intensity yielded bupkis.
Intensity has yielded an equal amount of bupkis in the near-decade-long and so-far miserably failed effort by D.C. and the Federal Reserve to put some giddyup in the U.S. economy’s get-along. No matter the economic, fiscal or monetary policies and stimuli foisted upon America, America refuses to cooperate.
The plans have been for naught, aside from keeping the economy from crumbling into a messy heap — but, then again, there’s a very good argument to be made that crumbling into a messy heap is exactly what the economy needed a decade ago to rid the various financial markets of malinvestment (and probably more than a few of the malinvestments we voted into Congress).
Thus, we come to my modest proposal: If you, the federal government, want to give away free stuff, then give us something that will truly impact the consumer economy. Give us free retirement money.
The Fed desperately wants Americans to spend more money. That’s what Fed governors lust for with their near-zero (and soon to be subzero) interest rates.
But saving the profligate grasshoppers at the expense of the frugal ants has exposed a conundrum that the ivory tower-types clearly failed to contemplate: If ants can generate no safe yield on their money to adequately prepare for the lean years, then they will instinctively save more of their paychecks so that they can build the nest egg they need later (when Social Security might or might not exist).
Truth is in the numbers. Since 2008, the savings rate here has more than doubled to roughly 6% from just under 3%. Americans — at least those of us ants saving for our future — don’t have the desire to fritter away our dollars on oversized, gas-guzzling SUVs and more dinners away from home or another season’s worth of clothes.
Dear Fed governors: Wanna know why you can’t breathe life into this faltering economy?
It’s because people like me don’t want to spend. We can’t get a safe return on our cash, and, so, we save more. I’ve increased my 401(k) contribution to 13% of my paycheck, and I just recently funded a whole-life insurance policy, into which I contribute cash every month, so that I can build up a cushion to draw on in retirement if I wish. I’ve also opened a new investment account to put money into a foreign currency every month (because most of us with a brain realize the U.S. dollar you’re trying to manage has all the strength of a soufflé).
More of my money flows away from consumption and into saving because I fully expect we’re stuck with abnormally low interest rates on a near-permanent basis. And based on the bankruptcies of consumer companies and the commentary from middle-market companies on Wall Street that still survive, I know I’m just a microcosm of a much larger trend in America today.
Get the Government Investing in Your Retirement
So, back to my proposal…
If you, Fed governors and the politicians who lean so heavily on them for managing the economy, want Americans to spend their paychecks to revive a brain-dead U.S. economy kept alive only by dint of your financial CPR, then instead of futzing around with interest rates and worrying about inflation and unemployment, dump a ton of money into our IRAs every year. Or open a government-sponsored IRA — a GIRA — in every taxpayer’s name and fund it with $2,500 a year. (This is radically different from Obama’s myRA plan, which relied on us to fund our account.)
Roughly 195 million taxpayers file returns annually, not including those over 65 and those under 18. I’m excluding those groups because under-18s are generally irrelevant since most are spending family dollars anyway, and over-65s are already soaking the government through an unfair Social Security system.
For the rest of us, D.C. could spend a bit less than half a trillion a year putting money into a GIRA. Buy each of us U.S. savings bonds or five-year U.S. notes worth $2,500 yearly, and mandate that we cannot touch the accounts until we are 72. (And don’t pull any shady crap like taxing this money — that’s counterproductive — or returning the account to the government when we die; it should and must go into heirs’ GIRA accounts — that’s only fair.)
By doing this — instead of, say, helicopter money, which, I am quite certain, will be the Fed’s next step — D.C. will instantly reduce financial anxiety.
And if you reduce financial anxiety, Americans will more freely spend their money. Depending on whose study you believe, two-thirds of Americans have less than $50,000 saved for retirement — a pittance in the grand scheme of retirement. Help them contribute to their future, and you can bet they will help you rebuild the economy.
As it is, we’re spending more than $1.1 trillion annually on health care security for every American (and there are many ways to save there, by the by). So, why not spend less than half that amount to ensure economic security for every American, and, oh, as a side effect, save an economy that is on the cusp of collapse?
Just a modest proposal for those of you stuck in the ivory tower.
Until next time, good trading…
Jeff D. Opdyke
Editor, Total Wealth Insider