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Punishing Good Behavior

An unintended consequence of the Fed’s near-zero interest rate policy is the crippling of savers’ ability to get interest income from their often substantial lifetime savings.

Those who did what was expected of them- saved for their own retirements- used to be rewarded for having been prudent. Someone who amassed a $1 MM bank account used to be able to count of $50,000 - $80,000 in interest income to help pay for their living expenses. That was an easily obtained result when bank CD rates were 5% - 8% as they were during much of the past 20 - 30 years.

Now with these headlines…

CD

Those same prudent investors now will get less than $10,000 in annual interest income (pretax) on that same $1 MM nest egg. Keeping rates artificially low to help bail out the banks (and to lower the debt service costs on our almost $14 trillion national debt) meant cutting our solid citizens’ annual interest income by 80% - 90%.

This means significantly less money for them to spend while also impacting Federal tax collections next April as the collective ‘interest income’ reported on Schedule B’s has shrunk dramatically on a national level.

People who borrowed excessively are being subsidized by those who acted responsibly. Those who paid off their mortgages as required, are being taxed more to bail out those who didn’t. Everyone who has healthcare insurance through their jobs or because they buy it privately is being forced to pay much higher premiums to provide highly subsidized or even free care for those who contribute little to nothing to society.

When you raise children or train pets you always want to reward good behavior and punish bad behavior. That way you encourage your kids and your dogs to act in positive ways. Our Washington politicians have turned all this on its head by punishing good behavior while rewarding bad actions.

It is any wonder America is bad shape?



Disclosure: none