Wednesday, 18 April 2012

You always pays

The problem or benefit of low interest rates continues to distort previous norms in the economy. Today pensioners have a tasty tit bit of complaining on the merrygoround of faux sympathy known commonly in the UK as the BBC.

I find it surprising that people really believe that they should be guaranteed a risk free return on their savings. A team of our finest budget geniuses (MPs) have determined that inflation is damaging to those on fixed incomes.

"We recommend that the government consider whether there are any measures that should be taken to mitigate the redistributional effects of quantitative easing, and if appropriate consult on them at the time of the Autumn Statement,"

Hold the press. Is this news? Surely it is the objective of QE to create inflation as a means to avoid a depression. Old people would probably vote for a depression given their fixed incomes and floating expenditures. Inflation erodes your fixed income, but so what? Pensioners aren’t living in perpetuity even if they want to plan for it.

The money has to come from somewhere and there have to be losers. At the moment the winners are all those with highly leveraged homes especially those on interest only mortgages who are paying a pittance to 'own' a home which might cost triple the monthly mortage interest to rent.

What most people can't do is connect the dots. Ok you want higher interest rates. Fine then we will see banks charge higher mortgage rates. Oh look the housing market collapsed and now pensioners are moaning because the equity in their home was meant to fund their retirement is shrinking. Or they were about to retire but all the bonds in their portfolio just tanked. Enjoy your higher annuity rate on your smaller pension pot.

There is a financial version of “murder will out” and I call it “one way or another you always pays.

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