You probably already know that the Fed raised its interest rates by 0.5% a couple of weeks ago to fight inflation, this month at an annual rate of 8.3%. This is the primary method that we have for mitigating inflation. But this means that our debt payments (on $30T) went up an addition $152 Billion, and will do so each year until rates go down.
What if we were to raise the rates another, say, 4%, which would be sufficient to quell inflation in normal times, and which some experts are advising now. That would add $1.2 Trillion in additional debt annually.
That is $1.2 Trillion annually that we are on the hook for. It provides no value whatsoever.
$4000 in new debt per man woman and child in the U.S. – additional EVERY YEAR.
If you have a savings account in a bank, the current interest rates you are receiving are about 0.7% on your money. This means that if you have $50,000 in the bank, you receive about $350 per year in interest. But with inflation at 8.3% you are actually losing $3800 in the value of your money.
That is EVERY YEAR.
For someone who has $100,000 or more, or who qualifies as an “accredited” investor, you may be able to find relatively risk-free methods to match inflation. There are some very stable real estate construction loan investment firms that provide a nice 10-11% return. Mutual funds, ETFs and others can perhaps others can help you at least break even if you have a good advisor.
If you are retired and you have your money liquid so that you have access to it, then you are screwed. You are hemorrhaging value in your savings. If this goes on for five years, your nest egg that you worked so hard for all of your life will be devalued by 35%. Fortunately, if you own your home, its value will likely keep up with inflation.
If you are the average joe, making a paycheck and supporting your family, there is little chance of you having a retirement fund, your buying power is decreasing. If you haven’t bought a home yet, then that possibility will get farther and farther away.
