Every time I ride down the road and pass a bank I get a nice chuckle. Not just one bank but most banks that you drive by have banners out front advertising. Some will say Free Business checking but quite a few and the ones I get the biggest kick out of are the C.D. banners. Now, I am not near retirement age so I can get a laugh from the C.D. banners. I have not worked my whole life in a country that never had rates this low until retirement age. That has to make it difficult to plan for retirement when what was once an easy 4-5% secured return is now not even 1.25% for an 18 month C.D.. The last sign that I recall seeing was for 1.15% for an 18 month C.D.. I just can not believe the banks have the nerve to advertise a rate like that, but then I remember it is better than negative interest rates.
Now think about it if there are negative interest rates everyone will want to hold their money in cash. Now can you imagine them banning all cash. If negative rates are so close then I believe we are that close to an outright ban on cash. I really do not think it will be a big issue but it will be another way big brother can know all your business.
My real point to the title of this post is that Janet Yellen has repeatedly said that the federal reserve has a target inflation of 2% annually. This point alone is the reason I have started this blog. Everyone needs to realize that there is another 2% tax that is eroding your savings and its called inflation. Yellen will speak on national television and explain up and down that 2% is the inflation target of the fed and nobody seems upset. Think about it if the rate of an 18 month C.D. is 1.15% and Yellen is trying for 2% inflation you will be in the hole -.85% keeping your money in that C.D.. Seems to me that negative interest rates are already here. We are at a time when “return of capital” seems to be the goal rather than a “return on capital”.
I will be writing a lot more blog posts related to this topic but for this post I want to leave one final point. If Yellen wants 2% inflation per year and gets it think about what that is going to compounded to over 10 years. Below is an example of what happens to $1000.00 over 10 years compounded.
See For Yourself what Inflation does to your Savings