Punishing the Ant, Rewarding the Grasshopper

“What the average citizen doesn’t explicitly understand is that a significant part of the government’s plan to repair the financial system and the economy is to pay savers nothing and allow damaged financial institutions to earn a nice, guaranteed spread.  It’s capitalism, I guess, but it’s not to be applauded.” – Bill Gross, PIMCO

One of the more perverse features of the bailout/ rescue/ stimulus plan is the fact that ultra-low rates are doing a great deal of damage to senior citizens and those who have been saving responsibly and continue to attempt to do so.

In an article in the New York Times this morning, we are given a look at the prospects for finding low-risk yields and the picture ain’t pretty…

From the NYT:

“Open a Savings Plus Account today and get a great rate,” read an advertisement in the Dec. 16 Newsday for Citibank, which was then offering 1.2 percent for an account. (As low as it was, the offer was good only for accounts of $25,000 and up.)

“They’re advertising it in the papers as if they’re actually proud of that,” said Steven Weisman, a title insurance consultant in New York. “It’s a joke.”

The advertised rate for the Savings Plus account has expired, according to the bank’s Web site; as of Friday, the account paid an interest rate of 0.5 percent. The bank’s highest-yield savings account, the Ultimate, was paying 1.01 percent.

One year treasuries are yielding under .5%, the two year treasury is paying under .9%, and even the highest yielding CDs are returning 2% or less.  Then you factor in inflation, fees and taxes and the end result is that the investor has actually lost money in many cases.

In the parable of The Ant and the Grasshopper, we are told of the serious and diligent ant who spends most of the summer storing food to be prepared for the winter.  In contrast, the foolish grasshopper mocks the ant and generally fritters away his time rather than save and work.

The rescue of grasshoppers in this country via low rates that allow their assets to appreciate in value is having a disastrous effect on the responsible ants, many of whom tend to be retired and senior persons counting on a fixed income return to make the money they’ve saved last.

While jacking up interest rates is not a solution, perhaps a specific bond series from Treasury with a decent yield for qualified seniors would be a good program.  Don’t count on, this administration is not nearly creative or perspicacious enough to see the necessity.

Sources:

At Tiny Rates, Saving Money Costs Investors (NYT)