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The Worst Kind of Inflation

March 1, 2021

Not so long ago, retiring with a comfortable nest egg took time, but it was possible. From the late 1960s to 2007 the average interest paid on a 10-year government bond was 7 percent.

So, if you worked hard and put your money away in a bond portfolio that reinvested interest, $100,000 in bonds would’ve turned into $750,000 in 30 years. That would have generated a comfortable $52,500 per year in interest. While not exactly a “champagne lifestyle,” it’s an income base for a dignified retirement.

But that all ended when the Federal Reserve decided to battle falling stock prices head-on during the financial crisis in 2008-09. In its frantic efforts to save Wall Street, the Fed cut interest rates to zero. Then it printed $3.6 trillion in new cash to buy back distressed bonds from banks.

This was not a victimless series of acts. For instance, the average American saver and future retiree, got screwed.

How?

Today, because interest rates are so low, the above-mentioned bond portfolio produces $7,500 of income. To generate $52,500 annually, you’d need to hold $5.25 million in bonds, when just a few years ago $750,000 would’ve done the trick.

Don’t believe the Fed when it says there’s no inflation. How can there be none when it takes seven times as much money to maintain the same lifestyle you would’ve had 20 years ago?

Meanwhile, the wealthy made out like bandits.

Over the past three decades, the top 10 richest U.S. households saw their net worth rise by 10 percent, according to Forbes. At the same time, the bottom half of households had their wealth halved. The top 1 percent of Americans are worth $34 trillion, while the bottom 50 percent have a combined net worth of $2 trillion.

The deck has been stacked against average Americans for decades and billionaires are laughing all the way to the bank.

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