thus the majority of their monies go towards living expenses.

that would be a red herring.


Thanks so much for playing.

So, why aren't 0% interest rates just as bad or worse than Chained CPI?

you know it, and we all know it. Unless you put the vast majority of the monies you generate (or seniors case, receive) into savings that argument isn't a strong as you believe.

Thus no acknowledgment of the difficulties seniors living on their bonds, CDs or savings accounts experience and big sympathy for people who have nothing except social security.

Yes people who are only on social security tend to attract more sympathy than those with bonds, CDs or saving accounts. Social security benefits are considered a fixed income, and if you don't meet a certain threshold you don't even need to file taxes.

Given the value of money increases over time this is Econo 101 stuff.

since both are getting screwed. But those living only on SS are getting screwed more, since that's all they have.

But people who are scared prefer safety over income.

beats NO income.

And we know we can always trust Wall Street managers to play fair, right?

on living expenses (e.g food, medicine). The entire business models of CVS/Walgreeens, and to an extent supermarket chains, plan on fixed incomes spending their money when they receive it the first two weeks of the month. Choosing to save in safer investments over other riskier ones isn't even an option for fixed income individuals.

But cutting Social Security is even worse, as it savages those who are so destitute that they do not have significant savings.

...not seniors living on interest on savings. The Fed doesn't have bank accounts of T-bill accounts for savings.

I hope that helps.

Savings rates on deposits are inextricably linked to the Fed's zero interest rate policy.

"Savings rates on deposits are inextricably linked to the Fed's zero interest rate policy."

Do you know what inextricable means?

It does not mean "as a matter of mere convenience on the part of banks, but not actually linked in any way beyond the banks changeable policy decision to link them"

Do you actually think banks are required to pay interest on deposits?

Banks set their own interest on savings. Money loaned by banks does have a relationship to the Fed's 0% interest rate. When it is cheaper for banks to borrow money from the Fed, they lower their own interest rates. But the banks do not ever loan with 0% interest to people who borrow from the banks. I should add, that a loan is never savings.

0% interest is used to stimulate the economy by putting money in the hands of banks who then loan it to customers who pay interest to the banks.

0% certainly affects government bonds by bringing the interest rate down, but they still don't go to zero. During the financial meltdown, I read that some big institutions bought bonds at 0% interest just ot park their money there rather than big banks. but, large institutions are not elderly poor living on interest.

Seniors of modest means who live on fixed interest payments are a small minority. By definition, they still have assets in the form of the savings the interest is generated on.

If the proposed solution is to raise interest rates, that would endanger the current recovery. That's why the Fed isn't doing it.

What banks pay on saving is not low because the Fed says so. It is low because there is no demand for deposits.

If the Fed raised rates tomorrow the global economy would crash (a great help to seniors?) and banks still would not be paying interest on deposits.

They don't want your deposits. In current conditions your deposits do not result in profits for the banks because there is low demand for credit.

The whole Fed policy and Seniors interest income thing appears to be something someone, somewhere is ginning up and a lot of folks fall for it, but it makes no sense.

Interest rates are low because the global economy is weak with little demand for credit from credit-worthy borrowers.

Period.

Fed interest rates are, in fact, too high. They are at zero only because they cannot go below zero.

I was getting 5% interest on CDs back in 2005 when the Fed rates were at 6%. I'm getting .5% today because the Fed's rates are at 0%.

When banks peg a rate to a Fed rate they are operating on the assumption that what the Fed does is based on sane analysis of the real economy.

If the Fed raised rates tomorrow that would be insane, and not based on anything in the real economy.

You can work this out for yourself. What aspect of higher fed rates would create more demand by banks for deposits to use as the basis for profitable lending? Higher rates would not increase demand for borrowing.

Higher inflation or higher economic growth would increase rates, but increasing rates could not create economic growth.

Another way to look at it: If banks are currently willling to pay more on deposits than why don't they? If there is any money to be made today from more deposits then any bank can get all the deposits they want by paying a higher rate. Money would flock to any such bank.

The "raise interest rates" people are like people who think that a broken thermometer changes the temperature.

The connection between fed rates and savings rates is practical, not magic. It is based on the Fed setting rates where the real economy says they should be, and right now that is zero.

We're going on 4 years of 0% interest rates, and do you see the economy booming??? I don't. I see an economy barely moving along.

Regardless, 0% interest rates have hurt seniors more than chaining the CPI will ever do.

But where did you get your financial education? I've been in the working in the money markets and debt capital markets for more than 15 years, and what you just said is patently wrong. Fed Funds Rates directly impact LIBOR, the Prime Rate, CD rates and general savings rates. Raising Fed Funds reduces the money supply via open market operations, which increases the cost of money hence higher savings rates for instance. Monetary policy 101.

You want to believe that banks will chose to pay higher interest on savings than the rate of inflation if the Fed raises the overnight rate arbitrarily, so you are a very silly person.

Existing contracts pegged to a Fed rate will go forward under their existing terms. Any policy formally connecting any rate to the Fed would be severed as fast as legally possible.

And the prime rate would diverge from Fed rates as fast as possible. (As a person of your vast education knows, the prime rate is not formally connected to the Fed. It is set by banks, the same as LIBOR is, and is in not way required to follow Fed policy. It does so in practice today only because the Fed doesn't do things like raising rates in our current environment.)

As for the effect of the overnight rate on the cost of money, since an arbitrary fed hike (not supported by any real world economic condition) would collapse what lending we currently have, the demand for money would plummet, and banks would not borrow from the overnight window, but would find other methods.

The Fed cannot set the price of money unless the Fed is the cheapest game in town. That is their power. If the Fed arbitrarily raises rates to a level not supported by fundamentals they would not remain the cheapest game in town, and their rates would lose relevance to real world banking.

Set the overnight rate at 5% arbitrarily today and nobody would go through the overnight window. Banks would be lining up to cover that action at 4%, which would be a windfall for interbank transactions in the real world of today.

get better returns. Old people can't fix the results of a chained CPI adjustment because they have no way to attack it. It would be nice if some of you Obama supporters talked to a few seniors every once in a while. I can tell you this: if the election was held in 30 days, the results would not be the same under this new directional attack on seniors. And I talk to hundreds of them almost daily.

dddddddd

The majority of customers at supermarkets, CVS,Walgrees, Kmart, Walmart, etc are....seniors, and that trend will continue and only intensity as more boomers are eligible for social security.

These private businesses plan around fixed incomes spending at the start of each month, which is why their most lucrative deals come the first two weeks of every month. But the middle of the month is considered a dead zone so corporate doesn't allocate many hours for the store manager to distribute for the employees during these lulls.

would be stupid. I can say that I and many others are working to protect old people from this idiotic direction the President is taking on Social Security. And the House is about ready to bail on him. I've got to get ready for work, Harmony Blue. But keep the faith, whatever that may be for you. Bye.

But most aren't borrowing any money, and even if they were it would not be at 0%.

Also, with interest rates this low, safe investments like T-Bills and CDs are paying a paltry 1%+, not enough to keep up with a 3%+ "official" inflation rate (not to mention the actual 6%-7% REAL inflation rate).

The buying power of a fixed income shrinks every year because the CPI already understates actual inflation by 3%-4%.

An informative piece on the CPI here:

http://www.dailykos.com/story/2012/12/19/1172060/-Understating-the-CPI-101-or-Starving-Grandma

COLA's have been small to non-existent anyway due to the Great Recession and Credit Crash which led to the loser Fed funds rate.

Why get all bent out of shape on a different CPI calculation? The COLA's won't change because inflation is dead.

but a chained CPI for social security makes it worse.

COLA adjustment formula is already substantially lower than the CPI-E used to measure increases in what older Americans pay due to inflation.

Our banker-caused depression, along with the extraordinary efforts in process to keep the bankers as wealthy as possible, just made it worse.

The purpose of both the Fed and the Treasury bailouts is to keep the banking system solvent and investors well-compensated. To hell with the hindmost, seniors on Social Security don't make Wall Street rich and don't maximize returns - literally, that's the thinking behind the Chained CPI for SS.

It's called Capitalism. But, you knew that.

isn't a concern to the poorest recipients because they have no savings. In fact, for recipients with debts a higher interest rate would be bad. Those who have savings are relatively well off compared to other retirees. To put it shortly, low interest rates hurts retirees on the top end, chained CPI hits them on the low end.

Considering that most seniors are needy to begin with, can we see your Third Way definition of the 'most needy'?

I'm not familiar with the intricacies of this debate and haven't picked a side. I do know though that chained CPI is a way of decreasing the COLA, and I don't like that. The whiny article you link to doesn't explain much but I found it interesting that it claims that a "progressive" feature of the chained CPI is that it bumps more people into higher income tax brackets. Doing so is actually taking some of the progressiveness out of the progressive taxation structure that is the basis for income tax brackets. I don't think the people at your link have a good understanding of economics.

And now you've compared them to people talking about CPI?

Wow. You're a bit obsessed, aren't you?

that would pay a higher rate, something like 3 or 4 percent. It is true that older folks are less comfortable with stock market type investments as their investment horizon is shorter. A special senior savings bond would go a long way towards helping seniors who have saved up a nest egg.

If I was the AARP I would be lobbying hard for something like this.