Those of us who thought that saving for our retirement was a good thing got some rather surprising news this week from someone who should be quite knowledgeable about such things. This new paradigm informs us that we have been wrong all along.
The rather aptly named Mr. Bean, the Bank of England's deputy governor, is trying to encourage "older households" that they should not expect to live off of their interest and that they have already benefitted from increases in the value of their properties.
Here's a quote from an interview that he gave to Channel Four News in the United Kingdom earlier this week:
"Savers shouldn't necessarily expect to be able to live just off their income in times when interest rates are low. It may make sense for them to eat into their capital a bit."
"Very often older households have actually benefited from the fact that they've seen capital gains on their houses."
Basically, Mr. Charles Bean is telling U.K. seniors to put up, shut up and spend, spend, spend!
He also stated that savers had benefitted from high interest rates in the past and that the Bank of England had deliberately lowered interest rates to force savers to spend. The typical savings rate on a U.K. savings account has fallen from roughly 3 percent before the Great Recession to roughly one-quarter of a percent today, cutting income for many seniors who were relying on the interest from their low risk savings account to supplement their pensions. So much for the idea of saving for your own retirement!
The idea of forcing savers to spend is a rather interesting one. Seniors, many of whom are intimately acquainted with the economic woes of the Great Depression, tended to save for "rainy days" and have been generally less likely to use credit for items other than mortgages.
As a carrot to get savers to spend, Mr. Mervyn King, the Governor of the Bank of England stated that while low interest rates were implemented to return the economy to normal levels as soon as possible, once the economy returns to a reasonable level of activity, interest rates will return to normal levels. Basically, get out there, spend your capital and we promise that interest rates will eventually go up. Of course, you'll have no savings left but that's not the Bank of England's problem, is it?
The idea that the governor and deputy governor of the United Kingdom's central bank lowered rates to help British savers spend gives me pause to ponder whether Mr. Bernanke, Chairman of the United States Federal Reserve and Mr. Carney, Governor of the Bank of Canada were part of a grand scheme to help relieve both Americans and Canadians of their savings by deliberately lowering interest rates to multi-generational lows. Although they have never publicly said so, my suspicion is that they share a similar philosophy with the Bank of England.
As well, pardon me if I'm wrong but wasn't it overspending and excessive use of credit that got us into the Great Recession in the first place? With attitudes like those of Mr. King and Mr. Bean, it is no wonder that our fiat currency world is in such financial straits.
As an aside, Mr. Bean and Mr. King are hardly suffering. Mr. Bean's promotion in 2008 rewarded him with a 54% salary and benefits increase over the past year and he is now receiving £252,497 annually, very close to the average income for most U.K. pensioners I'm certain. As well, his pension has accumulated a cash equivalent of £1.97 million. While his boss, Mr. King, has refused a further salary increase for 2010 and 2011, his pay package stands at £305,368 and his pension has accrued £5.36 million, also quite close to the amount in an average savings account. On the upside, neither the Governor nor the Deputy Governors qualify for bonuses. Poor fellows indeed.