Looking Out for You

By Charles Webb

By early adulthood most everyone figures out that very few people beyond your family are really looking out for you. In this day and age of economic uncertainty, I can't help but to notice the preponderance of people and institutions that are claiming to be there for us. A lot of them seem to be sales people. A lot of them seem to be selling financial products. I'm convinced that most people who claim to "have my back" are simply there because it's closer to my wallet.

Among all of these folks, the one group that stands proudly at the top of claiming to look out for all of us is the federal government. The fortress of cradle to grave support that is being constructed around us was made poignantly clear to me as I poked around the Health and Human Services website promoting the benefits of the soon to be fully implemented healthcare legislation.

Now I'll freely admit that I'm skeptical about how this whole legislative package is going to get implemented. I was curious when the President was selling insurance on TV and directing people to their new website. Drilling down through a bunch of pages full of pictures of people who looked like they didn't need insurance, I came across a link where I could find out who would qualify for premium assistance. What I found out was that the government will help pay the health insurance premium for a family of four earning over $94,000 a year. Two things struck me about this. First is that government assistance isn't just for the poor anymore and second, this is going to be really expensive. They're taking the concept of looking out for us to a whole new level.

But I wonder if they really are looking out for us? Where is all this free stuff coming from? Is there a price to pay and if so, how much and who's going to pay it? Even with the government's ability to print money, there is a price to pay. That price is the massive debt that the Feds are racking up. That debt in turn is driving the Federal Reserve's monetary policy.

This is the point that needs to be made. Through QE1, QE2, QE3, operation twist, the mortgage back security purchase program and a host of other market interventions, the Fed has been artificially holding down all interest rates for at least five years now. Traditionally, the Fed has exerted direct control over the shortest term rates but all the other rates have been established by market forces. For anyone living off their savings or those like us who are trying to find ways to generate that income, this has become an incredibly challenging time.

Investors now have to look to unfamiliar and riskier places for even modest income. This is a big deal. Based on the current market rates, you would need twice the savings today to generate the same income that you would have had seven years ago. We're now being told that this lost income can be made up by the gains in the stock market but that's far from a sure thing. Stock investors have loved these easy money policies as they've accounted for much of the run up in stock prices over the last few years, but even with the nice gains over the past few years, stocks are only up a few percentage points from 2007.

So if the economy is performing better than it was four or five years ago, why is the Fed still actively manipulating interest rates lower? We're told it's because the economy still needs it and they won't change course until a bunch of data points change their minds. I'm beginning to wonder. Who is really benefiting from these lower rates? Clearly anyone who is carrying a lot of debt is benefiting. And wouldn't you know that the very same folks that are holding rates down happen to also be the largest debtors on the planet - the U.S. Federal Government.

So if you're wondering when savers and those relying on their portfolio income to pay for their retirement are going to get a break, it may be a while. Just one percentage point more that the government has to pay in interest on 17 trillion dollars adds 170 billion in additional expense per year. That's real money even by Washington standards. So who are they really looking out for? The price for all of this government help is looking more and more like our retirement income.