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Charles Schwab Urges The Fed To Raise Interest Rates "As Quickly As Possible"
Authored by Charles Schwab (yes, that Charles Schwab), originally posted op-ed at The Wall Street Journal,
For America’s 44 million senior citizens, plus tens of millions of others who are on the threshold of retirement, last month marked a watershed moment that is worth celebrating. At the end of October, the Federal Reserve announced the first step in returning to a more normal monetary policy. After nearly six years of near-zero interest rates and quantitative easing, the Fed is ending its bond-buying program and has signaled a plan to eventually begin raising the federal-funds rate, raising interest rates to more normal levels by 2017.
U.S. households lost billions in interest income during the Fed’s near-zero interest rate experiment. Because they are often reliant on income from savings, seniors were hit the hardest. Households headed by seniors 65-74 years old lost on average $1,900 in annual income over the past six years, according to a November 2013 McKinsey Global Institute report. For households headed by seniors 75 and older, the loss was $2,700 annually.
With a median income for senior households in the U.S. of roughly $25,000, these are significant losses. In total, according to my company’s calculations, approximately $58 billion in annual income has been lost by America’s seniors since 2008.
Retirees depend on income from their savings for basic living expenses. Without that income, many seniors have taken on greater risk to increase the potential yield on their savings, or simply spent down their nest eggs. After decades of playing by the rules, putting off spending and socking away money, seniors have taken it on the chin. This strikes a blow at the core American principles of self-reliance, individual responsibility and fairness.
Their lost income affects all Americans. Seniors make up 13% of the U.S. population and spend about $1.2 trillion annually—a big chunk of America’s $11.5 trillion consumer economy. In general, seniors spend more than their income, withdrawing each year from accumulated savings, and so their interest earnings get spent right back into the economy.
This makes for a potent multiplier effect. My company estimates that the $58 billion in annual interest income lost by seniors over the past six years would have boosted GDP by $115 billion a year during this period. In a $17 trillion economy that amounts to an additional 0.7% of GDP growth, by no means inconsequential—a 1% increase in GDP typically leads to an increase of more than a million jobs.
Normalized interest rates are also good for the economy broadly. Total short-term interest-bearing assets are today close to $11 trillion. Based on that, a 1% increase in interest rates will generate over $100 billion in increased income. And there is ample room to raise rates. Today the one-year return on a CD is just north of 1%. In a more normal environment, the annual return on a one-year CD has been about 6.15%. As interest rates begin to normalize, increased personal income will drive spending, economic growth and jobs.
Will more historically normal interest rates have negative impacts on others? The cost of homeownership may be higher and borrowing in general will be more expensive. But these costs are largely born by middle-class and higher-income families and they will see that impact lessened over time through inflation. But is it fair that seniors subsidize cheaper credit for others? Most people wouldn’t think so.
So celebration is in order. First, because the famine for savers and seniors over the past six years may soon be over. And second, because good news for savers is good news for the economy and job seekers. Savings are closely tied to investment and growth. The more savings people have, the more money there is to spend or invest, and the faster the economy grows.
Because it creates a direct shot of consumer income that in turn becomes consumer spending, the return of normal market-based interest rates will increase the velocity of money in ways that the policies of the past six years have not. That is a good reason to encourage the Fed to be even more aggressive and normalize monetary policy as quickly as possible. But today, let’s celebrate the Fed’s first steps in that direction and the monetary benefits they’ll have for seniors and savers.
* * *
While we agree 'normalization' is healthy (and the wealth distributive impact of QE has crushed seniors/savers), we wonder if Mr. Schwab has calculated the loss in AUM when higher rates destroy the only bid under stocks from corporate buybacks?
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BWAAAAAAAA........too funny.....surrrre ya do chucky boy........you could give a chit about us "little people"
Listen Folks.
I've been harping on the hypocrites lately.
Hey Chuck!
I say let em rot.
They kept electing all the assholes that sold em down the river.
So fuck em.
- B.E.T (hehe)
Things not going so well along the LoC with the Chinese training the BAT and other Pakis on new weapons systems.. Huh?
Someone should show Schwab this chart.
http://www.planbeconomics.com/2014/11/this-is-what-could-trigger-qe4.html
Even at "record low" interest rates, hardly anybody's buying a house right now. This will only exacerbate the problem. Millenials will be at mom's house until age 50 now instead of the projected age 35, lol.
Even if interest rates did go up, the cart might push the horse, and cause house prices to correct back down to 1990s levels, but that's just wishful thinking. My shot in the dark is that we'll have outrageous housing costs combined with high interest rates. Even a mid century dump in the 'hood will be $2,000 a month, despite Joe Blow making only $29,000 a year. Apartment buildings would be the new construction because first-time buyers would be done and over with at that point.
Is it fair for Xers and millenials to pay the boomers' entitlement tab, but when they become old enough, the pensions, SS, etc. are insolvent? At least give the young cheaper credit to start their lives with in this debt-based economy, because the Xers and millenials will not be able to retire, even with cheap credit, so at least give them that!
Given the choice you want more expensive credit which will lead to cheaper prices.
You can write off interest.
You won't be writing off principal (ulness you are in BK, which most youngsters will be due to financial illiteracy).
Easy or free money is NOT good. All it does cause prices to explode.
See RE or students loans.
Make interest rates 8% again, and the youth will win. Not the boomers. They will be shitting their diapers.
A-MEN!
So celebration is in order. First, because the famine for savers and seniors over the past six years may soon be over
Ah hahahhah good one chuck
Ask Chuck what his, and E-Trade's margins have done on retail flow since 2009. He knows his legacy is a dead broker since the old model Schwab and Edward Jones pioneered is DOA given the horrible household formation & wealth effect numbers projected for the echo-boom beyond 2020 when over 70% of his client base will be dead or pushing up estate tax capital losses (and closing accounts).
By pandering to the babyboomer demographic he's hoping to recoup his AUM and juice his margin mix before it's lights out. Worst kind of talking your book, pandering to demographic populism. If rates go up, the layoff cycle will likely crater the meagre household savings & home equity for Gen X & Y/Z. So good fucking luck Chuck, can't say we missed you or your ilk of carpet chasing midwest penny-accounts.
Just google all the old brokerage firms Mitsubishi and Noruma hoovered up post-1990. That's the future for retail capital participation. No amount of Betterment or Personal Wealth clones will prevent that.
Good comment Dingleberry.
Make rates 8% again and small businesses will be able to survive again against large corps that are burying them with unlimited interest free money. This would be good for young people.
But banksters don't want that so it won't happen. Fuck you fed and banksters, hang them from lamposts before it's too late.
"...My shot in the dark is that we'll have outrageous housing costs combined with high interest rates."
My shot in the light of day is that markets will continue to act like markets, despite someone talking their book. There are way too many people sitting (because low rates make the cost of carry is so low) on property waiting for the tooth fairy to come along and sprinkle 3 times what their property is worth into their bank account. I've been keeping close track of these things for the last three years. What I see disgusts me.
The balance between buyers and sellers is completely outta whack!
With super low rates, there are few sellers. Raise rates and you raise the cost of carry. Raise the carrying cost of property and millions of flippers and picky sellers will get motivated overnight. The get-rich-quick through real estate mentality will disappear. Markets will finally clear.
THEN young people will be able to afford houses.
The feds will do whatever it takes to keep home values inflated, even if they have to buy every other damn house in the country. If Home values go down, then property taxes go down and the schools and teachers get rekt. This is their primary concern: paying union card carrying village idiots $50k+ a year to indoctrinate all the children with bullshit. Beware all the plans for universal preschool, they aren't interested in making children smarter, they just want to indoctrinate your children away from you at an earlier age so parents have no opportunity whatsoever to form any familial bonds.
The state is mother. The state is father. The state is God.
Sad but true till the Fed decides it has no choice other than to butt out. In the meantime, 3 cheers for homeschooling!
Let's see...
The Affordable Healtcare Act (Obamacare) led to sickcare which is NOT affordable.
Maybe we need an education equivalent: Obamaschool or The Smart Schools Act, which also does the opposite: produce dumbasses.
That seems par for the course.
9th dr.,
Agree with your post but take exception with the belief that cheaper millennial debt is good/justifiable.
I believe we need to teach millennials how to grow food and live a debt free life. The collapse will happen in their lifetime, therefore tangible assets and skills are a priority over cheaper lifestyle trinkets.
I would see you half way if the debt is for the purchase of 2 acres of land.
Listen.
Jokes on you. The new systems are to fight the fucking Americans. That Zero Dark Thirty shit, you guys just don't learn.
Bangalore Equit
Congratulations! You have just won the award for having the greatest number of down-votes for the year.
I don't care how hard they ride you around here you make me laugh
"BWAAAAAAAA........too funny.....surrrre ya do chucky boy........you could give a chit about us "little people""
Chucky makes his money selling a friendlier version of Wall Street to retirees. A market that has seen a lot of competition as of late. Good marketing. Like all of them, of course, he's full of shit and needs to stuff hundred dollar bills up his ass to help release it. For the oldsters (and the children).
Listen.
And the puppies. The "MISSING" puppies.
Are there missing white puppies?
Listen.
Oh the missing puppies! For gods sakes man. Call the FPI.
People might read your posts, if they didn't all begin with "listen". Why haven't you figured that out yet.
Listen man,
LTER and I are morning for the missing puppies here. Have you "NO" respect!? Let us have our moment!
I don't see anything stopping Chucky from coughing up more dough for retirees.
Nothing stops him from raising interest rates for savers.
Are we totally afraid to do anything without a nod from the state.
Are we not men?
We are devo.
+1000 to the Tyler's for the last sentence. It's all about the AUM to this guy.
Chuck makes more money off little people clients than do Goldman & Friends, so this isn't that surprising.
WEIRD media feuds, alliances emerge over Cosby allegations
http://tinyurl.com/ph5rtzy
Gee Mr. Schwab, I don't think Richy Rich and his friends would like higher rates just now. Wouldn't that make the cost of levered carry go up ...like, A LOT!? You guys there at Schwab do charge interest on margin borrowing, right? Of course, I don't know much about this stuff... does Richy just get money straight from the Fed guys?
Chuck just wants to save the Banksters and his own Ass(ets), as such a move is designed to counter or front-run Russia from going to the Gold-Petro Rubel -- which would start the global sell-off of Dollars to a very significant amount (to reduce national exposure to the USD).
Fuck You Bernanke, Seriously Fuck You
People will blame the Jews just as they did in Nazi Germany and many other countries over the years. Why? answer is obvious, though the Wall Street Jews cerrtainly are noy wholly responsible for this raping of America- but they are the most prominent , cohesive group that people can point their fingers to for blame. The powers that be know what is coming -that's why they have expedited HS and the police state. There may or may not be a monumental battle to regain this country -not sure -they have been meticulously cultivard this country for serfdom for many years -especially since the false flag 911.
Got my fingers crossed for a Sanders presidency in 2016. Lets put a jew in the top spot. If he is successful, then great - anti-semitism will be cut off at the knees. If he is a complete failure... Well...
Dear Chuck,
The FED, nor the banks they work for, give one shit about American citizens.
The U.S.A. and the American dream are dead.
Questions?
I, for one, would just love it, LOVE IT, if the Fed were to raise interest rates. To early 1980s rates. Now that would be interesting to say the least.
Get to work, granny, so you can earn back the principal you have been spending because of ZIRP, then invest it into "risk free" US Treasuries. After 15-20 more years of working the night shift at Walt-Mart, with higher food and energy prices, you might be back to even.
By the way, Chuck, please remind us what happens to the value of all those "safe" bond funds granny owns when rates rise.
Granny only gets to work at WalMart if she's partially retarded, cuz that's all wallyworld seems to hire these days....and tweekers.
The only action the FED could possibly take that would be cause for celebration would be if it were to terminate it's charter and die.....
some funny shit there...I wonder if he really does not know that the fed cannot raise rates or the Bernacke said they wouldn't (in his lifetime anyway)
Should anyone really trust the Fed to do something that will help savers and penalise debtors?
http://olduvai.ca
Funny he doesn't mention the Federal deficit will add $1T PER YEAR alone on rate normalization.
I kept waiting for him to bring that up as I read the article...Silly me! Who will end up taking the blows from that hammer? You got it, the working middle class! The war is and always be on the middle class until it is gone.
+1
"+1"?
First make the case for that statement. Put it into a context.
Schwab is part of the problem. He "made" investors money. There is no free lunch, Chuck.
The reason this whole enchilada is going to blow up is because people like you told your investors that they could one day retire from their hard earned money.
Chuck, don't pretend you don't know this was all one gigantic ponzi scheme. All the boomers with their retirement "plans" and "pensions" should take one hard look in the mirror and then take a hard look at the shit show they've created in their aspirations to live as long and as comfortable as possible. Medical assistance and service for years after they stopped working. Saddling the next generations with mountains of debt to pay for it all.
The Fed can raise rates, Chuck but it will be short lived and it will never pay anyone a decent return because by the time it did, the shelves to buy anything would be bare. Figure it out for yourself.
Post of the day.
Not only is there no Social Security, but, SURPRISE, no one will get their "retirement" moniez either.
They do not exist! 2015 will be the Great Awakening to this truth.
Yep.
Its not like they could have made good on those pensions anyway.
this and today's Goldman's(the FEDs owner) the market outlook make you hmm
are they folding down here?I mean here we are at the market highs nice and pretty but when one look down its scary like fuck
like common they cant have not even 0.00005 market correction or its gonna blow
Mr. Yellen and her moldy folds of bologna sezz to accumulate assets. Why, after 6 years have these seniors not added the likes of TSLA, TWTR, FB or LNKD???
Fuck chuck, he schwabs fed cocks.
Yeah Chuck jack up rates by 4%, hey why not 10%, because according to you thats a great thing. The economy would tank, not flourish. Chuck only likes interest rate manipulation if its done the way he wants it done.
Love the numbers. Chicken feed compared to QE boost for GDP.
Is Schwab telling that most seniors have now no money left after losing the rest on stock market scams...?
We zeroed some folks
Normally the economy gets stronger and THEN rates rise along with demand for loans/money.
The fed does not set long term rates, the market does. Check the historic charts. Fed FOLLOWS.
Mofo's are still dreaming up make believe keynesian shortcuts.
They have fucked it up so badly, nightmare is more like it.
Nah. Demographics demand that the fed give us a Volcker moment within the next ten years to feed the WW2 babies when we put them to pasture, just as Volcker's rates kept the WW1 babies fed. No matter what condition the market is from now until then, the fed will jack up rates sometime around 2025.
Charles Schwab has pretty lips
But, he is right. I retired when I was 62. I had saved and saved and payed off all. Then the interest rate goes to 0. All that did was give my money to the banking frauds that caused the problem in the first place. And GAVE THEM MY MONEY TO THEM FOR FREE. So I have lost. The people who should have lost were the bankers that did the criminal act. PUT THEM IN JAIL. Today several FED folks were put in jail for working with Goldman too close. The hell with that. PUT GOLDMAN in jail. Those bastards need to be put in jail for life.
You are absolutely right.It will happen and that will be the sign of real changes for this country.
Unfortunately US is not where it begins watch Europe closely and Russia is the new world order starter.
US is to follow as last one.
Don't you mean you gave your money to them without understanding all the potential risks? I was naive and trusting of them like you once but that was on me just as your losses are on you. Yes, they did wrong but you gave it to them.
I am sorry. However if it bothers you that greatly then do something about it.
I would rather have the rates be zero and have 5% deflation than the rates be 5% and have no inflation or deflation. In the first case, my savings increase 5% annually in purchasing power and I do not pay taxes. In the second, they increase 5% in purchasing power and I pay perhaps 20% of it in taxes. Realistically, I might get 5% with 2.5% inflation. I pay 20% of the 5% in taxes and lose 50% of the 5% to inflation. That gives me a real yield of 1.5% after tax. Schwab, you are an idiot. It is called the "Money Illusion" Fischer wrote about it in 1930.
BINGO!
+1 to ShrNfr
You won't be getting deflation.
Inflation fucks the unwashed masses.
Deflation fucks nearly everyone.
Hence, low rates are here to stay, and most will be experiencing a slow but very real financial bleed.
Yep, no deflation in a fiat system. Go back to hard money... and maybe.
What happens when the fed does raise rates and people keep buying UST's and the rate stays dow?
Why would you buy a germon bond at .9% when you can buy a 10 year ust for 2.4%.
Come on guys....
They fed don't matter!
As Obama would say, "Quit complaining grandma. Take some generic ibuprofen, and die at your earliest convenience."
Serious question: can savers file a class action lawsuit against the FED for lost interest? Just take average interest over 100 year period and use that rate.
devo, you'd think the whole LIBOR mess would be made to fit a RICO lawsuit.
But...
http://www.youtube.com/watch?v=_HaaSCLHbvU
oooohhhh welll...............
She has wonderful legs.
But back to the point, could I go to my local courthouse and filed a civil lawsuit againt the Fed? Or even a small claims case for the lost interest?
We don't need credit growth. Too much credit is what created the problem in the first place. Charts are usually bullshit, depending on where you choose the starting point.
If you're an alcoholic, the solution to your problem is to drink less, not more, otherwise you kill your liver permanently. Same thing for the economy. The solution is less credit growth, and purging the bad debts, allowing the economy to grow again.
While we're at it, get rid of the fuckers that created the problem in the first place, like the Fed and the corrupt GS bankers peddling sliced-and-diced collateralized mortgage bonds.
Mr. Schwab should know better. Fed's in a box, they can't raise rates even if they wanted to. Deficit is already way too fucking high to support with tax revenues and borrowing. Fed didn't end QE, is just running the bond purchases through untraceable Belgian accounts now. US is borrowing from itself (fuck the term "QE" - the Fed is monetizing the debt, call it what it is) in a form of fiscal masturbation that will end in the most painful and unsatisfying orgasm in history. No "happy ending" here.
+1
Bigger problem is the derivatives Ponzi. How big is the hole? Much bigger than the few hundred billion in 2008...
Rates aren't going up any time soon - especially with the "risk" of deflation around every corner. Besides, the Fed doesn't set rates, it follows the market (granted the makeup of the market is dramatically different than the pre-QE days).
Do you see Europe, England or Japan raising rates any time soon? Yeah, that's what I thought. The manipulators have painted themselves in a corner, and there's no way they're going to voluntarily blow themselves up. The market will force all their hands eventually, but for now, ultra low rates will remain, regardless of what people "want."
Commissions
Commissions
C'mon let the rates go up... PULL the Switch and lets ride the lightening !!!!!
If interest rates were to be raised, seniors would take a massive hit to their net worth, particularly on bond-heavy portfolios that are interest rate sensitive. Excess returns to debt and fixed income are at the root of the economic problems the country has faced.
two buck chuck.
what's the guarantee increased vig on FED conjured DOH! will translate to better vig FROM banks TO its unsecured (depositors) lenders?
which of the squid is willing to go first?
The only way for rate normalization is to completely remove the disaster known as the Federal Reserve. That in turn ties the hands of .gov. We then aren't stuck with endless war/welfare.
As a senior citizen, my opinion may be biased. In the 1950s as a schoolboy, I got 2% interest on my savings account. It did not seem like much to me then. But 60 years later, 2% yielding bank accounts would be considered astoundingly high.
Things are really screwed up now.
15 years ago, you could enjoy a comfortable retirement on $600,000 in 10-year US Treasury Bonds paying you $39,000 per year in interest. You would need about $2,000,000 to get that return now. 20 years ago, the interest rates were even higher. And back then momey market accounts were yielding better than 3%.
And keep in mind that the U.S. economy was quite healthy back then. We even had balanced budgets at the federal level, and oil was dropping from below $40 per barrel to just above $20.
So what good exactly has near zero interest rates done for America? The only tangible benefit has been the ability of the Federal Government to finance trillions of dollars of new debt without increasing the total interest burden of financing that debt. And to what end? Deficits are greater. The economy is stagnant. The future is in doubt. The American consumer is flat on his/her back.
I share Charles Schwab's lament, along with his wish for interest rates to rise back to reasonable norms. I just don't know how it can be done without making things worse than they are already.
Funny thing you mention the 3% on a MM fund. I was looking at some old account history records this evening and noticed that I was yielding 3.05% on a Vanguard MM fund the week before Bear Sterns blew up in 2008, which is when I started trading. I looked at the interest dividends and said WTF, and then did the math to realize the yield and again said WTF. Hell, you could get 5%+ returns on MM during portions of the 90's. Crazytown, indeed.
This is important. Because of ZIRP, the boomer generation has got to be thinking "I am going to need way more savings than I thought, to provide for my old age." For some reason, tenured professors have difficulty understanding this logic.
One thing I am sure. He won't see rate rise in his life time.
Everybody hates Obama.
Charles Scwab is straining to keep the AUM from depleting. Really doing the Seniors a favor by enticing them to remain as part of the 99%.
The 1% better advised has eschewed from these wealth depletion funds into trading, carry trades and the money freebies from their Central Banks.
The 99% who cannot access these trades should have learned by now to do the next best in taking their money out of papers and own the physicals that they can enhance with their respective skills.
I used to have respect for Fuckin and Chuckin Schwab. That just ended. Fuckin Schwab full well k,nows that any "return" on investment is net of inflation and feckin' taxes (State and Fed).
So this lyin cocksuckah gets up and talks about higher, nominal interest rates are going to help seniors and increase monetary velocity within the economy? WTF? So seniors should sell their equity portfolios and realesteate and put their feckin cash in a MM account to capture a Nominal 2 %?
Has Schwab been hit in the head with a feckin slapshotted feckin hockey puck or does he have dementia?
I don't understand your logic. The S&P 500 currently yields a nominal 2% in dividends. If I could earn that same return on a MM account, would I sell my equities? Fuck yes! Same return, far less risk - no brainer. I'd be careful tossing around words like "dementia" if i were you.
These BS statistics mean absolutely nothing. At what rate would interest rates have to be in order for their to be a concerted efforts to save. 5-10% at least. You won't see that for a LONG time. In 25 years has Japan raised its rates to reward the savers? Nope just more lower interest rates and bashing the YEN. You raise interest rates. Game totally over.
What about the interests to the national debt ? What about the poor student loans ? Can we afford interest rate hike ?
Yeah. It can be offset by slashing Social Security. For every percentage point the interest rate is raised we can slash Social Security benefits by 3%.
In that way we can handle the Annual Payments on the National Debt.
It will not hurt the seniors...too much.
They can afford to take a haircut, right?
Remove the income cap on SS, currently at $250,00, and SS takes care of itself.
Can we afford not to raise them?
Listen to you fools.. you hate the fed and it's manipulations, Chuck says let rates normalize upwards and all you can do is trash him.
For God's sake, this ZIRP is killing us economically, we read about it on these pages everyday!
So where was Chucky-poo and this op-ed 5 years ago ? Hmmm ? He couldn't inform his customers 5 years ago about the perils of ZIRP ? Get all the seniors with nothing else to do down protesting at the Marriner Eccles building, burning up phone lines at CONgress, etc ?
Just another tool ... another bankster who doesn't want to hang from the lamppost.
Savers are suffering from these low interest rates.The leading edge of the massive Boomer generation knows that every dollar spent is a dollar it cannot re-earn or replenish. The logical thing to do is hoard their wealth. Boomers have little choice but to, keep the car for an extra 50,000 miles, cancel remodeling projects, and make the grand-kids fund their own education.
With less interest income those that have saved all their lives are purchasing a lot fewer electronic gadgets and spending vacations in the backyard. Tens of millions of Americans are either in this position now or about to become so. The article below looks at how as a result of these low interest rates this "recovery" may be greatly delayed.
http://brucewilds.blogspot.com/2013/03/low-interest-rates-and-their-cost.html
The larger takeaway is that there are winners and losers everywhere, when you mess with interest rates. Big, powerful organizations like the FedGov, TBTF banks, public sector pension funds, and millions of individual savers and investors. How has such power and responsibility fallen into the hands of fusty old academics on temporary leave from their cloistered, tenured faculty positions?