$450 Billion In ZIRPorized Purchasing Power: Two Charts That Explain The Baby Boomer Dilemma

Tyler Durden's picture


When it comes to predicting consumer spending patterns, especially those of the baby boomers who are traditionally reliant on fixed income (but lately have had to migrate back into the workforce, as retirement prospects diminish, in effect displacing the young 18-24 year old Americans where unemployment is now at a substantial 46%), the following two charts from today's David Rosenberg letter do a great job at explaining the schism between interest and dividend income. The former, as is well-known, has been crippled and is plunging courtesy of Bernanke's ZIRP policy, which makes cash yields on savings and fixed income instruments virtually negligible, and the latter, which while rising, has a long way to rise if it is to catch up to lost annuity potential. It is here that the primary tension for the Fed resides: it has to force investors to switch their mindsets from the capital preservation of fixed income, to the risky behavior of pursuing stock dividends. It is also here that we see the lost purchasing power of the US consumer: interest income is down $450 billion from 2007-2008 levels to roughly $1 trillion, while dividend income has risen to $825 billion, which is where it was at the prior peak. In other words, when all is said and done, Bernanke's ZIRP policy has eliminated $450 billion in purchasing power, even if he has succeeded in reflating the equity bubble. Yet while bonds at least have capital preservation optics, what happens to dividend stocks whose cash flow yields can be eliminated at the bat of an eye, if and when the next flash crash materializes, or the next financial crisis is finally too big for the central planners to control?

Personal Interest Income:

Personal Dividend Income:

And in Rosie's words:

With bond yields melting and money market rates vanishing in recent years, the household sector has seen its income stream from the fixed-income market (and bank accounts!) recede dramatically. Interest income is all the way down to $974 billion, the lowest in seven years, and down by nearly one-third or $450 billion from 2008 levels.


This has happened at a time when the median age of the 78 million pig in a python, otherwise known as the baby-boomer cohort, is moving from 56 to 57 and the first of this group is already in their mid-60s. The investment life-cycle suggests that this cohort will begin to shift towards capital preservation and income orientation. The dilemma, of course, is that to generate income of any means, this requires non-traditional sources like corporate bonds (only 'junk' now will give you a coupon north of 7%), REITs, MLPs, hybrids and the like.


This ultra-low rate backdrop, coupled with the record amount of liquidity on the corporate balance sheet and the growing need for income or income-proxies for the aging but not yet aged boomer population, has unleashed a secular growth phase in dividends. Dividends now come to $824 billion and are 85% of the size of interest income for the household sector, and at the current pace (dividends are +7% from a year ago and interest earnings are down 3%) these two lines will cross for the first time on record within the next two years.


The corporate sector is responding to shareholder demands and increasingly focussed on returning retained earnings in the form of dividends — this year should be a record. And the reality is that payout ratios of 30% are below the typical level of 35% in the most recent pre-bubble cycle, let alone the long-turn historical norm of 52%. So even though the income-equity theme has lagged so far this year, this remains a secular theme ... especially for those content on being the tortoise, building the wealth by accumulating the cash flows, rather than the hare who inevitably gets exhausted chasing performance.

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Tue, 03/20/2012 - 15:42 | 2274466 francis_sawyer
francis_sawyer's picture

Catfood bitchez!

Tue, 03/20/2012 - 15:45 | 2274480 NotApplicable
NotApplicable's picture

Dry catfood at that.

No Fancy Feast for you!

Tue, 03/20/2012 - 15:53 | 2274526 battle axe
battle axe's picture

Time to get that refrigerator box condo by the highway. 

Tue, 03/20/2012 - 17:13 | 2274819 Stuck on Zero
Stuck on Zero's picture

Too expensive.  Go for the old mobile home in the desert.

Wed, 03/21/2012 - 06:30 | 2276103 economics9698
economics9698's picture

It’s apparent that the baby boomer will be demonized by society, bankrupted by the government and Federal Reserve, screwed over by their parents who they supported with lavish government benefits their whole working lifetime, and most likely killed in their old age by the millions throughout the world.  For the record it was the silent generation and the GI generation that took America down the socialist nightmare.


Tue, 03/20/2012 - 15:54 | 2274529 exi1ed0ne
exi1ed0ne's picture

Rats and bugs are free

Tue, 03/20/2012 - 15:56 | 2274533 NotApplicable
NotApplicable's picture

Only assuming you've got exclusive territory. Otherwise, you'll be fighting the next hungry guy for the privilege.

Tue, 03/20/2012 - 15:59 | 2274550 exi1ed0ne
exi1ed0ne's picture

More meat. Or if your hunting digs happen to be near a WalMart, more tallow for candles.

Tue, 03/20/2012 - 18:27 | 2275048 JohnKozac
JohnKozac's picture

Feed the rats GMO corn if you want them fat and juicy.

Tue, 03/20/2012 - 16:13 | 2274596 CvlDobd
CvlDobd's picture

Look, Dee! I can't explain it alright? There's some sort of weird chemical reaction that happens when you combine catfood, beer and glue. It makes you feel like, extremely sick and tired and you're able to fall asleep.

Charlie Kelly

Tue, 03/20/2012 - 17:04 | 2274780 DosZap
DosZap's picture

Either form makes no difference, if you make 1%, or 5% on it, your still 10 or 6% DOWN.................

Getting a $100.00 on a 12 month CD @ 100k, just means your statement says that, but in reality on CD's you have lost 10-11K in pruchasing power.

The real rate is 11%.....................like the old PacMan, eaten away steadily, bit by bite.

Tue, 03/20/2012 - 17:09 | 2274800 ejmoosa
ejmoosa's picture

Bcause you can avoid it for a long time, but in the end, Pacman is not keeping score, and will win.

Tue, 03/20/2012 - 15:44 | 2274470 Manthong
Manthong's picture

Just wait till they see what chasing dividends in a contracting economy did to their net worth by the end of the year.

Tue, 03/20/2012 - 17:15 | 2274822 Stuck on Zero
Stuck on Zero's picture

We're all going to be billionaires before very long.

Tue, 03/20/2012 - 15:43 | 2274471 Hedgetard55
Hedgetard55's picture

The Professor Moriarty of financial crime has forced savers into riskier and riskier assets, where they will ultimately be vaporized.


What punishment is valid for such a monster?

Tue, 03/20/2012 - 15:52 | 2274517 Bam_Man
Bam_Man's picture

Being "Broken on the Wheel"?

Tue, 03/20/2012 - 16:02 | 2274556 Pool Shark
Pool Shark's picture



Perhaps a plunge into the icy waters of the Reichenbach Falls...


Tue, 03/20/2012 - 16:56 | 2274749 Jam Akin
Jam Akin's picture

Pluck his beard out - 1 hair at a time.

Tue, 03/20/2012 - 19:22 | 2275202 Manthong
Manthong's picture

Keep with tradition.. common thieves get the gallows.

Tue, 03/20/2012 - 15:44 | 2274472 economessed
economessed's picture

Fork the Fed -- move your 0.06% CD's and 0.86% bonds to physical gold and earn a real return.

Tue, 03/20/2012 - 15:51 | 2274492 Manthong
Manthong's picture

Um, I forget..

Did the Secretary of Defense always have to disarm his troops before talking to them and has the Chairman of the private Federal Reserve Bank always been flanked by Secret Service suits?

Tue, 03/20/2012 - 17:24 | 2274854 Paul Atreides
Tue, 03/20/2012 - 15:43 | 2274474 tony bonn
tony bonn's picture

finally someone is taking up the cause of the raped saver and showing why artificially low interest rates are evil - especially those arbitrarily set by the financial terrorist junta at 33 liberty or wherever the fuck the fed is...

Tue, 03/20/2012 - 15:53 | 2274522 NotApplicable
NotApplicable's picture

I've had pretty good luck lately explaining to people how it is impossible to save wealth over time by saving dollars, as there is simply no one left in Spenderland who hasn't seen price inflation across the board. When they ask me how they can save, I move to the example of gasoline being cheaper now than in 1963, as measured in silver dimes.

While they all aren't running out to the coin stores, they are starting to understand the ramifications of institutional counterfeiting, which is more than I can say when I started preaching PMs back in 2004 to glazed eyes and drooling chins.

Tue, 03/20/2012 - 15:49 | 2274475 TruthInSunshine
TruthInSunshine's picture

Bernank's quick sand liquidity trap.


Whether you think he's intentionally or unintentionally doing so, anyone of sound mind can clearly see that the more he ZIRPs/QEeezes/POMOs/Twists, he's merely destroying private consumption in the actual, real economy.




Tue, 03/20/2012 - 16:07 | 2274575 kalum
kalum's picture

May the Chairsatan RIH

Tue, 03/20/2012 - 16:23 | 2274638 sessinpo
sessinpo's picture

B(urn) IH is more like it

Tue, 03/20/2012 - 15:47 | 2274483 SheepDog-One
SheepDog-One's picture

Bernanke reinflated the equity bubble to give cover to his real agenda of monetizing the debt.

Game almost over.

Tue, 03/20/2012 - 15:46 | 2274485 Big Ben
Big Ben's picture

Bernanke's ZIRP is supposed to stimulate spending by allowing people to borrow at very low rates. But instead what it seems to be doing is convincing boomers nearing retirement that they need to SAVE, SAVE, SAVE, because interest income is now negligible. Hence the tremendous demand for Treasuries, and the extremely lackluster economy.

What an idiot!

Tue, 03/20/2012 - 15:50 | 2274496 SheepDog-One
SheepDog-One's picture

I disagree, Ben is NOT an idiot, the general public are the idiots.

All he's been doing is monetizing the debt purchasing every bond and stock out there and everyone is too dumb to see whats really going on, their eyes are dazzled and blinded like monkeys by spectacular rising bullshit equities.

Tue, 03/20/2012 - 16:00 | 2274553 Sudden Debt
Sudden Debt's picture

America voted for Ben. It's like saying: i hosed down the house with gasoline while smoking a sigaret and now the fire is destroying my house! Evil fire!

Tue, 03/20/2012 - 16:48 | 2274719 LawsofPhysics
LawsofPhysics's picture

WTF?  No one voted for Ben, he was appointed by Bush, the fact that Obama kept him is simply more evidence that there is only one party, for the banks, by the banks.

Tue, 03/20/2012 - 16:59 | 2274755 merizobeach
merizobeach's picture

When will people start voting with their firearms?

Tue, 03/20/2012 - 17:10 | 2274804 10mm
10mm's picture

Never gonna happen.To fuckin dumb down,scared and wouldn't now what direction to take.

Tue, 03/20/2012 - 15:59 | 2274547 NotApplicable
NotApplicable's picture

He's not an idiot. But you are if you believe his lies.

ZIRP is designed for one thing, and one thing only; wealth transfer from savers to borrowers (and all the intermediaries who collect fees along the way).

Tue, 03/20/2012 - 15:56 | 2274505 sitenine
sitenine's picture

More producers becoming consumers.  Same story, different take.

[edit] We all know what will happen when the baby boomers want their 'benefits' because they 'paid for them', don't we?  They will raise bloody hell to keep what they perceive to be their entitlements.  They will screw every last one of their children, grandchildren, and others' grandchildren just to ensure that they get paid.

Tue, 03/20/2012 - 16:54 | 2274740 lasvegaspersona
lasvegaspersona's picture

mysterious "sitenine"  guy

I hope blaming a demographic brings you the answers you seek.

Tue, 03/20/2012 - 16:59 | 2274754 sitenine
sitenine's picture

I don't blame them anymore than I blame douche-bag bankers.  I don't blame them anymore than ignorant politicians.  I don't blame them anymore than you or myself.  Greed is not a demographic.  Thing is, you can't speak the truth, not even on zero hedge.  You WILL offend someone, and if that demographic is large enough, it will ostracize the offender.  Life's a bitch - deal with it - or do something to change it is what I say.

Tue, 03/20/2012 - 19:27 | 2275233 lasvegaspersona
lasvegaspersona's picture

personally I am doing something

for me and mine and for whoever I can help and who wants to be helped

I have a paticular line of preparation for those who want to blame folks 'of a certain age' just because the blamers can't quite figure who really did what

Tue, 03/20/2012 - 19:32 | 2275248 sitenine
sitenine's picture

'Blamers' - the rallinging cry of the Baby Boomer.


Tue, 03/20/2012 - 15:51 | 2274506 Bam_Man
Bam_Man's picture

This is why the boomers are all writing naked out-of-the-money puts on AAPL every month and also explains why the VIX is close to being in single digits.

Tue, 03/20/2012 - 15:53 | 2274516 SheepDog-One
SheepDog-One's picture

They may be writting naked out of the money puts on Apple right now but real soon theyll all be eating generic brand cat food.

Wed, 03/21/2012 - 15:47 | 2277548 MeelionDollerBogus
MeelionDollerBogus's picture

Who lets them write naked out of the money puts? I can't with my broker. Sure would be tempting!!

Tue, 03/20/2012 - 15:51 | 2274511 realtick
realtick's picture

Here's a chart that shows how pathetic the past two "bull markets" have been.

Without borrowing they would never have occurred:



Wed, 03/21/2012 - 15:51 | 2277565 MeelionDollerBogus
MeelionDollerBogus's picture

Most excellent charts. I set myself to follow you on stocktwits now too :D I'm goldpricemodel on there but my charts haven't been updated. I've been throwing them on my flickr account for now

Tue, 03/20/2012 - 15:53 | 2274520 Dr. Engali
Dr. Engali's picture

There is only two reasons we have ZIRP. The first is to feed the bankers. The second is to keep the governments borrowing cost down. There is nobody out there to buy our debt. Anything else they say beyond that is bullshit.

Tue, 03/20/2012 - 16:24 | 2274640 Al Huxley
Al Huxley's picture

Well said.

Tue, 03/20/2012 - 15:56 | 2274535 fonzannoon
fonzannoon's picture

Is there anyone on here who can explain in simple terms why the vxx would be down 4% when the SPY is red?

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