Monday, March 11, 2013

Punishing Savers, Rewarding Debtors

Legendary investor Jim Rogers has become something of a moral philosopher. Happily enough, he does it well.

Here, in an excerpt from a recent interview, Rogers reflects on the morality of punishing people who save and invest their money in order to bail out people who speculate. By that he means that artificially low interest rates, coupled with the possibility of inflation, punishes savers. We are pursuing these policies because we, and many other countries, are trying to save our financial system by bailing out people who borrowed more than they could repay.

In the long run, punishing virtue while rewarding vice leads to calamity.

Rogers explained it well:

Throughout our history – any country’s history – the people who save their money and invest for their future are the ones that you build an economy, a society, and a nation on.

In America, many people saved their money, put it aside, and didn’t buy four or five houses with no job and no money down. They did what most people would consider the right thing, and what historically has been the right thing. But now, unfortunately, those people are being wiped out, because they are getting 0% return, or virtually no return, on their savings and their investments. We’re wiping them out at the expense of people who went deeply into debt, people who did what most people would consider the wrong thing at the expense of people who did the right thing. This, long-term, has terrible consequences for any nation, any society, any economy.

If you go back in history, you'll see what happened to the Germans when they wiped out their savings class in the 1920s. It didn’t lead to good things down the road for Germany. It didn’t lead to good things for Italy, which did the same thing. There were plenty of countries where it wiped out the people who saved and invested for their future. It’s usually a serious, political reaction, desperation in some cases, and looking for a savior and easy answers is usually what happens when you destroy the people who save and invest for the future.

Perhaps this is why, with so many economic indicators looking better and better, many people are not feeling it. 


Anonymous said...

By accounting definition the savings of one economic unit is equal to the debts of some other economic unit or units. Therefore the units that have wanted more financial savings have generated demand for other units to go into debt.

If this process has a natural saturation limit, which one expects of every natural process, then the moral failure is that of society as a whole, which means creditors should be punished for their "sins" along with debtors, and this is why bankruptcy law is a feature of private property with finance (capitalism).

Anonymous said...

The source interview is from Chris Martinson's "peak prosperity" is built from his "Crash course" looking at the economic consequenes of peak oil and other stressers against unlimited economic growth needed to pay on the 30 year debt binge we've been on.

I don't like the idea that inflationary policy is "punishing savers", although I have always been a saver. But what bothers me more isn't that inflation is going to steal my nest egg, but seeing a week in the hospital can drain a decade of hard earned savings. So living without buying into a $8000/year "sick insurance" scam is true gambling no matter how healthy you try to be.

Inflation is yet a mild danger (compared to economic collapse of domino defaults of leveraged debt of an accidental or manufactured liquidity crisis)

The idea of retirement for a saver can produce unlimited anxiety, since there is no amount of money you can save that can protect you in your old age. And it is offensive to ones sensibilities that we will grow old, become a burden, and the best legacy we can leave is to work hard to afford the path to our own graves. That's about as depressing as I can imagine.

I've thought about Dicken's "Christmas carol", and even if intentional propaganda, it shows what happens when you let fear and resentment lead your perspective. So I've not escaped that fate, but at least I don't have any illusion that hoarding silver and gold is a path to security.

Anonymous said...

In referencing Germany and Italy, So you are saying inflation leads to fascism and ultranationalism?