Two weeks ago, we used this Gold Watch space to report that Americans’ retirement plans are being hammered. Actually, it’s worse than that. They are taking it from two sides at once. They are hammered by the losses in their retirement accounts. At the same time, they are pounded by the rising cost of living.
Consumer prices have been rising at an annual rate of 5% for more than 17 months in a row. Along the way, it has gotten worse, not better, with inflation clocking in at 8% or more for the last seven months. The average American family has lost $6,000 in purchasing power in less than two years.
That’s a pounding by anyone’s reckoning.
At the same time, people are hammered by losses in their retirement plans. Heritage Foundation economists estimate that Americans’ 401(k) retirement plans have lost $2.1 trillion just since the first of the year. The average plan dropped by 25% in less than a year.
That is indisputably a hammering.
Let us overlook, at least for now, the losses people are experiencing in their home equity, which for many people is their single most important asset.
What about people who have neither retirement plans nor home equity? Their pain is even worse. A CNBC story last month said that 63% of Americans are living paycheck to paycheck. And here’s a stunner from the same story: “Of those earning more than six figures, 49% reported living paycheck to paycheck.”
Here is a graph of the U.S. personal savings rate.
In June, the savings rate plummeted to 3.0%. That’s below the level in August 2008, when it fell to 3.5%, providing conditions for the mortgage meltdown and the Great Recession.
But of course, the savings rate today is in the tank for obvious reasons. People know that saving dollars at rates below the inflation rate only guarantees a loss, which is why informed people turn to gold.
The depressed savings rate flies in the face of Federal Reserve Chairman Jerome Powell’s description of the economy as reasonably strong:
This is a strong, robust economy. People have savings on their balance sheet from the period when they couldn’t spend and where they were getting government transfers. There’s still very significant savings out there, although not as much at the lower end of the income spectrum — but still, some savings out there to support growth.
According to Wall Street on Parade, “The financial strain on American households is showing up in growing debt loads.” It cites a Fed report on household credit and debt saying, “For the second quarter of this year, aggregate household debt now stands at an historic high of $16.10 trillion – an increase of $2 trillion since December of 2019, just before the onset of the pandemic.”
The financial condition of small businesses also refutes Powell’s assessment of the economy. Bloomberg shares the grim news: “About 37% of small businesses, which between them employ almost half of all Americans working in the private sector, were unable to pay their rent in full in October…. It’s up seven percentage points from last month and is now at the highest pace this year, the survey showed.”
The monetary authorities have painted themselves and the dollar economy into a corner. Raising rates depresses whole swaths of the economy, tanks the markets, and batters people’s living standards. Yet moves by the Fed have so far fallen far short of what is needed to end inflation as it persists in setting its policy rate well below the inflation rate. Inadequate measures will eventually destroy the dollar economy.
If the world hadn’t experienced monetary crises like this before, one would hardly know what to do. But we have long experience with currency failures resulting from unrestrained spending and wanton money printing. Because the economy is weak, Chairman Powell notwithstanding, almost anything can trigger the next meltdown. That is why we urge our friends and clients to heed the lessons of long experience and own gold now for wealth preservation and profit.
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The opinions, beliefs, and viewpoints expressed in this article do not necessarily reflect the opinions, beliefs, and viewpoints of Red Rock Secured LLC or the official policies of Red Rock Secured LLC. Red Rock Secured LLC is not a financial advisor, is not licensed to provide investment advice and neither provides investment nor financial advice. Red Rock is a product specialist that can help evaluate your precious metals purchase options.