How Negative Interest Rates Sap Consumer Spending by an Ever Larger Part of Consumers

Over-65s, a large and growing demographic in Europe, are cutting their spending at worst possible time as NIRP eats into savings, pensions, investments, and annuities.

By Nick Corbishley, for WOLF STREET:

With the coronavirus crisis upending the global economy, leaving all manner of mayhem in its wake, many of the economic trends that predate the pandemic’s arrival continue apace. Some are accelerating. They include the erosive impact zero and negative interest rates have on savings, investments, annuities, and pensions of European retirees, of which there are an ever larger number, given the aging populations. This has been decimating their spending power, which in turn saps consumer demand, and thereby the broader economy.

Over-65s are a large demographic, representing around 20% of the entire EU-27 population. And it keeps growing. By 2030, people over the age of 65 could represent as much as 30% of the population of Spain. Even in Ireland, one of the EU Member States with the youngest populations, the share of the population aged 65 and over is forecast to increase from one in eight to one in six by 2030.

As the population ages, the financial pressures grow. Two weeks ago, the privately owned Bank of Ireland — not to be confused with the Central Bank of Ireland — announced that it is going to start charging negative interest, of 0.65%, on cash in accounts held by investment and pension trustee firms. The bank said it had written to 14 investment and pension trustee firms to inform them about the new negative interest rate.

“The average amount held on deposit by investment and pension trustee firms is in excess of €100 million,” the bank said. “Therefore it is no longer sustainable for the bank to continue with the current rate of interest.”

Bank of Ireland is the first Irish bank to take this step. But as has happened in other Eurozone countries, once the precedent is set, it won’t be long before other Irish banks follow suit.

In Germany, annuity-type life insurance policies (Lebensversicherung) that serve as a common part of private retirement planning have also felt the sharp end of the ECB’s negative interest rate policy (NIRP), which was first launched in 2014. The policies pay out a certain amount per month in retirement. Asset managers invest the premiums in government and corporate bonds, which represent around 85% of their portfolios.

This approach worked as long as bond yields remained above the rates of return promised to policyholders. In the 1990s, life insurers offered customers returns of up to 4% per year and still managed to turn a healthy profit. But those days are over.

Thanks largely to ECB policy, bond yields have collapsed. So, too, have the payouts to policyholders. In 2019, median annualized rates fell to 0.9% and are expected to fall to 0.5% by the end of this year. Interestingly, this has not stopped Germans from investing in the life insurance policies: according to Der Spiegel, contributions increased by 11% in 2019, dashing hopes that the ECB’s NIRP policy would push Germany’s nation of savers into stocks.

The median value of life insurance policies in Germany is €13,500. Each policy lost on average €390 in 2019 as a direct result of low or negative interest rates, according to research by Deutsche Bank. Taking cash and deposits plus claims on insurance into account and leaving aside other possible effects, the aggregate loss for a representative household was roughly €540.

Many people don’t have savings or investments when they reach retirement age, and rely on public social security programs, which are not exactly generous in Germany, or in some other countries. And some are getting corporate or government pensions. But they too are feeling the strain from NIRP.

In the UK, where the benchmark interest is 0.10% but could be taken into negative territory sometime soon, recent corporate collapses such as that of Carillion have revealed the gaping deficits that exist in many corporations’ defined pensions plans. According to research by PricewaterhouseCoopers (PWC), the total deficit for such plans in the UK had soared to £340 billion by August 2019, after doubling in just one year, in part due to falling bond yields.

Many public plans are faring little better. In Spain, the national central bank just released a wide-ranging report into the state of the public pensions system. Its ominous conclusion is that retirees receive €1.74 for each euro they put into the social security system. In other words, the system is not remotely sustainable, despite the fact that monthly payouts were already sharply reduced in 2018.

And these reductions in payouts are directly hitting consumer spending. Following the cuts, a pensioner who retired in 2018 will lose on average the equivalent of €350 a month in purchasing power over the duration of their retirement, according to a study by the consultancy group IFA. The pension age in Spain has also risen from 60 to 65 and five months in recent years, and is expected to rise to 67 in the coming years. Many people are already voluntarily opting to work til the age of 67.

Something similar is happening in many other European countries. Public pension systems are offering less in the way of outputs while demanding more in the way of inputs. What’s more, the fiscal pressures driving these changes are likely to get a lot worse after the Pandemic as countries grapple with a beaten-up economy, rising public spending, and lower tax revenues. At the same time, zero or negative interest rates are cutting the payouts from savings and other retirement vehicles, and this saps spending by retirees at the worst possible moment.

As their incomes fall, people have responded in myriad ways. Some have decided to keep working way past regular retirement age, which isn’t such a bad option as long as the work is not too physically demanding. But age discrimination can make this strategy very tough. In many places, workers are pushed out once they hit the 50-mark. Self-employment may fill some of the gap, for people who can pull it off. Around one out of ten people aged 65-74 are economically active. That is likely to go up in the coming years.

Whether voluntary retirees or forced to retire by age discrimination or health, people are responding to the crisis is by cutting back their spending. This in turn is dragging down consumption in the economy as a whole. In economies that are predominantly consumer based, this is not good news, and comes on top of the pressures on spending power by many younger consumers, and those pressures are now exacerbated too by the fallout from the coronavirus crisis. By Nick Corbishley, for WOLF STREET.

It was a Big Gamble that was hot for years but has gone sour after Turkish lira’s plunge amid a surge of defaults on bank debts denominated in foreign currency. Read... Turkey’s 2nd Financial & Currency Crisis in 2 Years Blossoms. Heavily Invested European Banks Look for Exit. But Not the Most Exposed Bank

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  122 comments for “How Negative Interest Rates Sap Consumer Spending by an Ever Larger Part of Consumers

  1. Seneca’s Cliff says:

    During the last 30 years there has been a lot of growth in “retirement towns”, which are places where the main driver of the economy is the investment earnings and pensions of retirees. I think going forward these places will become economic dead ends for the reasons discussed. I expect they might become low wage colonies where oldsters stich up wallets, or darn socks to get enough money to live on.

    • Joe Saba says:

      got same problem in merica
      THE $Dollar debasement is like -10% annual loss of VALUE

      • Darrell D Black says:

        It will take some time for the same effects show up in the USA. Many retirees through the ages have relied on laddering bonds for about 50% of their living expenses. With interest rates in the USA essentially ZERO… is beginning to hit all of us. Most retirees today have personally stopped spending as only living on Social Security and the other half coming from principal of savings. Many used to travel every year, eat out, do vacations and other activities. These are now gone. The FEDERAL RESERVE…says they have to have zero interest rates to keep from going into a severe recession. The USA can’t survive on interest rates above 8%…but it can not certainly survive with interest rates at Zero…either. It is all for the BANKSTERS…….

        • Anthony A. says:

          We are well over 70 years old with SS and RMDs as our income and living in Texas with no debt and paid for house. No pensions, but decent savings. Up until this year, we were able to earn enough in interest and dividends to cover the amount we had to take each year for an RMD pull (roughly 4% of the IRA). That’s not happening going forward at 0% interest rates. My CD ladder and bond funds are trashed to less than 1% interest and dividends annually.

          So now we start eating our savings (kind of like eating a leg or arm). We do have enough to last several years, but no way to match inflation, which will decimate our ability to maintain a conservative lifestyle and cut that “several years” by a big percentage.

          I guess we could speculate in the stock market more than we are now (roughly 15% equities), but we can’t take the risk of losing out to a market massacre and increased inflation.

          Our safety valve is selling the house ($275K value) and getting a cheap (if they exist) apartment. Maybe we will get lucky and die before that happens. (LOL)

        • Zantetsu says:

          Anthony A, you should be spending down your savings in retirement. You should not be living in perpetuity on what you saved with no reduction in capital and the ability to pass it on to the next generation with low estate taxes.

          That’s just the way it should work – you save it when you are young, you spend it when you are old, not “you save it when you are young, you keep it forever”.

          Ensuring that you have enough to last until the day you die is admittedly a difficult thing to do, so you have to have some excess savings.

        • Cookdoggie says:

          Adding to Zan’s comment back to Anthony: I’m also about 15% equities (the lowest end of my range) and that’s the component that makes up for ZIRP trashing your CD’s and bonds. And if equities swoon, you buy in at the sale prices and ride it up again. The equity component allows you to keep up with inflation, and keeping it at a low percentage protects your nest egg.

        • cb says:

          @ Zantetsu –

          Why should Anthony A. have to eat his seed corn because the FED has practiced interest rate suppression?

          I think you have it wrong. A retiree should draw down principle very conservatively — in order to keep worry away and allow for an untroubled lifespan, without the worry of outliving their money. It sounds like Anthony A. planned responsibly until he got creamed by the jackals at the FED,

          I’m sorry for you Anthony A. You sound like a good man.

        • Zantetsu says:

          cb, just because you saved X dollars for retirement doesn’t mean that you never have to spend any of that X dollars to live. You are essentially advocating for retirees being a protected class who never has to spend capital but just gets to live forever in perpetuity with support from everyone who is still working.

          In the ideal you would die with $0, having saved just enough to live reasonably without working until the day you die. Since no one knows exactly when they are going to die, of course you have to have more than that saved so that you don’t run out early. And of course, those who live an unexpectedly long time will probably need some form of assistance because it is impractical for everyone to save enough to cover them should they live to 100.

          But in no case should retirees just live indefinitely and forever on interest without dipping into their principal. Dipping into your principal should be expected and I have zero sympathy for someone who laments that they have to do it.

          If you didn’t save enough to have it last you until say 90 with little to no dependence on interest then I am sorry that you weren’t able to provide for yourself properly. But don’t expect everyone else to just carry you indefinitely for no cost. Eventually you will probably have to lean on relatives and public assistance, sorry.

    • Petunia says:

      You can already see this in Florida. Over 55(age) communities are becoming all ages communities because it increases home values. This makes it easier for retirees to cash out if they need to.

      Also with the pandemic, there is now a stigma to being around large groups of older people. Breakouts of covid in over 55 communities are being hushed up in Florida.

      • Anthony A. says:

        The thing about “retirees cashing out” is what do they cash out into? A nursing home? The kids extra bedroom?

        • Petunia says:

          Some people in Florida are going north to the Carolinas, or getting out of the country altogether. I have seen Dominican Republic, Mexico, Ecuador, and even Italy and Portugal mentioned.

        • Trailer Trash says:

          I’m proud to be an American
          Where at least I know I’m free
          To starve under a bridge
          With the other Useless Eaters
          Until the cops drive us out

          Retirees will need to cash out into a tent and sleeping bag. Better buy two sleeping pads. The ground gets harder as we get older.

        • The Chinese retirees usually move in with their grand-kids of whom they bought homes for ages ago. None of them go into nursing or retirement homes. The Chinese tradition. The rest move into tents on the sidewalk. The richer ones buy recreational vehicles.

        • pogohere says:

          Trailer Trash: the French version:

          “The law in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.“ —Anatole France, (Jacques Anatole Francois Thibault) The Red Lily, 1894.

      • Zantetsu says:

        My father lives in the Villages which as I understand it is one of the largest, if not the largest, older age communities in FL. He has told me repeatedly that they have had very little COVID in their community.

      • The Original Colorado Kid says:

        “Also with the pandemic, there is now a stigma to being around large groups of older people. Breakouts of covid in over 55 communities are being hushed up in Florida.”

        Your evidence, please?

        • Petunia says:

          There are news reports in Florida that nursing home deaths are not being published, as well as, the death numbers of older patients. Read the F…ing news.

        • Zantetsu says:

          “Read the F…ing news” is not evidence, sorry.

        • The Colorado Kid says:

          I dunno, but I’m pretty sure that I was the ‘original’ Colorado Kid, but whatever Dude.

          I’ve said it before, but I think a lot of Folks ought to look at The Harry Browne Permanent Portfolio as something that could help preserve their purchasing power and keep ahead of inflation as well as protect their wealth from any economic condition, or season.

          Go over to and look at ‘insights’ section and peruse the article that illustrates the PP plus the other 3 ‘bulletproof’ defensive portfolios that just seem to reliably hold up when it hits the fan, whether it’s a Japanese type of economic event, a US 1970’s inflation, or just a garden variety recession, or even a hyperinflation to preserve some seed money to escape, or start anew.

          You can read “Fail-Safe Investing” by Harry Browne or

          “The Permanent Portfolio” by Craig Rowland & J.M. Lawson

          These two books are available free at your Library or on an inter library loan most likely.

          The last book is one that just got published and is available on Amazon and is entitled, “Investing Equanimity” by Eric Deslauriers and addresses the emotional & logical reasoning and aspects of the PP.

          There is also a forum called dedicated to the PP.

        • Zantetsu says:

          Are you responding to me Colorado Kid? Because I was responding to Petunia, pointing out that she wasn’t actually answering your request for sources by saying “read the F…ing news”. I get the feeling that you think I was responding to you although I have no idea how you think my response makes any sense as a response to you.

        • Zantetsu says:

          Oh my mistake sorry I got you two colorado kids mixed up, I now realize that you are not the original poster, so your “Dude” reference was to the O.P. and not to me. My apologies for my confusion.

        • Zantetsu says:

          By the way thanks for the pointers The Colorado Kid I will check them out.

    • MiTurn says:

      “retirement towns”

      I know a man and wife who live in an English-speaking retirement community in Mexico. Mostly ex-pat Americans and a smattering of Canadians. He brags about the cheap costs and how he doesn’t even have to learn Spanish.


      • Zantetsu says:

        Why so judgemental? Let them live the way they want.

        • Lee says:

          Why so judgemental?

          Let them accumulate what they want and do with it what they and in the way they want…………

      • Personal User says:

        Just Curious as to where the people you know might be in Mexico.

        • Dan says:

          Probably around Lake Chapala or San Miguel de Allende.

          I have an acquaintance in Chapala. He tells me it’s cheap, not as cheap as it used to be, and, lots of grey-hairs leave to go back to the US when they get in need of more serious care late in life.

          No place is perfect.

          Go check videos on YouTube for both places.

        • The Colorado Kid says:

          San Miguel de Allende is as expensive as many metropolitan US cities nowadays, and Ajijic is catching up fast.
          You would need to go outside of any popular expat destinations and you would need to know basic Spanish and then you could live for cheap on as little as maybe $1200-1500USD a month for a couple. You would have to live in a local neighborhood and shop at the local mercado markets to live at that level. The better your Spanish is and your local knowledge gets, the cheaper and more economically you can live. You could have a very good QOL in Mexico, but you have to like Mexicans and the Culture or you probably won’t ever be happy there. Don’t just move somewhere based on the price alone.

          Go to YouTube and watch “Expats in Mexico” and they just did an interview with a guy that lives in SMA.

        • Lee says:

          Yeah, there is a long history of lots of American ex-pats moving to Mexico to live on their US pensions as they couldn’t do it the USA.

          Back then (I don’t know about now.) the US dollar pension in Mexico would be able to buy you a pretty decent life without having to worry about starving to death.

          Many of them were former US military.

          Yes, the area around Lake Chapala and San Miguel were popular as was Guadalajara.

          IIRC my rent on my one bedroom aparment with a swimming pool and all utilities was something like US$60 a month or so when I went to grad school and that included utilities too that was the late 70’s in Guadalajara.

    • Alex says:

      I was always surprised with the ages segregation in North America, with lack of closed family ties between generations, so funny was to watch how your grandmas did not know what to do after they retire and sit in the cafe having endless coffee and empty conversations with their friends,. while at the same time their children had to hire baby sitters from the streets ..and when these grandparents visited their grandchildren they are surprised that kids talk to them as to the just outsiders… This life of emptiness always eats brains..Look at the grandmas in other countries like Eastern Europe, Asia, where they take over kids letting their children build their careers. They all have a huge family, and US old people again live together with old people but not helping their children and grandchildren… Look at Indians – they have families consisting of 40 people and old people are the respectable part of them… They work to old ages, they take care of kids… They are the part of the lives of working members of the family, they are not afraid for their future

      • The Original Colorado Kid says:

        Lots of U.S. grandparents help with the kids. I speak as a grandparent who knows a lot of others who help out. The problem is when the kids move across the country for a job.

        • Caveman says:

          The problem is when Grandparents move to Florida in retirement. Fixed it.

          Not trying to be sarcastic, this is exactly what happened to me. Now they are trying to convince me to move to Florida, with no job & no place to live. We can’t hardly even go visit their retirement compound because my 4 kids are so loud & they only have a 2 bed apartment (without a couch).
          During the lockdown my wife really needed help since the kids were out of school & we have a baby. I was out of town for 2 months. We didn’t get any help & now we realize we are on our own (and free to chase jobs).

          You touched on a sore subject.

    • raxadian says:

      The Euro is worth a lot more in South America and Argentina has a lot of Spanish and Italiaj decendants so one option, before this whole pandemic, was for retired Spanish and italian citizens to move there.

      Heck if your retired fun is in USA dollars there is a whole lot of countries were that money gets you more that it does in the USA.

  2. Petunia says:

    I lived in Florida and Pennsylvania both retirement havens with huge older populations. A big portion of retiree spending is travel. Now that most retirees are home bound, to a least one of their homes, reduced spending comes as no surprise.

    I don’t claim that all retirees are well off, only that they vote with their dollars/euros. Usually travel, restaurants, and events are a big deal to them. Most already have enough stuff.

    • Retirees are expected to pony up for the grand children’s college, (bless you student loan program) Many people still lack health care, Johnny can’t read and Johnny can’t breathe. They lose their job, let’s start a business! I was always tight fisted with the kids, now they see Dad is the lender of last resort.

      • Anthony A. says:

        Do you mean retirees pay for the grandkid’s college fees shortly after they pay for their children’s student loans?

      • Zantetsu says:

        I’ve never heard of it being common for grandparents to pay for grandchildren college tuition. Certainly doesn’t happen in my family and I’ve never heard of it from friends. Of course, people do tend to keep financial details like that private so who knows. Neither you nor I probably.

        • Anthony A. says:

          Two of my friends repeatedly have said that they are not going to pay for the grand kid’s college expenses. These are the same guys that took their ENTIRE families on Disney cruises and paid the whole cost. Yeah, they will pay.

  3. Lou Mannheim says:

    I’ll ask the same question I’ve had for 20 years – what is their end game? We’ve had 40 years of this exercise in Monetarism and asset prices sure have risen, but with highly asymmetric returns to the population. Is this “Mission Accomplished” for them?

    • 2banana says:

      The “end game” is to keep the game going as long as possible.

      To become rich no longer means producing superior goods and services people that want and desire.

      It is now being first in line to the cheap and easy government money.

      It’s a small club. And you ain’t in it.

    • Petunia says:

      The end game is to keep you in the game until they decide to end it or you lose.

    • lenert says:


    • polistra says:

      Their end game is omnicide. Everyone except Bezos must die.

    • Trailer Trash says:

      >”what is their end game?”

      Soylent Green.

    • MonkeyBusiness says:

      Get one half to ki** the other half.

      As usual.

      Wait, that sounds like Thanos!!

  4. 2banana says:

    The logic consequences of zero interest rates and a war on savers

    Savers don’t get interest on their savings to spend. So they don’t. And that greatly effects economic activity.

    The only folks who benefit are those that borrow and take on more and more cheaper debt.

    But this doesn’t build long term economic activity.

    • Wisdom Seeker says:


      Recognize that both savers and spenders are natural population categories, just like socialists and individualists, or progressives and conservatives.

      A good and just society finds a balance that benefits nearly everyone, not just a few. (I say “nearly everyone” because there are also a few bad apples out there.)

    • Petals says:

      My first house cost about $15,000. My second, $33,000. My 3rd, $70,000. We sold that one for $600,000. after 40 years. Doesn’t anyone realize the cost of my potatoes has also gone up? And we like to eat!! And we both worked hard all those years, and raised 3 upstanding, honest, hardworking children who also are saving and planning for their retirement. None of us lived beyond our means. We have become accustomed to NOT sleeping under a bridge, or hard concreted streets. Have we not earned the right for a happy, healthy, worry free retirement? Politicians should be lined up…..

  5. wkevinw says:

    I have never understood the reliance of these funds on interest. If they just hold their portfolio (conservatively constructed), they should get a total return due to the bull market appreciation in both stocks and bonds over decades.

    • c1ue says:

      massive load of nonsense.
      Among other things: there are restrictions on what insurance companies and pension funds are allowed to invest in.
      Secondly, there are serious issues with liquidity.
      And most importantly: risk. There is a world of difference between risk-free and risky – part of which is why there are rules barring many types of investments.

    • lenert says:

      Earnings yields and dividend yields for the S&P are half what they were 40 years ago.

    • Wolf Richter says:


      Nope, that’s an illusion for most Europeans and Japanese. The Nikkei peaked in 1989 and is now down 45% from that peak. Most European stock markets peaked during the euro bubble (2000) or before 2008. The German DAX is a total return index and cannot be compared to the S&P 500 and other indices. But the German DAXK is a regular index like the S&P 500, and it is today below where it was in March 2000. The Italian MIB Index peaked in March 2000 and is now down 58%. Wipe-out. Buy-and-hold has been a bad idea for most investors in those places.

      • wkevinw says:

        Wolf- Yes, if you weren’t in the right stock market you got much less return; or none. I hadn’t thought of that.

        Global diversification is important! If I were running one of those I would have bond and stock allocation representing world GDP, I think it’s about 25% Europe, 25% US, 25% China, and the rest of the world 25%. Over the past decade that would be capital gains of about 8% annually, if I am doing my math right.

        Thanks for the post.

      • Redshift says:

        Yep, and in the UK the FTSE100 closed today 13% lower than its value at the end of 1999.

    • Darrell D Black says:

      The problem is the volatility of the economic business cycle. Reason today that traders in the stock market are in and out. Pick up a thousand here, five hundred somewhere else. Constant trading…if one knows how to trade and control risks! No other solution today..with ZERO interest rates.

    • Wisdom Seeker says:

      There won’t be “bull market appreciation in bonds” in the coming decade.

      Rates are near zero, so bond interest income is meager.

      And rates fundamentally can’t go meaningfully lower, so the potential for capital gains is also meager.

      • Saltcreep says:

        I fully expect that also US Treasurys will go negative, so I recently increased my own holdings of them based on the perversity of this whole show…

        • Wisdom Seeker says:

          Well, sold to you then. I have no interest in holding negative-yielding debt. Pun Intended!

          At negative rates you are willingly paying someone else to borrow from you. I absolutely do not want to see the US Congress ever have that privilege.

        • Saltcreep says:

          I didn’t buy nominally negative yielding ones, I just speculate on offloading the nominally positive yielding (but negative real term yielding) ones I currently hold when the new ones issued eventually become nominally negative yielding.

          I also see the whole thing as perverse, but I’m just trying to play the game of musical chairs.

    • The current U.S. stock market is a 100 percent pure ponzi in which at some point in time 95 percent of the people in it will lose everything and never make anything back. Fact 95 percent of anyone in a ponzi loses everything.

  6. joe2 says:

    Poor European babies. Skimming their retirement gravy train.
    The arrogant Europeans I’ve met traveling have been surfing on their ridiculous retirements and self-demanded privileges.
    The English, on the other hand, are at least human.
    Americans are a mixed bag.
    We all knew it was coming, just not so fast. What you ask? The knowledge that you are: 1) an obedient asset: 2) a controlled serf: 3) a useless eater. If you doubt, just be honest about your containment.
    The banker elite have let the mask slip.

  7. Henry Ford says:

    “Here I come to save the day”. My name is Universal Basic Income.

    But how is money printed for UBI different from money printed to pay interest in a higher interest rate world?

    Good question, Lou. What is their endgame? Let us all know when you figure it out.

    • joe2 says:

      The real question is how is UBI or other printed money different from money earned from actual productive work?
      The answer is it is not – the bankers made it thus.
      Only the imposed caste system determines whether you have to work or not work.

      • Henry Ford says:

        So if UBI is the same as money earned from actual productive work, then either sitting on my ass while collecting UBI is real productive work, or real workers are working for something that has no value.

        How about if a banker takes UBI? Oh, makes my head hurt.

        • Endeavor says:

          The UBI will act as a payroll subsidy. Modest UBI, low wage job (the only kind for most people saving business billions) and, of course, easy loans to make up the difference for a subsistence living. Guess who gets taxed?

        • Anthony A. says:

          @ Endeavor, you mean as a 75 year old retiree I could take a job at Burger King making $7.50/hr and get UBI too? I’m all for that!

        • Saltcreep says:

          UBI is a clear transfer to those at the top of the food chain unless you tax them to hell and back, in which case they’ll absent their taxable entities in no time.

          A recipient gets a dose of UBI and spends it on rent or phones or drinks or whatever, and it goes up to those who own the entities that sell whatever, who will park it in property or stocks or bonds or gold or whatever. Then a new dose of UBI turns up, and the same thing happens again and again and results in a steadily increasing concentration of real ownership towards the top.

        • Saltcreep says:

          Hehe, aptly enough the thought made me recall an old Donald Duck cartoon I saw, where Uncle Scrooge actually wants Donald to go out and get rid of a heap of his fortune, but it just ends up coming straight back to him because he owns all the entities where Donald goes to use it up…

  8. c1ue says:

    The biggest subsidy in existence today is the US Medicare system.
    Not that it should be cancelled – the issue is that everyone else is stuck with the horrific, shambolic for profit US health care system.
    The frankly laughable German policy sizes are because they don’t have to worry about either retirement income or health care.

    • lenert says:

      It’s about the same as the average Social Security benefit in the US but yeah, then $150 a month for Medicare is deducted which goes to the Advantage plan insurers and you still have copays and deductibles and if you need meds, pay extra for Plan D.

      GDP = C + G + I + NX

    • I support Medicare for all. My MD works to keep me out of the hospital, everyone needs this kind of medical care. Most of the curatives like BP meds and regular checkups are low cost interventions. At least lower the age to 55, where the problems begin. Get people thinking about taking care of their health. It’s a societal issue.

      • Petunia says:

        Getting the young people into medicare is what is needed. They hardly use medical services and can fund the care of older members.

        • Yertrippin says:

          Petunia- Why should they? Seriously.

        • Petunia says:


          Because most young millennials have no health insurance. They can’t afford it even at $15HR.

        • Yertrippin says:

          I’d like to see medicare for all. But if they don’t use it isn’t it just another gimme to seniors funded by taxes on $15 an hour jobs? What’s in it for young people I guess was my question.

          I don’t think we are particularly in disagreement, just that it’s another burden put on the lowest wage earnings.

          How’s about funding via the enormous govt bloat and grift programs for the uber wealthy, corporations, and the military etc?

      • MiTurn says:

        An interesting medical model I sort of fell into is the Direct Primary Care. My doctor switched to this model and I just went along with it, as he had been my primary care physician for 17 years up to that time.

        I pay him $50 a month and he takes care of most of my medical needs this side of a hospital (and generic meds at cost). He only has a limited number of patients (20% of his previous loss!) and I can pretty much see him whenever — same day is next day is normal.

        He charges $125 a month for families. He does not accept insurance.

        The model has its limits, but I like it and it works just fine.

    • Harrold says:

      Well, Medicare for All would be Socialism as I have been told.

  9. FinePrintGuy says:

    Cry me a river. American retirees figured out a long time ago that you couldn’t retire on investment grade fixed income alone. European retirees still prefer fixed income products but will need to have that same realization…soon! BNP is yielding 6.88%, VW 3.85%, ALV 3.86%, Unilever 3.87%… better yields than their American rival firms!

  10. That figure on money paid out vs money contributed, doesn’t take into account the people who never live to see a pension? The real question, is the rise in nominal value of assets real growth or just monetary inflation. In terms of the dollars lost purchasing power, what is the state of the Euro? What is the future of the Euro pension, if the currency breaks up and everyone goes back to their original fiat. Might be really nice for some, and really bad for others? Suppose they abolish retirement altogether, implement UBI and merge in existing pension fund assets? Ca has a tax on retirement assets taken out of state.

    • Petunia says:

      I want to see the mortality rates for SS based on the current plandemic. If it’s as bad as they say then the trust fund should have an increase of some sort. Instead, I think we will see that many were pushed into early retirement because of a job loss.

      • BrianC - PDX says:

        This is interesting. I turn 60 in September. I am amazed at the number of my friends that are gaming out how to bridge to age 62 and then just quit. Frankly I am doing the same calculation.

        Mostly because I can’t stand the tech industry anymore and just packing it in and going bike touring (backcountry) full time is getting more appealing.

        I have some debts that will be gone in ~6 months, and after that I could probably get by on less than $20,000/yr.

        Though not many can go from $250k per year to the lifestyle

  11. historicus says:

    For every action, there is an equal and opposite reaction…in physics and in economics.
    And as Hayek noted, central planners intentionally hurt one group at the benefit of another.
    To the last point, up until 2008, Fed Funds typically equaled or exceeded inflation. Then the savers were asked to ‘bite the bullet’ and save the system by the Fed priming the pumps with rates pegged below inflation.
    And the Dow went from just under 7K to 29K….not to mention Nasdaq and SPs.
    The one group continually is “biting the bullet” for the other group and by design.
    Inflation is the greatest enemy of the working man. And we are about to get a full dose of it. The Fed will be slow to react, intentionally. First it will be ignored then, it will later be welcomed as “good signs of economic activity”.
    It is clear the Fed does not serve the common man, keeping stock evaluations out of reason and promoting inflation rates that rip 22% (2% rate) and 28% (2.5%) off the dollar in just ten years. (as they measure which is questionable)

    • TimTim says:

      Inflation already happening in my basket of groceries compared to a year ago.

      • Twinkytwonk says:

        My wife is a dental hygienist here in the UK and the dental practice she works at have increased prices by 50%. Even worse is that due to the coronavirus she is unable to use the ultrasonic cleaner so not only do you pay more but you get a worst service too.

        • Petunia says:

          I see many UK girls go to Turkey to get veneers and dental services. It’s a thing to do, much cheaper, and nice vacation as well.

  12. LiquidTherapy says:

    Wolf, are you going to do an article on your latest view of your short trade?

    I still believe you are going to be correct.

    I do think that the portion of the economy that is really hurt is smaller private companies (not in the stock market) and that market share has gone to larger cap companies in the stock market. There are some valid reasons for companies to be up, but obviously even in the most optimistic scenario it’s not sustainable. An example would be the drug companies, there is so much male-investment going on there that will never be recovered. It’s for good reason… to solve the health crisis, but the ROI will ultimately be horrendous on a purely financial analysis basis.

  13. Yancey Ward says:

    It is real head scratcher that people’s first response to shrinking bank accounts isn’t to go out and spend all of it on consumer goods.

  14. NY Geezer says:

    Everyone is just guessing here about retiree behavior.
    I am a retiree.
    My income is from Social Security, State pension, IRA distribution, and Interest income.
    Interest income is the smallest portion of my retirement income, but it is still substantial. Prior to 2008, the rate of interest was 5%-7%. After 2008 banks were failing and rates were dropping. In 2013-2014 I locked in 10 year rates @ 3.31%. I am still getting 3.31%. In addition, the other parts of my retirement income have increased slightly.
    But my behavior has changed dramatically.
    In stock trading I have become extremely risk adverse, and I have not had a loss in a year. I used to be willing to risk some losses in hopes of a larger gain.
    In my personal life I have become austere. No large or frivolous purchases (even though I can easily afford them without resort to credit) and no close or dependent relationships outside of my immediate family.
    Its not that my prior lifestyle is now affordable, rather, it is that I anticipate the worst. I fear a storm is coming and it is a lot smarter to rig my boat for a threatening storm prior to its arrival.

    • Jdog says:

      You sound like the typical retired person. The government is stifling the spending of the people with the money, in order to get people who do not have money to purchase what they cannot afford on the promise they will pay for it at some point in the future… if they have a job…. maybe.

    • leanfire_Queen says:

      You are just getting into the typical behavior of those who are very old. That’s all.

      • sunny129 says:

        There is NOTHINg old about of practcing the ‘risk-adjusted’ return in approach to investment in the mkts! It is prudent and sane. Guess you will have to get a bit older to get that message sink in.

        Apparently you have NOt gone thru a bear mkt in your life time so far like in 2000 or 2008! Mkt cap to GDP is over 170% a record! Market mania makes every one think that stock keep growing to the moon.
        (Been in the mkt since ’82)

  15. TimTim says:

    Excellent article Nick. Thank you.

    This has been coming for a long time.

    Just when younger generations are having their incomes eroded by job losses (but still have children and mortgages and credit cards and…and…and…) Bank of Mum and Dad are beginning to creak.

    Perfect storm. Bit like Wilma was.

  16. Khowdung Flunghi says:

    What I NEVER see mentioned in any of these discussions in the incomprehensible amount of waste, fraud and abuse associated with “defense” spending. We’ll never overcome the inertia as long as so much economic activity in funneled into counterproductive stupidity. To quote Rodney King, “can’t we all just get along?”

    • mtnwoman says:

      I’m with you.
      Where are all the so-called fiscal conservatives to challenges the $Trillions, yes trillions of taxpayer dollars, that the Pentagon can’t account for annually?
      Defense spending is really the “3rd rail” in the USA, not SS. Rarely will any politicians touch this taboo topic.

      • sierra7 says:

        Defense spending:
        And, notice most all the states have some stake in producing weapons/systems of warfare. That almost guarantees that almost no legislator is going to buck that system.
        The system is thoroughly corrupt.
        It has to fall.

      • MiTurn says:

        Good call mtnwoman.

        Defense spending, albeit a misnomer, needs to come down a smidge or two, or three. But a lot of vested and monied interests keep in well oiled.

        Military-industrial complex and all that…

      • Erich says:

        Exactly. Everyone complains about the “Welfare State” but ignores the “Warfare State”. Shoveling billions at the MIC isn’t going to save us in the end. Note the billions in the Republican Covid-19 bill for F-35 fighter jets. I guess they figure on bombing the virus into submission.

        Having the biggest baddest military on the planet didn’t save the Romans and it won’t save us either. We are Rome V2.0 . All hail Orange Julius Caesar!

      • Anthony A. says:

        Think of all the jobs it creates!

      • Lee says:

        “Where are all the so-called fiscal conservatives to challenges the $Trillions, yes trillions of taxpayer dollars, that the Pentagon can’t account for annually?”

        Probably the same place where the sun rises in the west.

        If you had any knowledge about the military budget in the USA you’d understand that the talk about ‘trillions they can’t account for annually’ is just another bunch of fake news.

        And I’m sure that the private making US$1733 a month for doing a crap job doesn’t feel any ‘bloat’.

        Did you know that the basic pay of a four star general is currently limited to US$16,442 a month? In 1980 that person was paid a whopping US$4176 a month?

        More bloat, right?

  17. Crush the Peasants! says:

    It may be the case in these interesting times, that seniors stay invested in assets that appreciate as interest rates fall. Maybe nowadays seniors need to be 60/40 equities/bonds?

    Speaking to big guy versus little guy fairness issues, seniors, like banks, need to be able to benefit from negative interest rates. Imagine borrowing at -0.65%? A veritable money machine. I have borrowed $1 million, and here is back to you, Barclays Bank, $993,500. Thanks for the $6,500. Let’s do this again and again, eh?

  18. Tony22 says:

    Ha!, decades of buying good American made stuff in garage sales, picking up useful items out at the curb on garbage day, planning and preparing, saving, means that our house is so full of useful things that we could open a general store.

    Never give the bastards one cent! No credit card fees, no interest payments of any kind, everything is paid for, owned outright. And they are depending on us to keep the “consumer economy” going?? Fat chance.

    • sierra7 says:

      Tony 22:
      That’s where the UBI (Universal Basic Income) comes in……
      Corporate gets money/profit;
      Localities get tax monies…….
      A “perfect” circle……or……..
      Not sure who is going to be left holding the bag…….
      Totally bizzarro…..

      • Tony22 says:

        “Localities get tax monies…”….You mean sales tax monies, if they are spent? Unless of course, UBI is taxed at the local level. But, how much do federal taxes have to go up across the board to fund UBI?

        What’s to stop landlords from just adding UBI monthly payments to the rents that they charge?

    • leanFIRE_Queen says:

      I’m the same way! Proud of my 80% saving rate.

      I prefer to delegate to Powell engaging in discretionary spending. I’m better off spending my precious time doing something else, like growing trees.

  19. Engin-ear says:

    Consumer spending is a key driver of our economy indeed.

    You focus on “over-65” part of population.

    NIRP is one factor, a blow for pension funds based on capitalisation.

    The demographic cliff is an another factor, a blow for pension by distribution systems.

    Besides this, I heard a theory that older people spend less, because they already bought big ticket items and they less subject to compulsive spending… Wisdom helping.
    I have no data to support this theory, but seems plausible to me. But if it true, the consumption will take a hit from the demographics.

    • Engin-ear says:

      While we are here, let’s list other threats:

      1. Credit saturation and associated risk of margin calls on devaluated assets.
      2. Cheap oil depletion.
      3. Wealth overconcentration = impoverishing of middle class = fall of global solvent demand.

      I have a baaaaaad feeling for soldier Consumption.

    • Uncle Bob says:

      “I heard a theory that older people spend less, because …”

      For those older than 65 and who are at least moderately comfortable, then old age is usually a flight to quality (if you can believe it). Carve off the crap. Dump the junk. Forget consumer goods, social media, TV, YouTube …etc. Instead read only fine English prose, travel comfortably, eat fine food, drink fine booze. Look forward to seeing your grandchildren but then farewelling them at the end of the visit. Helping out your kids where possible but not becoming a burden upon them. Not giving a FF about what your neighbours think about your scruffy front yard.

      Be frugal and spend your savings in Positano!

      • Uncle Bob says:

        I forgot to mention that I live in Australia; a place which has its faults but not the outrageous rackets of health care and higher education that appear to exist in the US.

  20. Wisdom Seeker says:

    With financial asset values all overpriced, that implies that “retirement” itself is overpriced. That tells you that there’s too much demand for retirement-assets, and not enough supply.

    There’s a simple analysis one can do – but very few ever do – which shows that a nation can only support a small proportion of the population as financially independent retirees.

    There simply aren’t enough financial assets to support everyone who wants to retire.

    Inflating the currency-value of those assets by printing money fails if it doesn’t increase the real income the assets produce. Instead it forces people to save even more to capture the same income, making retirement even harder to achieve.

    • random guy 62 says:

      Yes! To me, all the economic rumblings going on right now seem to, at their core, be challenging the idea of retirement. The idea that a human can be productive for 30-40 years, only to live unproductively (or less productively) for another 20-30 more years just might not be reasonable. It is a relatively new concept, so I guess time will tell.

  21. Dan says:

    Negative interest rates?

    Got gold?

    Read an article the other day about possibly gold being tokenized by crypto’s.

    Who need a bank account then at all?

  22. Jdog says:

    The economy will never recover so long as interest rates are being kept artificially low. The vast majority of discretionary spending is done by older people who have accumulated wealth. So long as they are having their income decimated by low interest rates they will not be comfortable spending the way they would if they could get a reasonable return.
    Debt has been maxed out, and now is a determent to the overall economy.
    The borrowed money has already been spent, and most of the new money needed to get the economy going again will have to come from people who actually have money, and not borrowing and the promise to pay it back years from now….

    • historicus says:

      I agree with you whole heartedly.
      The book will be written that pushing rates down is only beneficial short term. Protracted, it has dire consequences. Asset valuations become artificial. Debt creation irresponsible.
      And discretionary spending is shut off…unless you own a lot of stock in AAPL, GOOGLE, MSFT, etc…

  23. Joe in LA says:

    The economy will never recover as long as tax rates for the elite are kept low and tax havens are allowed. The simple reality is that it is demand, not wealth accumulation at the top, that fires productivity — as investments (and innovation) reach to fill demand.

    All of the money that was given to workers during Covid went straight back to the elite in the form of rents and consumption. Keep that circulation going and there will be a boom in productivity as corporations stretch to meet demand. Let the money pool at the top (untaxed) and this economy will just keep falling over like a drunk Frankenstein.

    America used to have the most progressive tax code in the world (1945-1965). Unless we go back to that, we will be trapped in this Kafka-esque pattern of citizens endlessly bailing out “the markets” that are supposed to serve the citizens.

  24. historicus says:

    read up on the tax breaks for sports franchise owners…
    they are given monopolies, and then given massive tax breaks.
    And hedge fund managers get tax treatment as if they them selves are risking their own money…
    The street rioting should be sharply focused on these injustices….

  25. Sound of the Suburbs says:

    William White (BIS, OECD) talks about how economics really changed over one hundred years ago as classical economics was replaced by neoclassical economics.
    He thinks we have been on the wrong path for one hundred years.
    Small state, unregulated capitalism was where it all started and it’s rather different to today’s expectations.

    The classical economist could observe the world of small state, unregulated capitalism in the world around them.

    How different is classical economics?
    Ricardo was part of the new capitalist class, and the old landowning class were a huge problem with their rents that had to be paid both directly and through wages.
    “The interest of the landlords is always opposed to the interest of every other class in the community” Ricardo 1815 / Classical Economist
    What does our man on free trade, Ricardo, mean?
    Disposable income = wages – (taxes + the cost of living)
    Employees get their money from wages and the employers pay the cost of living through wages, reducing profit.
    Employees get less disposable income after the landlords rent has gone.
    Employers have to cover the landlord’s rents in wages reducing profit.
    Ricardo is just talking about housing costs, employees all rented in those days.
    Low housing costs work best for employers and employees.

    Today’s economists, working up from micro foundations, have got rather confused.

    Disposable income = wages – (taxes + the cost of living)
    Macron has already discovered the other term in the brackets with taxes.
    That’s what the yellow vests were complaining about.

    The Chinese know already.
    Davos 2019 – The Chinese have now realised high housing costs eat into consumer spending and they want to increase internal consumption.
    Disposable income = wages – (taxes + the cost of living)
    They let real estate rip and have now realised why that wasn’t a good idea.
    They had to learn the hard way, like Macron.
    It’s not obvious from neoclassical economics.

  26. rr says:

    The thing that astonishes me is how oblivious people outside financial circles are about the consequence of interest rates. For the most part they are dazzled by the growth in their stock portfolios and think of their pensions as carved in stone. I did a quick survey of friends who take no interest in finance. They tell me that negative interest rates and QE are great in the interest of stability. I ask them if they’ll lend me a 100 bucks with an offer to pay them back 90 in a week….

Comments are closed.