WE HAVE KNOWN THIS SINCE 2004-5 AND NO PROTESTS----THIS IS WHY ARE US CITIES WERE LEFT IN DECAY AND NOT REBUILT AND STABLE. WHO IS TIED TO THESE FRAUDS? THE 5% TO THE 1% ACROSS ALL POPULATION GROUPS.
So, the poor citizens in our US cities black, white, and brown are not bad being made to tie to these toxic subprime mortgage loans by their 5%-----
Wells Fargo today is the consolidation of all CA mortgage origination corporations----Wells Fargo was based in northern CA during the Bush/Obama global Wall Street mortgage loan frauds. We would not look for accurate data for how much Federal revenue was lost to these frauds from our GOVERNMENT ACCOUNTABILITY OFFICE BECAUSE---THEY ARE LED BY BUSH/OBAMA APPOINTMENTS. We were told a few trillion were lost----most government watchdogs place that amount at $28 trillion. That was Bush era subprime mortgage fraud and Obama's was even worse because Obama raised the level of housing value to which subprime mortgage loans could be attained.......when a settlement of $25 billion as occurred after 2008 mortgage fraud sees this WELLS FARGO settlement of $1.2 billion knowing they are now holding all of California's origination corporations in their corporate portfolio----we see yet another pennies on the dollar clawed back......this settlement means nothing.
Business News | Wed Feb 3, 2016 | 3:01pm EST
Wells Fargo to pay $1.2 billion in U.S. mortgage fraud settlement
By Nate Raymond and Sruthi Shankar
Wells Fargo & Co said on Wednesday it had agreed to pay $1.2 billion to settle claims that it engaged in mortgage fraud, resolving a major U.S. lawsuit brought in the wake of the 2008 financial crisis.
The settlement resolves a lawsuit filed in federal court in Manhattan in 2012 accusing Wells Fargo, the country's largest mortgage lender, of engaging in misconduct in originating and underwriting government-insured mortgages.
The lawsuit, brought by Manhattan U.S. Attorney Preet Bharara's office, was among a series of cases against banks following the financial crisis stemming from mortgages insured through a program by the Federal Housing Administration (FHA).
Several lenders including Bank of America Corp, Citigroup Inc and Deutsche Bank AG have resolved similar lawsuits over FHA-insured loans, paying hundreds of millions of dollars in the process.
Wells Fargo said the settlement was reached on Feb. 1 and would also resolve claims by the U.S. Attorney's Office in San Francisco and the U.S. Department of Housing and Urban Development. (1.usa.gov/1JXUnNe)
The 2012 lawsuit accused Wells Fargo of engaging in a "reckless" mortgage origination and underwriting practices from 2001 to 2005.
It also said Wells Fargo had failed to report more than 6,000 loans from 2002 to 2010 that did not meet requirements for insurance under the Federal Housing Administration and failed to properly review early payment defaults.
Beyond naming Wells Fargo as a defendant, the civil lawsuit named Kurt Lofrano, a vice president at the bank accused of playing a "critical role" in not reporting the loans to government officials.
It was not clear if the settlement applied to Lofrano. But a letter filed later on Wednesday by lawyers who work with Bharara said the deal resolves "all claims in this matter."
The letter said the full agreement was still being drafted and needed to be approved by Justice Department officials. The parties plan to provide a status report to the court by Feb. 17, the letter said.
The subprime mortgage origination corporations were the ones bringing citizens to these bad loans and yes, they were based in SAN FRANCISCO-----as is WELLS FARGO. Who was in these counties during Bush Obama? NANCY PELOSI----BARBARA BOXER-----FEINSTEIN all women all tied to the worst of subprime mortgage fraud and yes all enriched. Remember our talk of the movers and shakers of installing a FED in America in early 1900? The bankers owning WELLS FARGO AND JP MORGAN. Who is now positioned as the most wealthy? Wells Fargo and JP Morgan. San Francisco like Maryland beltway is one of the richest per capita citizens and YES, THIS IS TIED TO THE PROCESS OF SUBPRIME MORTGAGE FRAUD AND HOUSE FLIPPING.
The same mortgage loan originators worked hard these several years of Obama they just changed corporate names. The information gathered at this time of mortgage origination is what finds its way onto A HOUSE TITLE. If no one is making sure this info is correct----AND THEY WERE NOT-----we have corruption of our house titling RIGHT HERE. Once those low-income citizens who everyone knew could not afford these mortgages DEFAULTED the foreclosure process handled much like MERS-----again filled our HOUSE TITLE with corruption. These several years have marketed the sale of THOSE FORECLOSED HOMES in the same low-income communities and these families are being handed house titles that are corrupted. Even our young adults who are middle-class buying what in Baltimore is almost all its housing inventory corrupted by subprime mortgage fraud will see these HOUSE TITLE problems when they want to sell.
WOULD GLOBAL WALL STREET BALTIMORE DEVELOPMENT AND JOHNS HOPKINS DELIBERATELY PUSH CORRUPTED HOUSE TITLES ON OUR NEW CITIZENS WITH THE GOAL OF SENDING IN ANY MULTIPLE OF FLIPPERS WHO MAY ACTUALLY HAVE TITLE TO THAT HOUSE? OF COURSE THEY WOULD-----THEY ARE THE SOURCE OF ALL THIS FRAUD.
- Wells Fargo Corporate Office Headquarters HQwww.corporateofficeheadquarters.com/2011/11/wells-fargo... Wells Fargo Corporate Office Headquarters HQ 420 Montgomery Street San Francisco, California 94163 Corporate Phone Number: 1-866-249-3302 Corporate Fax Number: n/a
Wells Fargo and mortgagesThe fault behind defaults
Oct 10th 2012, 8:23 by T.E. | NEW YORK
SO FAR Wells Fargo has been the one large American bank that has seemed to escape high profile legal attacks. That ended on October 8th with a civil complaint filed in a New York federal court that accused Wells of systematically defrauding the federal government’s mortgage insurance programme for a decade, stopping only after the receipt of a subpoena in 2011.
“Yet another major bank has engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure,” said Preet Bharara, US Attorney for the Southern District of New York, in a statement.
While it is tempting to dump the case in the wider cesspool of financial litigation, it has a number of unusual characteristics—and, notwithstanding the deficiencies cited by Wall Street’s federal prosecutor, will not necessarily end with a settlement. Wells has pledged to fight. It argues that the facts are on its side, that its performance in the government programme was exceptionally good, and that many of the issues cited in the complaint had already been resolved.
According to the complaint, Wells began in 2001 to ramp up its efforts to build a business in loans to borrowers who could not qualify under normal standards and needed the Federal Housing Administration (FHA) to insure their mortgages. These loans were then packaged and sold to investors. To build the business rapidly, Wells is alleged to have employed people lacking critical experience and compensated them based on the number of loans approved, rather than the number reviewed—which, according to the complaint, led to a collapse in loan quality. Wells is also accused of not having reported these problems to the FHA, as it is required to do. The complaint puts the associated loses loosely in the “hundreds of millions of dollars”.
Wells did not respond to the charges in detail. But if the case does reach court, scrutiny will not only be on the bank, but also on the FHA programme. It gave financial institutions the right to apply for government insurance for loans that by definition were too risky to qualify under normal prudential standards. And if the complaint is correct, the FHA—after having delegated a function that is considered to be the single most important feature of any insurance company: the ability to independently evaluate risks—was unable to independently monitor its exposure. Wells may be the sole entity accused in the complaint, but its approach to business will hardly be the only one on trial.
It is very, very likely a PELOSI as pol in San Fran district recruited a BEN JEALOUS from this area as head of NAACP----which is of course headquartered in BALTIMORE-----PELOSI's hometown. NAACP famously partnered with Wells Fargo throughout Bush Obama and stood with them through the Wall Street fraud scandal----no doubt because Wells Fargo funded NAACP. These are that 5% to the 1%------black, white, and brown citizens
It was KAMILA HARRIS as CA Attorney General who did as Maryland Gansler and Frosh ----watched as all this fraud occurred around her---she is married to a global Wall Street financier. The 99% of women are told THESE WOMEN ARE OUR LEADERS-----OH, REALLY?????? They work for the global 1% and their 2% killing the 99% of global women.
Of course from where does our current US FED come-----THE SAN FRANCISCO FED------we were told by national media Yellen tried to warn us about all that subprime mortgage fraud occurring all around her-----we can see the few years she has been in office---SHE IS SIMPLY MOVING FORWARD BEN BERNANKE'S Great Depression FED policies.
WE THE PEOPLE MUST KNOW ALL THESE CONNECTIONS TO understand public policy. I know simply because I am an academic working for 40 years so it is not as easy for the average CITIZEN but please make public policy a FAMILY AFFAIR.
All of what YELLEN details as her priorities is BULL--------she has no choice in moving interest rates up as the national debt is so enormous from junk bonded US Treasuries.
Here is another global 1% and their 2% of women killing 99% of global women in her capacity to protect WE THE PEOPLE. The FED mission is a stable economy and strong employment -----we are heading for economic collapse with unemployment above 35% .
Quotes From Janet Yellen’s Speech at the San Francisco Fed
Federal Reserve Chairwoman Janet Yellen offered a cautious message on the prospect of interest rate increases in a speech Friday, saying the central bank expects to begin raising rates this year and then proceed gradually after that. Here are five key quotes from her prepared remarks, delivered to a conference at the San Francisco Fed.
27 Mar 2015 4:24pm
Pedro Nicolaci da Costa
- 1 Timing of Rate Increase “Like most of my [Fed] colleagues, I believe that the appropriate time has not yet arrived, but I expect that conditions may warrant an increase in the federal funds rate target sometime this year.”
- 2 Gradual Approach “If conditions do evolve in the manner that most of my [Fed] colleagues and I anticipate, I would expect the level of the federal funds rate to be normalized only gradually, reflecting the gradual diminution of headwinds from the financial crisis and the balance of risks I have enumerated of moving either too slowly or too quickly.
- 3 Policy Lags “We need to keep in mind the well-established fact that the full effects of monetary policy are felt only after long lags. This means that policy makers cannot wait until they have achieved their objectives to begin adjusting policy. I would not consider it prudent to postpone the onset of normalization until we have reached, or are on the verge of reaching, our inflation objective.”
- 4 Possible Roadblocks “I would be uncomfortable raising the federal funds rate if readings on wage growth, core consumer prices, and other indicators of underlying inflation pressures were to weaken, if market-based measures of inflation compensation were to fall appreciably further, or if survey-based measures were to begin to decline noticeably.”
- 5 Data Dependence “The [Fed] does not intend to embark on any predetermined course of tightening following an initial decision to raise the funds rate target range–one that, for example, would involve similarly sized rate increases at every meeting or on some other schedule. Rather, the actual path of policy will evolve as economic conditions evolve, and policy tightening could speed up, slow down, pause, or even reverse course depending on actual and expected developments in real activity and inflation.”
Below we see an article from 2009 as Bernanke was beginning his QE policies to give FREE MONEY to global Wall Streets and corporations so they could expand overseas and do no economic activity in the US.
We all knew that would be the result of QE---so did YELLEN back then. She could have shouted STOP MANIPULATING INTEREST/INFLATION/MORTGAGE MARKETS to allow the US economy to fall back to NORMAL. Instead YELLEN supported all of Bernanke's MARCH TO 1929 GREAT DEPRESSION FED policies.
It was Bernanke at the FED who created and fueled not only these several years of ANOTHER SUBPRIME MORTGAGE FRAUD-----but also the global junk bonding of our US Treasury market just so this coming economic crash would be as bad as it could get.
QE was simply the FED taking all the toxic subprime mortgages off Wall Street balance sheets and calling it RE-CAPITALIZATION. This is the $ 4 trillion in fraud from BUSH ERA ----sitting waiting to be pushed to taxpayers. It was QE that created the WALL STREET BUNDLING OF FORECLOSURES----again fueling a super-sized bundling process with these mortgage bundles sold all over the world. This is why in US cities we have foreign investors with BUNCHES OF CASH IN THEIR POCKETS TO FLIP BALTIMORE HOUSES----it is why we have citizens in Baltimore all flipping foreclosed houses in communities where citizens LOST HOUSES FROM BUSH ERA SUBPRIME MORTGAGE FRAUD. It is an absolute insult to Baltimore citizens having lost homes to be conducting these kinds of subprime mortgage and flipping policies. Between Bernanke's TOXIC MORTGAGE LOAN BOND BUYBACK we were told was to bring mortgage interest rates to ZERO----and his growing $4 trillion in FED debt on top of US Treasury $20 trillion national debt ----ALL LEADING TO SOVEREIGN DEBT CRISES TO BRING IN WORLD BANK AND IMF.
YELLEN thought all that was fine.
'In other words, if Bernanke could charge savers 10% for keeping money in the bank, he would be first in line to do so'.
"Nowadays hyperinflation only happens in 3rd world countries"
San Fran Fed's Janet Yellen Shares Some Misinformation On The Fed's "Credbility" And Other Topics
by Tyler Durden
Sep 12, 2009 12:41 AM
Warning: Watch the below video without prior ingestion of Xanax, lithium and/or horse tranquilizers at your own risk.
Grandma Janet sounds like an insane and/or senile bureaucrat who does not want to admit that she was one of the select cabal of monetary druids whose mistakes essentially destroyed the financial world a year ago... and their reaction to this destruction has made sure that the US economic system is now promptly heading either toward hyperdeflation or hyperinflation (likely both).
Nonetheless, some interesting quotes:
- On negative fund rates:
- "[QE] is stimulating the flow of credit, but [it is] simply not as powerful levers as large rate cuts."
In other words, if Bernanke could charge savers 10% for keeping money in the bank, he would be first in line to do so. Can't have those pesky forward looking, prudent consumers spoil it for all those tens of millions who are deadbeat squatters in houses they will never get evicted from, as else Wells Fargo and BofA would have to mark their mortgage books down to fair value.
- On deflation:
- "If the economy fails to recover soon, it is conceivable that this very low inflation could turn into outright deflation. Or still, it is conceivable that were inflation to intensify, we could find ourselves in a devastating spiral in which prices fall at an ever faster pace, and economic activity sinks more and more."
- On the (presumably flawed) concerns about hyperinflation:
- "i) The Fed has pumped up the money supply and expanded its balance sheet to fund its rescue programs, potentially igniting inglation; ii) the Fed runs the risk of repeating the errors of the 1970s by focusing on mistaken view of economic slack, rather than rising prices; iii) huge fiscal budget deficits will create higher inflation.
- A little more on Hyperinflation:
- "Nowadays hyperinflation only happens in 3rd world countries"
Maybe Ms. Yellen needs to go to community college and take some remedial history. Nonetheless, she does touch upon the US "economic reality" exemption that Mr. Ben Dover discussed previously.
- On Fed Credibility (it is now certain that she is an alien for using those two words in the same sentence):
- "Evidently the credibility that the Fed and other central banks have built over the past few decades in bringing inflation down has spilled over into a belief that we won't let inflation get too low either."
- On Securitization:
- "Securitization is one of the great financial innovations of the last generation, it greatly expanded the market for these loans and reduced their cost. I think there is no question that securitzation of certain types of loans like subprime contributed to the crisis we had, but we have to be careful not to throw out the baby with the bath water." And this is why the US is doomed: "Securitization markets will continue to play a major role in our financial system." Remember: debt is wealth. And thus, the implication, Infinitely securitized debt is infinite wealth.
- And, For The Win:
- "The Fed's analytical prowess is top notch, and our forecasting record is second to none. The FOMC is committed to price stability and has a solid track record in achieving it."
No, she really did say that. Hey Janet, how about we confirm this statement. Oh yeah, the Fed prohibits anyone from actually knowing what on earth goes on there, and just how it is you guys confirm your forecasts with reality: did you guys actually predict this unprecedented crash? Would have been great to warn the rest of us mere mortals.
The entire one hour plus clip can be found here courtesy of FORA TV, and the first 10 minutes are on the clip below.
This was the goal of massive national debt with US Treasury subpriming-----the US FED is FORCED to raise FED interest rate---YELLEN is not simply considering this---the national debt has reached a MAX and investors in our US Treasuries are selling them like hotcakes----that was Bernanke's TREASURY BOND BUBBLE.
Not only will YELLEN raising the FED rate hit our retirements---they will disappear in the crash with that national debt anyway----it will raise interest rates on our mortgage loans. Who can least afford higher mortgage payments? Our subprime mortgage loan low-income citizens. This and unemployment soaring will send all those millions and millions of subprime mortgage loans back into foreclosure and into the hands of these same GLOBAL WALL STREET BANKS.
'Given its sheer size, if the interest rate on that debt were to rise by even 1%, the annual federal deficit rises by $190 billion. A 2% increase in interest rate levels would up the federal deficit by $380 billion, and if rates were 5% higher, the annual federal deficit rises by $950 billion'.
All of these trillions and trillions of dollars lost to subprime mortgage frauds are directly tied to killing our SOCIAL SECURITY TRUST---MEDICARE TRUST----VETERAN'S RETIREMENTS-----FEDERAL EMPLOYEE RETIREMENTS---POST OFFICE RETIREMENTS----PENSIONS. It matters when a global Wall Street Baltimore Development and global Johns Hopkins fills our local economy with these Wall Street frauds. Don't yell at Trump when we find our SS TRUST et all ended----rolling protests in Inner Harbor and Harbor East filling Hopkins' East campus for weeks and months is what a REAL left labor and justice action will be.
Can A Nation $19 Trillion In Debt Afford Higher Interest Rates & Will This Change Our Retirements?
- by Daniel R. Amerman, CFA
For some years now, very low interest rates have been reducing the earnings of retirement investors as well as the lifestyles of many of those already retired. To understand why this has been happening – and why it may continue for a very long time – one must recognize that there is a direct relationship between the interest rates that are paid to savers, and the interest payments made by a heavily indebted federal government.
For a retirement investor who is currently earning a 1% interest rate, a 5% increase in rates to a 6% return would increase their total investment earnings by 1,263% over 30 years, allowing for a radical improvement to their eventual retirement standard of living.
And for a current retiree who is drawing down their investment portfolio over 20 years, a 5% increase in annual interest rates from 1% to 6% would allow them to raise their standard of living by a full 57% in each and every one of those years.
Because the government borrows the money to make interest payments, this could set off a chain reaction of paying interest on money borrowed to pay interest, leading to a national debt increase of the current $19 trillion up to $94 trillion in 20 years. So unless there are some huge tax increases, a 5% increase in interest rates would increase the national debt by $75 trillion.
To put such a fantastic number in more personal terms, if we divide it by the number of American households with incomes above the poverty line, that means that for each able to pay family, their personal share of the national debt would rise by almost $700,000.
So the very same major increase in interest rates that so many millions of savers badly need for their financial security – could simultaneously send the national debt spiraling upwards and out of control.
Let me suggest that this relationship creates an extraordinary financial conflict of interest between savers and the government.
Many people believe that the enormous national debt is a somewhat theoretical problem for the future. That is, they suspect that it will at some point be a great financial burden for our collective children and grandchildren to deal with, but they don't see a direct impact on people's lives today in any major or practical way. At the same time, they are quite frustrated by the very low interest earnings that could force them to delay retirement, or if they are currently retired, that are already reducing their standard of living.
What they fail to see is that record setting national debts and record low interest earnings for savers are not separate issues but rather they're two sides of the same coin.
When we understand this essential point, we can see that massive national debts dramatically and directly impacting the lives of many millions of people is not something to anticipate in the distant future, but rather it is happening right now just as it did last year, and just as it will likely happen again next year.
And in seeking viable solutions for investing in this challenging environment, there is no substitute for understanding why it is that we currently have such low interest rates, and why they may continue into the indefinite future.
A Mysterious Reduction In Interest Payments
- The graph below shows the amount of federal debt outstanding over the last 40 years. As can easily be seen, the federal debt exploded upwards with the financial crisis of 2008, and began its meteoric ascent to the over $19 trillion dollars outstanding.
Given its sheer size, if the interest rate on that debt were to rise by even 1%, the annual federal deficit rises by $190 billion. A 2% increase in interest rate levels would up the federal deficit by $380 billion, and if rates were 5% higher, the annual federal deficit rises by $950 billion.
Now ordinarily if we think about having our debts balloon out of control, we would expect to be making much higher interest payments.
That is, all else being equal, if our debt doubles or triples then our interest payments should double or triple.
As can be seen in the following graph, however, this hasn't been the case for the US government.
To the contrary, interest payments by the federal government have either been falling or level ever since the financial crisis began.
How can this be?
As plainly shown in the graph, the answer is that interest rates have in recent years plunged to their lowest levels in the last 40 years. It should also be noted that the highly publicized 0.25% increase in the Fed Funds rate range by the Federal Reserve in December of 2015 was very small – interest rates are still far, far below normal.
At the very same time, savers and investors have also been experiencing these very low interest rates.
Government Interest Rate Interventions
- Now if someone viewed the federal government's being in debt as being similar to an individual being in debt, they might wonder if this just comes down to extraordinarily good luck. To have interest rates plunging even as the amount of debt outstanding was soaring upwards!
And generally speaking, this is where a lot of confusion can occur when trying to understand the debt and the deficit, because indebted national governments that can borrow in their own currencies are nothing whatsoever like individuals or corporations being in debt.
In the case of the United States, interest rates have been controlled for some years now through the actions of the Federal Reserve.
That is, as illustrated in the graph below, at the very same time that the federal deficit has been soaring, the Federal Reserve has been quite literally creating trillions of dollars out of the nothingness and using this brand new money to purchase United States debt – not directly from the US government, but through the markets.
In doing so, the Fed has taken control of interest rates in the short, medium and long term in the United States. (It is worth noting that that this process of quantitative easing has not actually ended in the US, it has just stabilized, with the Fed buying enough securities to replace principal payment receipts, thereby keeping total holdings level.)
Thus there is nothing fortuitous or "lucky" about the current very low interest rates – but rather they are a direct result of governmental policies.
The Impact On Savers & Investors
- How do interest rates impact someone who is pursuing a long term investment program, perhaps to fund a desired retirement lifestyle?
As shown in the above graph, a saver who invests at a 7% rate for 30 years can expect to turn a $10,000 initial investment into a $76,123 investment, meaning their total earnings were $66,123. This is the math that drives conventional long-term investment models – each dollar invested creates another six dollars and more, thus savers who practice long-term discipline are highly rewarded over time.
And if the saver were able to get a 10% rate of return, then their earnings would soar to $164,494, with that 3% increase in interest rates leading to a near tripling of investment returns.
On the other hand, if we drop that interest rate to 1% – then the profits earned over thirty years plummet from $66,123 to $3,478, which is a reduction of 95%.
If interest rates turn out to be 2% on average, a saver would fare better with earnings of $8,114, but that is still a reduction of 88%.
The Federal Government's Interest Rate Problem
- While little remarked upon or understood, the United States government has an interest rate-related problem of its own when it comes to the debt and the deficit.
That is, tax revenues are not sufficient for the federal government to make either principal or interest payments on the federal debt.
So each time a principal payment is due – the federal government issues a new debt to get the money to pay off the old debt.
And each time an interest payment is due, the federal government issues new debt to make that interest payment. Indeed, borrowing the money to make interest payments is the source of over half of the annual federal deficit.
What this means is that the federal government has a compound interest problem, as shown in the graph below. The issue is not just about the interest rate itself going up, but the amount of borrowing that must be entered into to pay those interest payments rises sharply as well.
Thus the exact same rising interest rates that would provide what savers need – which is the rapid compounding of investment interest – would simultaneously set off the extraordinary danger of a rapid compounding of debt interest for the federal government.
As shown in the graph, and explored in further detail here, a 5% increase in interest payments for the federal government would cause the level of federal debt to rise to $94 trillion over the next 20 years because of the compounding of interest, and a 10% increase in interest rates would cause the federal debt to climb to well over $200 trillion.
Shared Interest Rates, Opposite Objectives
- Now if interest rates were entirely different for savers and investors than they were for the federal government, this problem with the government needing low interest rates on its extraordinary amount of debt would not be an issue for savers and investors.
Unfortunately, as we can see, the opposite is true.
Whether explicitly stated or not, almost all interest rates are effectively tied to what is known as the risk free rate, which is the government bond rate. In other words, this federal borrowing rate is the base, most other interest rates are effectively tied to that base, and therefore most interest rates tend to rise and fall with the base federal rate.
So when interest rates on the federal debt climb, interest rates on deposits, money market funds, bonds and mortgage securities all rise as well.
And when interest rates paid by the government on its debt falls, all of these other interest rates usually fall as well.
So there is a sharing of interest rates so to speak, where the interest returns received by investors very directly correlate to the interest rates paid by the government.
Which again points to the huge conflict of interest between the objectives of savers and the needs of the government.
Impact On Retirement Standard Of Living
- When someone is building wealth by investing over a period of decades, there is another crucially important factor aside from the wealth-building returns, which is the lifestyle that can be afforded once one has actually retired and is drawing down their portfolio.
The graph below assumes $250,000 in retirement savings being evenly drawn down over a period of 20 years, with nothing left at the end of the 20 years. Now the higher the interest rate, naturally the more the interest income each year, which allows the principal to be drawn down more slowly. So with higher interest rates, retirees get both higher interest payments and larger average principal balances over time, which can combine to make a surprising amount of the difference.
So if we assume a 7% interest rate, as bonds have often returned over the last 40 years, the $250,000 portfolio would produce $23,598 per year in cash available for spending.
If we were to increase that rate to 10%, the annual standard of living would be almost $30,000 per year.
If on the other hand we were to drop it to 5%, the annual standard of living that could be supported from these investments would fall to $20,061.
Now the heart of the issue with very low interest rates is that if someone holds their money in short-term, high-quality investments that pay a 1% interest rate – then specifically because the federal government has suppressed interest rates to keep them down to a mere 1% – the saver's income is only $13,854 per year for those 20 years.
At a 2% rate it would be $15,289.
While this is little remarked upon, it's the incredibly important heart of the issue.
This drastic reduction in interest rates to serve the needs of a heavily indebted federal government may drop retiree incomes by 30-50% for decades relative to what they would be with longer-term average interest rates.
So tens of millions of retirement investors who are planning on supporting themselves primarily with their investment portfolios and the rewards of their many decades of disciplined savings may see their lifestyles drastically reduced – specifically because the federal debt outstanding is now approximately 19 trillion dollars.
Impact On State & Local Governments And Pensions
- This destruction of investor wealth creation is also affecting the financial solvency of states, cities, school districts and other local governments across the United States. There has been wide coverage of a public pension crisis in the United States, but when low rates are taken into account, the shortfalls are far worse than reported, and could approach the catastrophic.
As explored in the analysis linked here and shown above, the issue is that state and local governments are generally still assuming very high legacy investment rates such as 7.50% for their pensions - and even with those high return assumptions, there are still drastic funding shortfalls, as shown on the far right of the graph. When we move to the left and explore the needed funding with lower returns, the shortfalls (red bars) soar upwards to an extent that could lead to major nationwide tax increases, or reductions in pension benefits - or both.
The explosive increase in the national debt has created a fundamental conflict of interest between the federal government, and state & local governments. For decades, generous promises have been made to public employees that were not paid for by taxes, but by the assumption of high future earnings into the indefinite future. The possibility of the federal debt soaring - was not even considered.
But the debt did soar - and if rates rise materially, then the national debt spirals upwards and out of control. However, if rates don't rise materially, then the solvency of every level of state and local government is threatened because of extraordinary pension shortfalls. And if the federal government bails out the pensions, then the federal debt soars - and so do the future interest payments.
There is a cruel but inescapable mathematical collision that was set off as soon as the federal debt jumped even while interest rates were pushed to historic lows. The extent of the damage is currently being hidden by pension accounting assumptions, but these highly questionable assumptions do not change the financial realities of what is happening right now and (absent major tax increases) will be building each year into the future.
Who Is Really Paying For The Debt?
- Many well-intentioned older people feel very badly indeed about the massive federal debt which they believe we are leaving for our children and grandchildren to repay. And they are correct in that we are leaving tremendous financial challenges for our children and grandchildren, of which this extraordinary level of federal debt is a key component.
There are many other people who don't worry or think about the size of the national debt at all – and who have a strong desire to keep things that way. Yes, they are likely aware that the federal government owes some fantastic, almost surreal amount of money, but it doesn't seem to be affecting their personal daily lives in any way that they can see – so they just choose to ignore it.
Unfortunately, both groups of people – who comprise the great majority of the population – could not be more mistaken when it comes to the national debt being primarily a problem for the somewhat distant future.
For if we're talking about the value of the federal debt and its repayment in the decades ahead, the debt is actually far more likely to be paid in inflation (as explained here), or through a combination of inflation and artificially-suppressed interest rates (as explained here), than by our children and grandchildren toiling for decades to slowly repay the debt with dollars that have the same value as today's dollar.
Rather than being some far-off burden for our children and grandchildren to bear – the price of the massive amount of federal debt is being paid in the here and the now.
Anyone who has a retirement account is paying a price. Anyone who has or is entitled to a pension is paying the price, because that pension may very well be in financial distress now or in the future because it just can't get the interest earnings needed to meet its obligations.
Conversely – anyone who uses a loan to buy a car now or in the future is likely to benefit from low rates. As will anyone who takes out a mortgage to buy a house. Particularly for younger people who are still in a borrowing phase and have not yet reached the saving phase of life, the current low interest environment has acted to improve the quality of their lives by reducing what they pay each month in interest payments.
In some ways, the current extraordinary level of federal debt could be likened to sharing our solar system with a financial black hole. Just because people aren't seeing it every day – doesn't mean it isn't there. Whether seen or not – the massive gravitational pressure dominates everything around it.
And every time someone saves, invests, retires or makes a major purchase – the massive weight of that $19 trillion debt pulling interest rates down through the corresponding governmental interventions impacts their life in some way, right that minute.
This "black hole" can be found in other nations around the world as well, for the United States is far from alone when it comes to having huge national debts with a rapidly aging population.
While this massive weight affects every part of society, there is one group that is more affected than any other. That group is the people who are following traditional retirement planning or other conventional long-term investment strategies.
Traditional financial planning doesn't take massive federal debts into account, nor does it take into account the Federal Reserve creating money by the trillions to force interest rates downwards. Instead, investors are supposed to receive market interest rates that will reward them with a compounding of wealth before retirement, and a generous cash flow after retirement.
But if the federal government can't afford substantially higher interest rates – it could be a very, very long time before medium and high interest rates return. And if that is the case – tens of millions of people may never achieve the compounding of wealth they were anticipating for retirement, nor the level of cash flow they were counting on after retirement.
This doesn't mean that it is impossible to successfully build wealth in low interest rate environments, but rather, it is a matter of assumptions and choices. If an investor starts with the traditional assumption that interest rates will be high enough to support a desired standard of living in retirement, and interest rates turn out in practice to be a fraction of what was assumed – then the natural and expected result is that the actual standard of living experienced in retirement may be much lower than what was planned.
On the other hand, if one starts with the opposite assumption that there is a strong chance that rates may remain low for an extended time, then quite different strategies can be chosen for that environment, where the lower that interest rates are, the better the strategies perform. So that the longer the low interest rates continue, the better the long-term investor results, and the higher the resulting standard of living.
But before such choices can be made, the necessary first step is to recognize the existence of the problem. Which is, in this case, to understand that a $19 trillion federal debt is neither irrelevant to our personal lives, nor is it just an issue for the distant future – but rather it is influencing and changing each of our lives every day right now, and is likely to continue to do so for many years to come, particularly as the debt grows steadily larger.
What you have just read is an "eye-opener" about one aspect of the often hidden redistributions of wealth that go on all around us, every day.
For simplicity, the analysis on this page isolated the impact of interest rate changes, and assumed non-interest deficits remained constant. We know that won't be the case, however. The long expected surge in Boomer retirement expenses is finally upon us, and as shown above and explored in the analysis linked here, increasing benefit payments alone will lead to an increase in annual deficits of almost half a trillion dollars a year by 2020, and nearly a full trillion dollars a year by 2023. Making any future major increase in interest rate levels even more expensive, and even more unlikely.
The next level of understanding moves from savers to governments, and explores a historically proven method for reducing outsized national debts. As analyzed here, governments have now returned to using the 1-2 combination of their control over not only 1) interest rates but also 2) inflation, to actually take real wealth from private savers in order to pay down massive public debts, much like they did in the years following World War II.
The stakes are high for the government when it comes to the national debt – and that is also true of Social Security. And once again, the numbers don't quite work the way many people think. The government strongly encourages people to wait as long as possible before collecting their retirement benefits – but as explored here, is that truly in your best interest, or are a few factors being left out?
IT IS VERY, VERY, VERY IMPORTANT FOR WE THE PEOPLE TO KNOW CONGRESS PASSED LAWS AND POLICY TO ALLOW THE US FED TO SUBPRIME OUR US TREASURIES AND THEY WERE ENRICHED FROM THE FED QE PROGRAM----DO NOT LISTEN TO THEM YELL AT THE FED THINKING THEY ARE REALLY DOING SOMETHING.
The goal of CLINTON/BUSH/OBAMA and their 5% was to create so much Federal debt as to clean out any public assets ----public wealth----end public social programs----THEY PUSHED FOR THIS. Think how these several years of subprime mortgage fraud in our US cities further destroyed any ability to rebuild our communities for the 99% of citizens. All revenue in Baltimore already is directed to global corporations and global NGOs ----well, in just a few years there will not even be money thrown in PAY-TO-PLAY----they won't want a 5% to the 1% anymore.
'ANSWER: NO, this is all inevitable. The Fed will be forced to raise rates, and both Congress and the media will blame them for not raising rates sooner and for creating an asset bubble'.
Who pushed these subprime mortgage loan frauds in your US cities? Development corporations and their 'labor and justice' organizations----global IVY LEAGUE universities like Harvard, Stanford/Berkeley/Johns Hopkins, Princeton, Columbia-----all of which of course are heavily invested in subprime mortgage loan debt and US and state Treasury debt. If someone tells you to shake your fist at TRUMP-----know they are that global Wall Street 5% player. These are who WE THE PEOPLE must direct our protest/action movements. Trump is as bad as all CLINTON/BUSH/OBAMA but yelling at him will not reverse these issues---we must get rid of global Wall Street players in our US cities deemed Foreign Economic Zones.
The Fed & Interest Rates: The Nightmare That Will Not End Nicely
Posted Jun 3, 2015 by Martin Armstrong
You have written that the Federal Reserve remains on track to raise interest rates later this year and this will accelerate the capital inflows driving the dollar higher. You previously warned that this will also set off further defaults in emerging market debt and you have also said that the pension funds desperately need higher rates to survive. But higher rates will blow up the government budget. This seems like a real mess. Is there any way out of this nightmare?
ANSWER: NO, this is all inevitable. The Fed will be forced to raise rates, and both Congress and the media will blame them for not raising rates sooner and for creating an asset bubble. They will have no choice because that is their job, as expected from the public at large. Even in Australia and Canada where there are real estate booms going on in Sydney and Toronto, criticism is rising attributing the booms to low interest rates when in fact it is foreign capital inflows that have some calling Canada the new Switzerland. The problem is always blinders on with analysts who only see everything domestically and are ignorant of international capital flows. They play with government budgets and money supply and attribute everything to domestic consequences. They help to keep the majority the victim in these major international events. We have asset bubbles in property that will be blamed on low interest rates when it is driven by capital flows. The Chinese are the biggest ticket buyers in US property while Canadians are the biggest buyer in the number of properties in the United States. So just like the 1987 Crash caused by the G5 currency manipulation, the domestic analysts always turn out to be the fool since they cannot see the wildcard coming in from the outside.
The Fed will have to act regardless of the impact upon the Federal budget. They raised rates under Volcker to insane levels, despite the fact that it raised the national debt from $1 trillion to $6 trillion on interest rates alone. So, the budget has NEVER prevented the Fed from raising or lowering interest rates in the past. However, raising rates in this environment will cause national debts to explode. This is the Fed now trapped and this is what central banks are scared about. They have lost control and the old theories are collapsing. The desperate move is to tax money, eliminate cash, and go negative on rates but that too would compel selling of government debt producing the same net effect as raising rates – eventual monetization. Negative rates will compel the central banks to buy the debt when private entities will not while raising interest rates will explode the deficits. Either way leads to monetization. Manipulating interest rates is its only real tool. Buying in paper as in QE1 to 3 is indirect and there is no guarantee those who sell them the debt are domestic holders so the stimulus leaves.
This is the classic battle between DEFLATION and INFLATION. This is the essence of BIG BANG. Governments have become addicted to low rates that it has reduced their interest rate expenditures, creating a false sense of budgets under control. When rates start to rise, that is when capital will shift from PUBLIC to PRIVATE to get away from insane government debt. That is where rates would normally rise with no bid.
Yet, we may see central banks forced into buying government debt when no one else will both if rates went negative or explode and capital flees government moving to corporate debt and shares as began to emerge during the Great Depression after the sovereign debt default of 1931. That may soften the rate rise, but it will merely transfer the debt into monetization without interest, and that will produce the ASSET INFLATION that should emerge. That will not appear because of an increase in money supply, but because of a collapse in PUBLIC CONFIDENCE.
Every slice of the debt crisis exposes another layer of insanity. The real question becomes, how far do we go before this whole nightmare explodes in our face? It looks like we have 2 years perhaps, at best. This is the Sovereign Debt Crisis and the twists and turns are very interesting, to say the least. Those who focus on only one aspect will never see the whole. This global nightmare is not going to end nicely.
The impact in the pension funds further accelerates the mess. Here, pension funds chased long-term rates to match their maturities and that drove long-term rates lower. Some have run off to emerging markets desperately trying to get yield. An uptick in rates is needed to make them solvent yet most pension funds will lose money on the uptick because their current domestic paper will decline in value and those who bought emerging market higher yield will be slammed. This will force more people to invest in stocks as well. The emerging market debt issued in dollars will blow up, and as I wrote before, municipals in Germany are starting to issue dollar debt at zero interest rates trying to play the decline in the Euro.
Obviously, there are so many layers to this debt crisis you cannot focus on just one fundamental relationship. This is a convergence of many trends going wrong all at the same time. This is the classic flaw in analysis. The typical attempt is always to reduce everything to a single cause and effect. Every government investigation tries to lay blame on one cause. This is a fools game for events are NEVER the result of a single cause. You must see the world dynamically and this is why there are so few good hedge fund managers who can grasp the world and play the capital flows no matter where they lead. The person who can only discuss matters in domestic terms will never make the cut
Why do we know global Wall Street pols are going to do that? Because that is exactly what they did to GREECE. It is exactly what they did to Asian and Latin American nations to keep World Bank and IMF controlling those nations' economies. Trump is simply doing what MOVING FORWARD means---and all those national financial news media KNOW THAT.
'Debt restructuring: What can Greece hope for?
by Virginia Harrison @vharrisoncnn July 15, 2015: 8:35 AM ET
Your video will play in 00:16
A new bailout to rescue Greece will add to its mountain of debt but a restructure could be in the cards.
The deal offering $96 billion over three years needs to be approved by lawmakers in Greece and other parliaments in the eurozone.
It leaves the door open for debt restructuring -- such as more time to pay -- but stands firm against wiping any of the debt slate clean.
Greece already enjoys generous terms on the 312 billion euros ($343.6 billion) it owes Europe and other international creditors. It's subject to varying terms on its schedule of loans and lenders. But none, economists say, are particularly onerous'.
'TRUMP: No, I think this -- I think there are times for us to refinance. We refinance debt with longer term, because you know we owe so much money. It’s so -- nobody talks about it. Nobody talks about it until the bubble pops, and the bubble could pop, and it could pop, and it could be ugly. You’ve seen it a couple of times, but you haven’t seen it as bad as it could be. As bad as it was, you haven’t seen. And I could see long-term renegotiations, where we borrow long-term at very low rates and, frankly, we do need money to rebuild the infrastructure of our country'.
Restructuring is the World Bank tool keeping nations tied to its global neo-liberal Foreign Economic Zone policies killing all national sovereignty and governance structures.
Debt restructuring: What can Greece hope for?
by Virginia Harrison @vharrisoncnn July 15, 2015: 8:35 AM ET
Your video will play in 00:16
A new bailout to rescue Greece will add to its mountain of debt but a restructure could be in the cards.
The deal offering $96 billion over three years needs to be approved by lawmakers in Greece and other parliaments in the eurozone.
It leaves the door open for debt restructuring -- such as more time to pay -- but stands firm against wiping any of the debt slate clean.
Powered by SmartAsset.com
Greece already enjoys generous terms on the 312 billion euros ($343.6 billion) it owes Europe and other international creditors. It's subject to varying terms on its schedule of loans and lenders. But none, economists say, are particularly onerous.
Bernanke was Greenspan's protege and Bernanke's FED policy is Greenspan's. We all know Greenspan's treasonous actions over allowing massive global Wall Street frauds against the American people during Clinton/Bush leading to the economic crash everyone was shouting would occur---way back in 2005.
Greenspan here is letting us know what YELLEN will do with Bernanke's massive global Wall STreet frauds in the US Treasury market----all this debt will see a FAST RISE IN FED INTEREST RATES. So, as these rates rise---US debt will never go down------that is what third world WORLD BANK IMF debt for several decades look like.
The US has PLENTY OF REVENUE---it has simply been moved and we need to MOVE IT BACK.
While all this silliness over Trump on national media unfolds simply to keep the American people from knowing these conspiracies----no protesting or marching over what was the largest sovereign looting of wealth in world history----but CA governor Brown is really mad over this or that as is Warren. REALLY MAD. CA and MD are the two states most indebted with sovereign debt.
All this is done to capture these nations' wealth and revenue for decades to only building Foreign Economic Zone global corporate campuses----
Greenspan Sees U.S. Interest Rates Rising Soon, Perhaps Rapidly
August 18, 2016, 10:57 AM EDT
- Ex-Fed Chairman says low rates won’t last ’very much longer’
- Greenspan also forecasts that euro zone ‘will break down’
Former Federal Reserve Chairman Alan Greenspan forecast that interest rates will begin rising soon, perhaps rapidly.
“I cannot perceive that we can maintain these levels of interest rates for very much longer,” he told former Securities and Exchange Commission Chairman Arthur Levitt in a Bloomberg Radio interview to be aired this weekend and next.
“They have to start to move up and when they do they could move up and surprise us with the degree of rapidity which may occur,” Greenspan added.
The yield on the 10-year Treasury note stood at around 1.55 percent on Thursday, down from 2.27 percent at the start of the year.
Greenspan repeated his previously-voiced concern that the U.S. economy was headed toward a period of stagflation -- stagnant growth coupled with elevated inflation.
“The very early stages are becoming evident,” with unit labor costs beginning to rise and money supply growth starting to accelerate, he said.
The former Fed chief was pessimistic about the chances of the euro zone surviving in its current form.
“It will break down, as indeed it is showing signs of in many different areas,” he said.
He called the 19-nation currency region “unworkable” because it tries to meld the different cultures and attitudes towards inflation of southern Europe with the north. While a number of inflation-abhorrent countries such as Germany and Austria could form a currency zone on their own, Greenspan said it wasn’t clear what they’d gain economically from doing that.
Nobel laureate Joseph Stiglitz said in a separate interview on Thursday that the euro area should split up if it can’t undertake reforms.
“If they can’t get it together, then an amicable divorce, probably dividing into two or three different currency areas” would be preferable, Stiglitz, an economist and professor at Columbia University, said in a Bloomberg Television interview with Tom Keene and Francine Lacqua.
Levitt, who conducted the interview with Greenspan earlier this week, is a senior adviser to the Promontory Financial Group and a Bloomberg LP board member.