Thursday, December 1, 2011
The American Saver Is Now the American Poor
In a recent effort to encourage spending by consumers, the Federal Reserve promised to hold short-term interest rates near zero at least through mid-2013. A plan to lower long-term rates followed suit in September. Unfortunately these lower rates make it harder for savers to hold onto their cash and still beat inflation. Even the typical money market account, having seen an 80 percent decline since 2006 is no longer a safe bet with inflation rates exceeding interest rates; the overall effect being diminished purchasing power.
Meanwhile, sitting pretty on trillions of dollars in bailouts-rather, welfare payments courtesy of the American public-the banks are simply not lending money due largely to the shrink in household incomes. Holding fast to the bailouts designed to fix their volatile balance sheets, the banks are earning a higher interest rate on these reserves than they are allowing their suffering customers. Furthermore, with said balance sheets so saturated with toxic loans in residential and commercial real estate, banks do not want to cut into this capital, indicating the primary incentive is to keep their own pockets full. Punishing both the saver and the spender, who can say without a doubt that the banking system is truly acting in the best economic interests of Americans?
Recovery on Wall Street does little to ameliorate the qualms of national unemployment, the median duration of which is the highest it has been since records began being kept in the 1960s. Players on Wall Street bank on the foreclosure of people's homes while U.S. banks have near $231 trillion in derivatives, a sum almost four times the global gross domestic product. Engendering this sly theft of Americans in the aggregate, the financial system's veritable altruistic objective should be to allocate capital to the areas with the greatest global economic growth.
Left with the choice of either contributing to the worldwide gambling problem or spending all of their money, consumers have almost no options that allow for return in regular savings accounts while their overall purchasing power dwindles more and more each day. As an elegy to those who flip-flopped houses during the real estate boom from 2000 to 2007 only to lose everything when the market crashed, those seeking to enter the high-frequency, fast paced game of speculate and trade-the stock market casino-will do well to learn from history.
Focusing instead on long-term commitments, low home prices coupled with low interest rates make this a great time to become an investor in real estate, allowing you to exercise control over and improve your financial security-something the Federal Reserve and the banking system are neither suited nor interested in doing. Investors from across the globe have started to focus on investing in cash flow instead of capital gains and are now purchasing cash flowing investment properties that produce above inflationary returns. Education is key when investing in real estate so many investors hand their money over to a mutual fund manager or similar instead of taking action and control over their own retirement and financial stability. It is now easier than ever to invest in real estate as there are companies that specifically help investors invest in turn-key, fully renovated investment properties with property management and systems already in place.
Now is the time to take action. Take responsibility for your own financial situation and start developing cash flow so the economic problems of the world do not affect your retirement and financial stability.
Owens Consulting Group founder Mathew Owens is a California licensed CPA and a full time real estate investor. He has completed over 100 transactions in the past three years, representing approximately $10 million in real estate, most of which has been sold to cash flow investors. He does multiple live educational events and online webinars.