Retirees Face the Consequences of a Manufactured Recession

The Federal Reserve may have been caught flat-footed while inflation made a historic run in the spring and summer of this year. In response, the central bank has enacted numerous rate hikes in an effort to cool the economy. The Fed has signaled it’s willing to push the economy into a recession if necessary. Despite two-quarters of negative GDP output some dither over the definition of a recession.  Others are expressing concern about just how much contraction a supposedly healthy economy can bear as the federal government continues to accelerate its spending. However, what few are openly discussing are the real-life impacts the Federal Reserve’s policy shift will have on older Americans who are retired or on a fixed income.

In today’s rising interest rate environment one of the most vulnerable cohorts of older Americans are those

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1 comment

The Positive Realist October 8, 2022 at 11:11 pm

Is recession going to roost and if so, when? If it does will it be a hard or soft landing? As to recessions is it better to be passive or proactive and if one does not respond in sufficient time to be proactive, is being reactive better than remaining passive? Are the economic gurus who react to almost all expansions to the economy as if Depression is coming forthwith and must be avoided at all costs, being overreactive? It is true that Depressions must be responded to as early as possible but can overreaction by itself produce irreversible damage to the economy unrelated to a Depression and can the proper time to respond to Depression be identified sufficiently in time to avoid another Great Depression? Do not misunderstand, there is no claim being made in this comment that the US is facing anything other than a recession.

Other than the long heralded and then discredited economic theories of John Keynes and the more recent supply-side economic theories of Arthur Laffer (and his Laffer curve), one is hard pressed to find economic theories from the ilk of these two well known economists to guide us out of the mess we are in. Certainly the European leaders are as lost, if not more lost, than we are.

While Jerome Powell may be blamed or credited for his recent actions, one big problem is that the current Administration and Cabinet of this President seemed as befuddled as the President and the Vice President about what to do. The President and Congress are busy creating historic spending bills that will increase the debt and exasperate the size and cost of interest at a time of rising interest rates. Other than the Fed, this federal group seems to be doing what it can to make the cost of interest squeeze the budget at the worst possible time. Imagine a conflict so great in Washington that the results seem more like a stalemate than a collaborative effort of all the responsible governing bodies in DC working together to end what could result in deep harm to the economy. (Yes, that was rank sarcasm).
Our country is not the Republic described by Richard Harris as the historical figure, Roman Emperor Marcus Aurelius in the film Gladiator, nor is it the idea of Elysium as evoked by Russell Crowe playing the fictitious commander of the Armies of the North and General of the Felix Legions, Maximus Decimus Meridius (although at times Maximus seems to be a composite of several actual Romans of the decades surrounding 170 AD).

Most of this potential recession is plain old American home made.

No one yet has come to the rescue of the seniors in this nation. To placate seniors, they are being told that Social Security Retirement Benefits will be almost 10% higher in 2023 but how do those promises help pay the increased costs endured in 2022? We, the RM originators, have a cash flow answer but not one that will avoid the real costs of increasing inflation. Our answer is a trade of interest (and MIP) bearing debt for the sunk costs of still raging inflation. Remember as of yet, inflation is stalled in a holding pattern but not corralled. Seniors need not only debt to meet their cash flow requirements but also genuine compensation paid to them for their losses due to the legacy ambitions of several of today’s politicians.

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