Sunday, April 15, 2012

The Hidden Punitive Tax on My (and your) Widowed Aunt

I have had a chance to catch up with my dear Aunt D in Texas this past two weeks.   She lost her husband in 2010 after 54 years of marriage.   I wrote about his funeral and how times had changed and stayed the same here. They basically lived a life of responsible virtue.  They started with nothing when they got married, not even a car.   No one gave them anything, but after a life of service to others they wound up with a very nice home and a modest amount of savings.

Well since I was visiting around tax time, I helped her with her taxes.    It turns out they were not ones for playing the stock market.  And in their situation, who could blame them?    All she had besides a pitiful social security check was interest income from CDs.    That amount was also pitiful, because interest rates are extremely low.

The reason interest rates are extremely low is that the government and the federal reserve are putting their thumb (or maybe foot at this point) on the scales and intervening to keep rates far below what they would be if the free market were allowed to set interest rates without the manipulation of our wise rulers who know what's best for us in the Beltway.  

Washington has decided to punish savers who worked hard and responsibly laid some of their earnings aside.  It is not surprising that the most profligate ruling class in world history over-rides the free market (which is just the individual decisions of us all). It has deformed the economy to reward debtors (of which they are the biggest) at the expense of savers.  Unfortunately, this easy, low interest debt also had the bad effect of seducing too many of us into taking out too much debt.  When things slow down, we don't have access to a printing press like our deal leaders in the Capitol.

My aunt should be earning perhaps triple the amount of interest income she is now earning.   The low CD rates that my aunt, and your relatives with CDs as well, get for their money amounts to a hidden tax.  It would be the same as a 66% tax rate on CD interest income.  But as you will soon see, this hidden tax is only levied on our aged upper-middle class relatives, not the well-connected insiders on Wall-Street or K-Street.   Actually, they are the ones which most benefit from the government's decision to over-ride the free market.   In a way, my aunt is paying this hidden tax and the proceeds go right to the big banks.

You see their friends on Wall Street are getting (as opposed to earning) billions of dollars by borrowing money from the Federal Reserve at essentially zero interest, then taking that money and loaning it right back to our, or some other, government in the form of bonds.   Those bonds pay higher interest than the Fed is charging the banksters.    So all they have to do is borrow $100 million dollars at essentially no interest and buy Treasury bonds at 2.5% interest and they have "earned" $2.5 million dollars per year for the life of the loan!   A retarded chimpanzee could make money with that business plan.

A greedy retarded chimpanzee might decide to make even more money and use the money to buy Portuguese or Greek debt at a much higher interest rate.  That of course carries some risk of default, but our exalted leaders in their great wisdom have provided a way for their friends in the financial sector to shift that risk onto our backs rather than endure it themselves.  

You see, Chairman Bernake allows these gentleman to use the risky bonds they purchase as "collateral" for the original loan.   That way if they default, its on our books, not the banksters!   Are the bonds collateralized at a significant discount to reflect the risk of default (forcing the banks to come up with some portion of their good assets to back the loan)?   We don't know, all of these operations are kept secret from the American people.   Our role in this matter is simply to fund their decisions. 

I can only hope that as they feast on filet Mignon and $50 a glass wine at their favorite restaurant, these wise leaders decide that they have stolen enough from our aged relatives and decide to end this wealth siphoning operation.   Perhaps then my 90 year old aunt could afford to keep her thermostat below 80 during the Texas Summer.


3 Comments:

Blogger Mark Moore (Moderator) said...

There is a hidden tax on our older relatives who have worked hard and are relying on CDs for income. This hidden tax finds its way into the pockets of the big banks by a process I will describe. They are looting the accumulated earned wealth of this nation.

12:25 PM, April 15, 2012  
Anonymous Anonymous said...

Your aunt may be a widow, but we still have uncle Ben.

"Say, uncle Ben-- can I take the helicopter up for a test ride?"

2:00 PM, April 15, 2012  
Anonymous Commodity Tips said...

This comment has been removed by a blog administrator.

11:16 PM, April 15, 2012  

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