Investing in Federal Bonds a Losing Proposition - Some €900 billion of monetary assets consist of deposits, which can be withdrawn immediately and earn an average of about 0.42 percent in annual interest. At an estimated inflation rate of 1.6 percent this year, these assets will see a 1.18-percent decline in value, or about €11 billion. The situation is slightly more favorable for savings deposits or fixed deposits with terms of up to two years, but even here the real rate of interest is often negative. Investing in federal bonds is also a losing proposition for Germans. In the case of five-year bonds, for example, interest rates have also fallen below inflation. This also affects many insurance companies and pension plans, which together account for more than €1.8 trillion of German monetary assets. They, too, invest most of their money in government bonds, which means that the returns on life insurance policies are declining from one year to the next. Guaranteed interest rates, which were at 4 percent in 2000, had dropped to 1.75 percent by 2012. "Savers still benefit from the fact that their policies are backed by previously acquired bonds with higher fixed-interest coupons," Kater explains. "But the longer the low-interest-rate phase lasts, the more fixed interest rates will expire, and the bigger the losses will become from year to year." If the structure of monetary assets doesn't change and the low interest-rate policy continues for another 10 years, the total loss to savers could grow to €60 billion. "In Germany today, people can no longer provide for their retirement by saving," says Walter Krämer. A statistics professor in the western city of Dortmund, Krämer initiated a call for protest by 282 German economists against the euro bailout policy last year, and this summer he followed up with a letter of complaint titled "Cold Expropriation." Krämer assigns the blame to the ECB. "Savers pay the price for the fact that the ECB is determined to rescue comatose banks," he says. According to Krämer, banks are being charged too little to gain access to ECB funds, so that they have no incentive to offer more to savers.
Access Investments-Building Awareness - European Union-ROMANIA
Wednesday, November 27, 2013
Investing in Federal Bonds a Losing Proposition - Some €900 billion of monetary assets consist of deposits, which can be withdrawn immediately and earn an average of about 0.42 percent in annual interest. At an estimated inflation rate of 1.6 percent this year, these assets will see a 1.18-percent decline in value, or about €11 billion. The situation is slightly more favorable for savings deposits or fixed deposits with terms of up to two years, but even here the real rate of interest is often negative. Investing in federal bonds is also a losing proposition for Germans. In the case of five-year bonds, for example, interest rates have also fallen below inflation. This also affects many insurance companies and pension plans, which together account for more than €1.8 trillion of German monetary assets. They, too, invest most of their money in government bonds, which means that the returns on life insurance policies are declining from one year to the next. Guaranteed interest rates, which were at 4 percent in 2000, had dropped to 1.75 percent by 2012. "Savers still benefit from the fact that their policies are backed by previously acquired bonds with higher fixed-interest coupons," Kater explains. "But the longer the low-interest-rate phase lasts, the more fixed interest rates will expire, and the bigger the losses will become from year to year." If the structure of monetary assets doesn't change and the low interest-rate policy continues for another 10 years, the total loss to savers could grow to €60 billion. "In Germany today, people can no longer provide for their retirement by saving," says Walter Krämer. A statistics professor in the western city of Dortmund, Krämer initiated a call for protest by 282 German economists against the euro bailout policy last year, and this summer he followed up with a letter of complaint titled "Cold Expropriation." Krämer assigns the blame to the ECB. "Savers pay the price for the fact that the ECB is determined to rescue comatose banks," he says. According to Krämer, banks are being charged too little to gain access to ECB funds, so that they have no incentive to offer more to savers.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment