Rogue Bankster Strategy?
Bear with me here as I walk through a thought exercise, one that’s for me just as much as it’s for you.
Let’s take a jaunt through correlation street, at the intersection of central bank interest rates and retirement. It’s quite the desolate place since very few people would make any attempt at associating the two. But let’s take a walk there anyways.
We all know of the Financial Crisis of 2007-2009. Most of us lived through it, in some fashion or another.
It’s also no news that central banksters reacted to that crisis by lowering interest rates to nearly the ground floor, also known as zero. With that in mind, let’s feast our eyes down the street of central bank interest rates.
Taking a look first at the Grand Poobah of central banksters, the US Fed. Between June 2006 and December 2008, that’s a span of two and a half years, they dropped the Federal Funds Target Rate from 5.25% to between 0% and 0.25%. That’s the point where they created the upper and lower limits for the rate, for whatever reason. They left the rate on the floor until 2016. (1)
Closer to home, the Bank of Canada followed suit, going from a rate of 4.50% in August 2007 to 0.25% in April 2009, although they started raising rates a bit sooner getting back up to a glorious 1.0% by November 2010. That didn’t last as rates dropped again in December 2014.
We can take a look at other central bankster rate histories – the ECB, the Bank of England, the Swiss National Bank – but I think this is solid enough to continue this thought experiment from here. No point beleaguering this point any further.
Let’s switch gears for a moment and pivot our gaze down Retirement Avenue.
For years leading up to the Financial Crisis, there was talk about the pending wave of the retiring Baby Boomer Generation, whose years of birth fall between 1946 and 1964. This meant that the first Boomers were going to hit age 65 in 2011 and presumably retiring at that point. So, from there and for the next 18 years, the span of the Baby Boomer Generation, we will be seeing wave after wave of retirees. Doing some quick math, that’s from 2011 to 2029. In other words, the last of the Baby Boomers will hit the mystical retirement age of 65 in 2029.
Let’s extrapolate on this.
When heading into retirement, what do typical retirees do with their financial portfolios? Well, first they realize they no longer have employment income, which means they need to replace their income stream. OK, so they start by drawing on pension benefits, be they government or corporate pensions.
Some have been building up RRSPs and 401K’s and Superannuations and such, all of which have been invested in stock and bond portfolios through the years. Assuming they had astute advisors guiding them along the way, they’ve been shifting from a more aggressive strategy of portfolios overweight in stocks to a more defensive portfolio overweight fixed income paying bonds, although that might be a stretch of an assumption given the carnage wrought on portfolios in the crisis. Remember, not all advisors are created equally.
Are you tracking with me so far? I'm assuming yes.
Now, when shifting to a more fixed-income oriented strategy, what does that consist of? First you need to dispose of, i.e. sell, some of your stocks. Naturally, one person doing so won’t even register on the stock market tickers, though one of few exceptions would be the likes of Warren Buffett, of course.
But you start sending wave after wave of sell orders into the markets to generate cash in retirement portfolios, suddenly you have markets inundated with 18 years of selling pressure that can’t be gobbled up by the smaller proportion of younger generations. Let’s not forget that there’s not just private retirement accounts such as RRSPs flooding with sell orders, but public and private pension plans as well.
I don’t think the banksters, both of the central variety and the Wall Street types were very happy about this notion.
So, what could be done to prevent this from happening? Make the retirement strategy unappealing. And how’s that done? Lower interest rates! And what replaces the inclination to shift to fixed-income investments? Why, just staying put in the stock markets, of course! Problem solved!
Let’s tie this up with a nice bow.
Financial Crisis leads to interest rates pushed down by central banks.
Financial industrial complex, whether before the crisis or after, notes the building pressure on stock markets with all the retiring Boomers pulling money out of already wobbly stock markets, which is a threat to their wealth as banksters. Something must be done.
Low interest rates are already seen as being a deterrent to many Main Streeters from piling more money into “safer” fixed income investments, hence helping keep more money and hence propping up said wobbly stock markets, all the while building the wealth reserves for many a bankster.
As the first waves of retires begin to prove this theory correct, it’s deployed for longer. But the charade can’t be kept up forever so central banksters begin pushing up rates. Low-and-behold, the bargain shopping retirees see the fixed income investments promising better and “safer” returns come back into selling mode to shift their retirement strategies.
This spooks some banksters into either ceasing the upward climb in interest rates, or completely shifting gears back down.
Anyways, as I said, this is a mere thought experiment, which I wanted to share with the dark, digital void. Hopefully someone is reading and thinking this through with me. Just know that I’m not trying to suggest anything in particular nor provoke any plots.
Before I close, I will grant one gaping hole in this thinking and that’s this. By selling out of the stock market and piling money into the bond market, retirees would’ve helped drive down interest rates even more, thus supporting or enabling the central bankster low rate environment. So, that begs the question, why would the banksters prevent the retirees for doing it on their, the banksters’, behalf? Perhaps this was a cost/benefit analysis which said option A, the one pursued, was of more benefit to the financial industrial complex.
Again, I’m not officially suggesting anything. I just wish to provide some food for thought where others will not.
OK, so this wasn’t exactly a quick thought experiment. But I just figure the timing and occurrences over the last decade or so are interesting for an inquisitive mind.
Anyways, I don’t have any solution to wrap up with. If nothing else, set these thoughts on percolate, as you traverse the ever-increasing onslaught of the Ivory Tower narrative.
Because, I know, I’m just a ranting Recovering Bankster. What do I know?
(1) The Balance