Friday, June 6, 2014


Yesterday the president of the European Central Bank Mr. Draghi lowered the base rate of the ECB (corresponding to the FED's Federal Funds Rate) from 0.25% to an historic low of 0.15% for the euro.

Today the daily BILD titled:

(No interest, increasing rents, mini pension) and asked:

Wie schlimm wird die Altersarmut? (Old-age poverty, how bad will it become?)

Such a message is typical for the mass-circulation press: The reader is panicked, manipulated and eventually made stupid.

There is in fact a development of the money market with the man in the street draining the cup of the financial crises of 2008. Statistics show that there presently is no inflation in Europe but there rather is a risk of stagflation.

My pension fund has not increased my benefits over the last five years. I shall receive no annual adjustment unless my individual accumulated loss of purchasing power account maintains a balance of 8%. Luckily Red Baron bought an apartment such that increasing rents do not concern me. Nevertheless the monthly utilities for the apartment increased from 420 to 475 euros over the last four years. Otherwise already without Mr. Draghi's announcement the interest rate on my money in the bank is so low that it has approached zero after tax. Do not worry, with age your needs become less so Elisabeth and I will survive.

Let us look at Altersarmut in Europe. In Germany somebody is poor if his/her revenue is below 382 euros plus the rent he/she has to pay. In principle people during their working life should put aside enough money for their retirement. Since long the obligatory contributions to social security do no longer guaranty a carefree existence following retirement. People therefore take a life insurance or other private investments to supplement the government pay. With the low interest rates at present it is nearly impossible to fill the gap between the basic social security payment and what one needs to end his life in a decent manner.

The following graphic shows that in some European countries old-age poverty is already higher than 10%, in others as in Spain it has increased from 9% in 2008 to more than 12% in 2012. This is due to the bad economic situation on the Iberian peninsula. Germany, France, and Italy show increases in Altersarmut from 2008 to 2012 whereas in the Netherlands, the UK, and Sweden the situation seems to be stable.


No comments:

Post a Comment