The 'monarchs of money' and the war on savers

Πηγή: CBCnews
By Neil Macdonald
April 29 2013

Quietly, without much public fuss or discussion, a new ruling class has risen in the richer nations.

These men and women are unelected and tend to shun the publicity hogged by the politicians with whom they co-exist.

They are the world's central bankers. Every six weeks or so, they gather in Basel, Switzerland, for secret discussions and, to an extent at least, they act in concert.

The decisions that emerge from those meetings affect the entire world. And yet the broad public has a dim understanding, if any, of the job they do.

In fact, these individuals now wield at least as much influence over the lives of ordinary citizens as prime ministers and presidents.

The tool they have used to change the world so profoundly is one they alone possess: creating money out of thin air.

There is an economic term for this: quantitative easing. More colloquially, it's called printing money.

Since the great economic meltdown in 2008, these central bankers have probably saved the world's economy from collapse, and dragged it into the unknown at the same time.

The amounts they have created are so vast as to be almost incomprehensible — trillions of dollars in pounds and euros, among other currencies.

At the end of 2012, the balance sheets of the world's largest central banks, those of the G20 nations and the eurozone, including Sweden and Switzerland, totalled $17.4 trillion US, according to Bank of Canada calculations from publicly available data.

What's their legacy?

When the record of the 2008 global financial catastrophe is fully written — that story remains a work in progress — the world's central bankers will emerge either as heroes, or as the people who administered a cure that turned out to be as bad as the disease.

Three of them in particular will go down in history: Ben Bernanke of the U.S. Federal Reserve, Mario Draghi of the European Central Bank, and Canada's own Mark Carney, soon to be the governor of the Bank of England.

That is nearly a quarter of global GDP, and slightly more than double the $8.5 trillion these same institutions were holding at the end of 2007, before the financial crisis hit.

Stock markets have risen on this tide of cheap money. So has real estate. So, arguably, has everything else.

But there are two big concerns with what this new central banker elite has done.

One is that no one really understands the consequences of pumping such vast amounts of money into the world economy. It's already distorted the prices of certain assets, and some fear hyperinflation or market crashes are inevitable (the subject of tomorrow's column).

The other is that it's caused a massive shift in wealth, from savers to borrowers, and is taking money out of the pockets of almost everyone approaching or at retirement age.

A war on savings
Probably the most painful of the consequences of quantitative easing has been borne by the elderly.

INTERACTIVEThe Monarchs of Money

Most of that generation grew up believing that if you save and exercise prudence that you will earn at least a modest return on your hard-earned money to keep you comfortable in your old age, perhaps along with a pension.

But the money-printing orgy of the last five years looks to have shot that notion to smithereens.

Very deliberately, the central bankers have punished savers, pushing interest rates so low that any truly safe investment — and older people are always advised to play it safe — yields a negative return when inflation is factored in.

British pensioners Judy White and her husband Alan, at their home in Teddington, south of London: 'I now have 50 per cent less.' (CBC )

The policy has savaged pension and savings returns worldwide, but particularly in Britain, a nation of savers and pensioners.

There is more money in British pension funds than in the rest of Europe combined, and now that money is just sitting, "dead," as some call it, not working for its owners.

Ask Judy White, a retiree in her late 60s who lives in Teddington, south of London, with her husband, Alan.

This year, the Bank of England shattered her retirement. Her pension benefit was effectively slashed by half.

"I don't understand what quantitative easing is, except that it's printing money," she says. "But I do understand that I now have 50 per cent less.

"What they have done is take money from people who have been really careful all their lives."

On the backs of the virtuous

Actually, by the Bank of England's own reckoning, the £375 billion of quantitative easing it has carried out since 2008 has cost British savers and pensioners about £70 billion, roughly $100 billion. (At the same time, the richest 10 per cent of British households saw the value of their assets increase over the same period, the bank reported.)

That cost to the elderly is largely because pension payouts in the U.K. are pegged to the yields on government bonds, and quantitative easing has forced those yields down to almost nothing.

Speaking for the Bank of England, Paul Fisher acknowledges that the bank has created a paradox: It does want people to save and be prudent — just not right now.

"We try," he says, "to get people to do things now to get out of this mess, which in the long run we prefer not to do."

In other words, might we please have some more of the wild consumer spending and borrowing that helped get us all into this situation, at least for a while?

Ros Altmann, a governor at the London School of Economics: 'A monumental social experiment.' (CBC)

The plain fact, though, is that central bank- and government-imposed solutions to disasters caused by irresponsible, greedy, foolish behaviour are almost always carried out on the backs of the virtuous.

So it was with the bank rescues in 2008, and so it is with quantitative easing.

As Ros Altmann, a longtime pension manager and director of the London School of Economics, puts it, quantitative easing has amounted to a "monumental social experiment" — a large-scale transfer of wealth from older people to younger people.

"Anybody who was a saver and has got some accumulated savings will have had a reduction in their income," she says.

While "anyone who had a big debt, particularly mortgage debts, would have had improvement in their income because their interest payments have gone down."

As stupid as it might sound, older people everywhere would probably be better off if they'd abandoned prudence and borrowed more.

That is obviously not what the central bankers or our political leaders want. But that's the situation they've created.

What's the alternative?

This transfer from savers to borrowers has also been taking place here in the U.S. and in Canada, to varying degrees.

Some U.S. pension funds are in danger of default, at least partially because of these artificially low interest rates, and Canadian pension funds that are heavily invested in safer debt have been injured, too.

In an interview in his Ottawa office, Bank of Canada governor Mark Carney defends quantitative easing elsewhere, and his own low-interest rate policy, though he does acknowledge that it has been hard on pensioners and savers.

Like all central bankers, he argues the (impossible to prove) negative: There have been consequences, yes, but if we hadn't done this, things would be far, far worse.

As for carrying out these solutions on the backs of the virtuous: "I don't see a world where the virtuous are rewarded if we suffered a second Depression," he says. "These are the stakes."

Carney would prefer not to talk about the enormous power central bankers have gained since 2008, saying only: "We have a tremendous responsibility … because of a series of mistakes that were made in the private 

sector and the public sector."

See the surge in central bank holdings, the printing of new money, beginning in the spring of 2008 with the bank bailouts and the acquistion of long-term securities to keep interest rates down. (International Monetary Fund)

As Canada has performed better than most Western nations, Carney has not ordered any new money printing.

But he has kept interest rates down, and that has fed the real estate booms over the last few years in Vancouver, Toronto, Calgary and elsewhere.

He scoffs at the suggestion that "the party" will end at some point. "I am not sure we are having a party right now," he says. "It doesn't feel like a party."

And, in fact, he has repeatedly expressed concern at the huge debt levels Canadians are accruing, at least partly because of his low-rate policies.

But surely he understands the anger of an older person watching their savings being eroded, I ask him.

Carney smiles grimly. That question is clearly a sore point. He gets a lot of mail on the topic.

Canadians, he says, must understand that the alternative is massive unemployment and thousands of businesses going under, and "my experience with Canadians is that they tend to think about their neighbours and their children and more broadly … they care a little bit more than just about themselves."

Asked whether central bankers are not in fact enabling irresponsible behaviour by speculators enamoured of cheap money, not to mention politicians who can't curb their borrowing and spending, Carney merely remarks that voters in a democracy get the governments they choose.

Germany ‘exporting’ elderly to foreign retirement homes

Πηγή: The Raw Story
By Kate Connolly, The Guardian
Dec 26 2012

Pensioners are being sent to care homes in eastern Europe and Asia in an austerity move dismissed as ‘inhumane deportation’

Growing numbers of elderly and sick Germans are being sent overseas for long-term care in retirement and rehabilitation centres because of rising costs and falling standards in Germany.

The move, which has seen thousands of retired Germans rehoused in homes in eastern Europe and Asia, has been severely criticised by social welfare organisations who have called it “inhumane deportation”.

But with increasing numbers of Germans unable to afford the growing costs of retirement homes, and an ageing and shrinking population, the number expected to be sent abroad in the next few years is only likely to rise. Experts describe it as a “time bomb”.

Germany’s chronic care crisis – the care industry suffers from lack of workers and soaring costs – has for years been mitigated by eastern Europeans migrating to Germany in growing numbers to care for the country’s elderly.

But the transfer of old people to eastern Europe is being seen as a new and desperate departure, indicating that even with imported, cheaper workers, the system is unworkable.

Germany has one of the fastest-ageing populations in the world, and the movement here has implications for other western countries, including Britain, particularly amid fears that austerity measures and rising care costs are potentially undermining standards of residential care.

The Sozialverband Deutschland (VdK), a German socio-political advisory group, said the fact that growing numbers of Germans were unable to afford the costs of a retirement home in their own country sent a huge “alarm signal”. It has called for political intervention.

“We simply cannot let those people who built Germany up to be what it is, who put their backbones into it all their lives, be deported,” said VdK’s president, Ulrike Mascher. “It is inhumane.”

Researchers found an estimated 7,146 German pensioners living in retirement homes in Hungary in 2011. More than 3,000 had been sent to homes in the Czech Republic, and there were more than 600 in Slovakia. There are also unknown numbers in Spain, Greece and Ukraine. Thailand and the Philippines are also attracting increasing numbers.

The Guardian spoke to retired Germans and people needing long-term care living in homes in Hungary, Thailand and Greece, some of whom said that they were there out of choice, because the costs were lower – on average between a third and two-thirds of the price in Germany – and because of what they perceived as better standards of care.

But others were evidently there reluctantly.

The Guardian also found a variety of healthcare providers were in the process of building or just about to open homes overseas dedicated to the care of elderly Germans in what is clearly perceived in the industry to be a growing and highly profitable market.

According to Germany’s federal bureau of statistics, more than 400,000 senior citizens are currently unable to afford a German retirement home, a figure that is growing by around 5% a year.

The reasons are rising care home costs – which average between €2,900 and €3,400 (£2,700) a month, stagnating pensions, and the fact that people are more likely to need care as they get older.

As a result, the Krankenkassen or statutory insurers that make up Germany’s state insurance system are openly discussing how to make care in foreign retirement homes into a long-term workable financial model.

In Asia, and eastern and southern Europe, care workers’ pay and other expenses such as laundry, maintenance and not least land and building costs, are often much lower.

Today, European Union law prevents state insurers from signing contracts directly with overseas homes, but that is likely to change as legislators are forced to find ways to respond to Europe’s ageing population.

The lack of legislation has not stopped retired people or their families from opting for foreign homes if their pensions could cover the costs.

But critics of the move have voiced particular worries about patients with dementia, amid concern that they are being sent abroad on the basis that they will not know the difference.

Sabine Jansen, head of Germany’s Alzheimer Society, said that surroundings and language were often of paramount importance to those with dementia looking to cling to their identity.

“In particular, people with dementia can find it difficult to orientate themselves in a wholly other culture with a completely different language, because they’re very much living in an old world consisting of their earlier memories,” she said.

With Germany’s population expected to shrink from almost 82 million to about 69 million by 2050, one in every 15 – about 4.7 million people – are expected to be in need of care, meaning the problem of provision is only likely to worsen.

Willi Zylajew, an MP with the conservative Christian Democrats and a care service specialist, said it would be increasingly necessary to consider foreign care.

“Considering the imminent crisis, it would be judicious to at least start thinking about alternative forms of care for the elderly,” he said.

Christel Bienstein, a nursing scientist from the University of Witten/Herdecke, said many German care homes had reached breaking point due to lack of staff, and that care standards had dropped as a result.

“On average each patient is given only around 53 minutes of individual care every day, including feeding them,” she said. “Often there are 40 to 60 residents being looked after by just one carer.”

Artur Frank, the owner of Senior Palace, which finds care homes for Germans in Slovakia, said that was why it was wrong to suggest senior citizens were being “deported” abroad, as the VdK described it.

“They are not being deported or expelled,” he said. “Many are here of their own free will, and these are the results of sensible decisions by their families who know they will be better off.”

He said he had seen “plenty of examples of bad care” in German homes among the 50 pensioners for whom he had already found homes in Slovakia.

“There was one woman who had hardly been given anything to eat or drink, and in Slovakia they had to teach her how to swallow again,” he said.

German politicians have shied away from dealing with the subject, largely due to fears of a voter backlash if Germany’s state insurers are seen to be financing care workers abroad to the detriment of the domestic care industry.