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September 18, 2012

WSJ SmartMoney: Why QE3 Makes Retirees Queasy

“Readers of and of Encore in particular are probably familiar by now with stories that start something like this:

Retirees and other income-seekers, hunting for higher yields in the low-interest rate environment, have been pouring money into riskier investments like [dividend-paying bank stocks/mah-jongg tournament betting pools/South Sudanese pipeline partnerships].

If you like the theme, settle back and enjoy: the Fed’s announcement last week of a new, open-ended round of “QE”—quantitative easing, or bond buying designed to grease the wheels of the economy—means downward pressure on rates is likely to continue for a while.

Coincidentally, a group called Better Markets, an advocacy group lobbying for more aggressive financial reforms, recently released a report with the eye-catching, spoiler title The Cost Of The Wall Street-Caused Financial Collapse And Ongoing Economic Crisis Is More Than $12.8 Trillion. Whatever the merits of that number, now being debated on the pages of Slate’s Moneybox, the Washington Post and elsewhere , there are even more costs that the report excludes, its authors say, because they’re “simply unquantifiable.” Among them: the income investors in general are losing due to lower rates. As the report notes: “Zero interest rates have prevented families from rebuilding their net worth…because yields are historically low or even negative.””

Read Matthew Heimer’s full article here

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