A Scary Trend

This article is on ZH 


In short, a record number of people have taken loans out against their 401ks.

This reminds me a lot of a student I had when I taught Adult Education Technical Analysis for the county school system. She came to me after class one night and asked if I'd be open to giving her private lessons in addition to the class. I already had a few private students so what was one more? We met at a local cafe with Internet access and before I could get my laptop powered up, she was in tears. I'd guess she was about 65 years old and apparently a widower.

She told me that she couldn't survive off Social Security alone and had taken her savings of $350,000 and started trading them for extra income. She lost $50,000 in a week. She had told me she had contemplated suicide because she wanted to leave her children an inheritance, but at the rate she was burning through money and losing it, she was afraid there would be nothing left.

It's a sad story. Members of my own family are struggling with retirement and medicare. To make matters worse, Bernanke's policies have effectively punished those who were responsible saver their entire lives as the dollar is worth less and everyday inflation is much higher.

What makes the 401k loan trend especially scary is the fact that most 401ks will decline significantly in a market decline. There was a time in 2008 when even the stability of Certificates of Deposit were questioned as to their stability. What will happen to these people who have taken money out of their 401ks, when their 401ks fall in value?

Obviously Bernanke's low interest rates haven't helped people get loans and who couldn't see that coming? The banks are taking money at 0-.25% interest, why risk it on loans when they could stick it into commodities and equities that were being ramped?

A government that breaks its promises to its senior citizens is a shameful government indeed. Perhaps I'm too biased by personal experience, but this 401k trend sounds like it's going to end very badly.