It seems to me that once in a while I encounter a tale of unexpected consequences where a series of occurrences result in a situation that, when put together, could not have been envisioned by those responsible for the original event or activity.
Well, that’s exactly what has happened and I think the story is worth sharing – but it’s a bit complicated so hang in with me and I’ll put it together.
Let’s start with the Federal Reserve manipulating the interest rate to keep it at near-zero as a means of stimulating the economy. The current US Treasury IOUs are paying almost no interest and I think I’ve read where some were selling at a negative interest rate. As a result, the cost of borrowing money is very low so businesses can get relatively cheap loans to help grow the economy. Another result, however is that banks and savings institutions are paying interest rates well under one percent on savings accounts, certificates of deposit and money market funds. Got that? OK, hold that thought while we switch gears.
Phyllis (not her real name) is one of those little white-haired widows living on Social Security along with a very small pension from a previous employer – and depending on Medicare for her medical needs. Although constantly balancing on the edge of financial crisis she has been remarkably successful in managing her limited resources – until fate stepped in. She suffered a series of almost simultaneous unexpected expenses such as a major plumbing bill in replacing the sewer line, her refrigerator and kitchen stove both giving out and a costly car repair thrown in for good measure. Without the ready resources to pay these obligations she put them on her credit card – to the tune of several thousand dollars.
Well, you can guess the financial situation Phyllis found herself in. Even with eating only two meals a day she was barely able to make the minimum credit card payment each month – and with an interested rate of 23 percent she faced a very bleak future of seemingly endless payments. But that’s when another player stepped in – a person I’ll call Sam (for reasons I’ll explain). The Parable of the Good Samaritan is a story in the Christian gospel of Luke (10:29-37) that encourages people to help others who are in danger. In fact, the colloquial phrase “good Samaritan,” means someone who helps a stranger, derives from this parable. That’s surely what Phyllis had in mind when she said “a good Samaritan” had come to her rescue and gave rise to the gender-neutral nick name “Sam”” I have bestowed on her benefactor.
Just how Sam found out about Phyllis’ predicament is a bit blurry, but what Sam did was clear. Sam offered to lend Phyllis enough money to pay off the entire credit card bill at zero interest rate with monthly payments she should handle within her limited resources. I think it’s important to know that Phyllis would not accept what she called “charity” that is, an outright gift and she hesitated at zero percent loan until Sam explained the financial details of the arrangement.
OK, back to the interest rate. Sam had apparently come into some kind of a windfall of cash – which may have come from an inheritance, but that’s not certain. Anyway Sam had money in a savings account that “wasn’t doing anything.” Same explained that with an interest rate of .05 percent, $1,000 on deposit in the savings account would earn in interest – now get this – 50 cents a year. Yep, a half a buck in interest a year on $1,000 – not enough for a cup of coffee at the Golden Arches.
In addition, with an inflation rate of around 2-3 percent money sitting in the savings account was actually losing value. By lending Phyllis the money to pay off her credit card balance she was saving the 23 percent interest – a considerable sum. Furthermore the money taken from Sam’s savings account wasn’t decreasing in value, but was actually “doing something” and the loss of interest was negligible.
Well, there you have it – a true story unexpected consequences which I have “fuzzed up” a tad to protect the identities of Phyllis and Sam. Who would have through the Federal Reserve Chairman’s policy of near-zero interest rates could have resulted in a widow getting relief from her financial crisis?
I suppose some folks might figure that Sam should have invested the money in the stock market or a business venture, but Sam decided to invest in a fellow human being instead – figuring the return would be much more satisfying. You know, this little take kinda gives some perspective of what’s truly important in this life. At least that’s how it seems to me.
Bill Taylor is a Greene County News columnist and area resident.