The New Millionaire Lifestyle

As our two largest banks predictably fail, you can feel the panic crescendo:

Citigroup - down 96%
Bank of America - down 91%

As these monsters are siphoned dry by e-runs, the private, bank-funded FDIC is hardly a source of comfort:



Once considered unthinkable, many banks have decided to check their reputations at the door and beat a path to the lender of last resort, in a desperate gambit to survive:



Result? The U.S. Treasury has become a relief valve for frantic cash, fleeing risky bank accounts and the stock market. Not coincidentally, a wild congressional spending spree, stuffing trillions of dollars of taxpayer money into the pockets of the world's richest bankers, has dumped an unprecedented pile of treasury instruments on the auction block.

Amazingly, short term yields are still pinned near zero, or even negative, as a mob of unsuccessful bidders anticipate the big one. Great Depression yields were not this low; speed-of-light bank runs couldn't blitz the U.S. Treasury all at once:



Yet, January 2009 finds most citizens sedate and happy, awash in a warm flow of U.S. government propaganda. Is everyone else right? Does it even matter? Let's consider at least one implication of our new world:

The New Millionaire Lifestyle

In 2006-7, a liquid millionaire could generate a lifestyle sustaining, guaranteed income. Most erroneously thought a mutual fund basket was a more suitable investment than a 6% quarterly T Bill, but still, the old millionaire figured, even if worst came to worst:

$1,000,000 @ 6% paid quarterly => $60,000/year

That was enough to survive... ...but now it isn't. Today, the same million bucks buys:

$1,000,000 @ 0.10% paid quarterly => $1,000/year

Simply put, single-millionaires are already poverty level paupers. Get used to it, fast, we're only a few months into a soon to seem endless depression. The New Millionaire Lifestyle, someone who desires the same modest $60,000 cash flow, suddenly requires $60M liquid cash. Not the kind of person we used to associate with scraping by.

But today's 0.10% yield isn't completely realistic. For months, we've seen steady 0.01% to -0.05% Treasury yields. Let's ignore for the moment the prospect of a big bank failure causing $trillions to fight for $billions in weekly auctions, potentially causing yields to dive much farther into negative territory. How much liquid cash does the the New Millionaire Lifestyle require at these recent, semi-panic yields? Nearly a billion dollars in liquid cash:

$600,000,000 @ 0.01% paid quarterly => $60,000/year

Do you still think you are wealthy? Still think you'll be drawing a comfortable company or government pension? Think you'll see useful Social Security?

Think again.