Americans are often chided for a low savings rate. We would be better off if we saved, supposedly. Instead of taking a luxury vacation or buying a beach house, we loan money to bank or invest it in a business. They use that money productively and give us back a nice return on investment so that we can, at some point in the future, take two vacations or buy a much nicer beach house.

Consumers in the past decade or so have not behaved as though they believed this pitch. They borrowed the maximum that they could out of their home equity and went off to Europe. They spent every dime that they earned and every dime that banks would lend them. They behaved as though they believed that money invested in the stock market would be stolen by managers running the companies. They spent as though they believed beach houses and European vacations would rise in cost much faster than the stock market.

It now appears that Wall Street agrees with these folks. The yield on 5-year Treasury Inflation Protected Securities (TIPS) has gone negative (story). If you give the government $1000 today, they will give you back $900 and change in 2013. Whatever they give you back will be adjusted for domestic inflation, at the officially published rate, so in theory your spending power in 2013 will only be slightly smaller than it is today. But for the average thing that you might want to buy, you are more likely to be able to buy it right now than if you bought TIPS and waited five years.

A friend who is a professional money manager says that you should expect the yield on every form of investment to converge to LIBOR. In other words, there is no reason to believe that other investments will return more than these negative-yield TIPS. They might appear to yield more right now, but that is only because we are underestimating inflation.

Due to the decreasing marginal utility of income, i.e., that $1 spent on top of $150,000 brings less enjoyment than the same dollar spent on top of $15,000, it makes sense to save a bit for retirement. Otherwise, perhaps anyone with a steady income should party on. What if disability or death interferes with that steady income? One can buy insurance against these unlikely events and that insurance might well be cheaper than the haircut you’re going to take as an investor in TIPS or any other publicly traded instrument.