The Fed’s War on Savers


Since the beginning of the Great Recession the U.S. Federal Reserve aka. the Fed has kept interest rates close to 0%. The goal of this program was to help boost the economy. This boosting of the economy was supposed to come from greater investment and spending as cash was cheap. However, it is obvious with unemployment still above 8% and GDP growing at 1.2% that this decision by the Fed has done relatively little good.

What is not discussed is the collateral damage caused by this program, specifically the cost to the U.S. saver. If you open a bank account today you might be lucky if you receive .01% interest back. This means your real rate of return is negative due to inflation. Think about that, by leaving your money in the bank you are actually becoming poorer. The worst part about this is the fiscally responsible among us, those people who don’t spend more than they have, and put money in the bank for later are the ones paying the price for the reckless spending of others.

Instead of trying to instill an ethos of financial prudence among the American people, all the Fed is doing in the name of “growth” and “recovery” (I for one have yet to see either) is launching a war against our most fiscally responsible while encouraging people and businesses to spend recklessly through “cheap” cash in the form of debt…I wonder how this is going to turn out.

 

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5 thoughts on “The Fed’s War on Savers

  1. You made some good points in your post. How unfair is it that the people who work hard for their money and save rather than spend, are the ones who have to support the rest of the economy. It makes me so angry that this is the case. I actually worked in a bank over the summer and your right, the interest rates suck. I think in my own savings account the most interest I’ve ever racked up was like a mere 60 cents or something ridiculous like that.

  2. Were I not the professor, i would follow Austin’s lead.

    I like the way you present this. It is not an argument I have heard elsewhere. A Foster original?

    Foster's Original!

    If the interest rate were at 3 or 4%, just to pick an arbitrary number, then yes, savings would earn more. However, whatever economic growth occurred in the real economy in this period due to businesses whose threshold for expansion was financing costs of less than 4% would not have done so. Some number of homes that were refinanced or bought would not have been. Are those benefits greater than the increased earnings accruing to those who are buying debt or simply saving? I can’t say here, but that is the question in my mind.

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