Posted on 09/11/2012 6:53:58 AM PDT by reaganaut1
The fact that interest yields are so low in so many parts of the world is no coincidence. Rates are determined not only by markets, but also by government policy. And right now many governments say they have good reason to keep their own borrowing costs as low as they possibly can. Just last week, the government’s report on job growth in the United States showed continued weakness, and an international forecasting group warned that the European economic powerhouse, Germany, will fall into recession later this year.
Though bad for people trying to live off their savings, low interest rates happen to be quite good for anyone borrowing money, like governments themselves. Over time, interest rates below the inflation rate allow governments to refinance, erode or liquidate their debt, making it easier to live within their budgets without having to resort to more unpalatable spending cuts or tax increases.
Along with keeping rates low, governments are using a variety of tactics to encourage captive audiences, like pension funds and banks, to buy their debt. Consumers, in other words, are subtly subsidizing governments without even knowing it. Economists have compared this phenomenon to a hidden tax on people’s wealth.
“If you ask a central banker is that what you’re doing, and why you’re doing it, they’ll say ‘No, we’re just trying to get the economy going by making it easier for the private sector to borrow,’ ” said Neal Soss, chief economist at Credit Suisse. “But I have a syllogism for you: The government makes the rules. The government needs the money. So why should it surprise if the rules encourage you to lend the government money?”
This is not the first time governments have benefited by depressing interest rates, something economists refer to by the ominous name of “financial repression.”
(Excerpt) Read more at nytimes.com ...
Higher savings is good for the economy
We hear a lot about the federal government stealing from our children and grandchildren, but there is rarely a mention of it also stealing from our parents and grandparents.
They had saved their money for their old age, only to have Ben Bernanke devalue the dollar by 30% and take the interest rate for savings down to near zero. Those savings were to generate the income that seniors would live on. No wonder you see old men out on the scorching-hot Walmart parking lot pushing carts back to the building. They are having to work into their 70s to stay alive. This government is punishing every demographic with its insatiable greed.
Another case of Obaba/Bernanke soaking the 99% to bailout/enrich the 1%.
We hear a lot about the federal government stealing from our children and grandchildren, but there is rarely a mention of it also stealing from our parents and grandparents.
They had saved their money for their old age, only to have Ben Bernanke devalue the dollar by 30% and take the interest rate for savings down to near zero. Those savings were to generate the income that seniors would live on. No wonder you see old men out on the scorching-hot Walmart parking lot pushing carts back to the building. They are having to work into their 70s to stay alive. This government is punishing every demographic with its insatiable greed. When will it stop?
The gov’t is funnelling/herding as much of private investment into gov’t bonds as possible.
One of the methods they are using is to disallow a cash option in 401k programs. This is not so much a “disallow” but pressure on the financial firms that host these accounts. The next “safest” position to be in is in gov’t bonds, or “safe” funds that are heavy in treasury bonds.
Now, this is the first I’ve seen mentioned of low interest rates doing the same kind of herding.
Bonds are not safe folks.
Just think what would be the "cost" of a raise of just 1% on 16 trillion dollar debt. Just 1% may sink the Obama administration.
The cynical bastards who "run" the governments really need(& may, BTW) to find out what happens at the most populous intersection of the town at high noon in payment for "high crimes and misdemeanors"....stealing the futures of all of us.
In the mid-90s I took out an insurance-based annuity. As I read the fine print, I chuckled at the part that said the annunity would never draw less than 3% annual interest. At that time, regular savings interest was in the 8% range and it was easy to find higher rates for longer terms.
In the mid-2000s I put some money into CDs and couldn’t believe that the highest rates I could find were only drawing 4%. When they renewed about 12 months later, the renewals earned 3%. Their next renewals were 2% and the next renewals would have been 1%. I returned them to the Money Market account, because it was paying 1.5%. Now, most of the rates are in the 0.8% range or less.
A few years ago, I heard one ‘expert’ say that the interest earned was ‘real’ money due to low inflation. That ‘expert’ apparently doesn’t do grocery shopping or fill up his auto with gas.
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That 3% annuity looks pretty good now, and that is a sad commentary on the state of our economy.
Yup—been saying this for years. The Zero Interest Rate Program (ZIRP) we’ve been seeing is a backdoor tax on savers. If interest rates go to zero, the Government can borrow with impunity. If interest rates go negative, the Government MAKES $$ on its debt.
Per the last, I’m not joking. Its going to happen. Watch.
A more fundamental way of saying it is that negative real interest rates are a form of financial repression that slowly appropriates savings to the benefit of debtors, including the government.
As a reminder, real interest rates are the interest rate less inflation and taxes. If you don’t net anything on your deposit, you aren’t being paid for lending it.
Negative real interest rates slowly inflate away savings, which is a transfer of wealth from savers to debtors. It’s a particularly egregious thing to do to people who have been prudent and saved all of their lives. The policy either forces them to seek yield in risky investments, or face slow guaranteed confiscation.
And so, in ten words, the NYT glosses over a deliberately imposed total disaster that continues to be inflicted on a generation of socially moral and upright citizens who attempted in times past to provide for their own retirement years. This is not confined to Obama's Administration, but Oh Boy, I bet he loves the idea of screwing the 'Kulaks' into the ground while funding his grandiose ideas.
"A 0% interest rate is a 100% tax on savers' income!"
On the flip side of that coin - the same government is increasing access to 'disability' for inner city youts and suburban scammers - people who want to 'retire' with full Social Security benefits in their twenties or early thirties. Disability benefits for these groups are often higher than for people who worked their whole lives.
Benefits based on being drug addicted, gay with HIV virus, having a bad temper, being alcoholic are common. The scammers also put the disability program at risk for people who really are disabled. When the system crashes, people who really are disabled will die if a family member doesn't take them in... Many of the elderly who live on Social Security and can't work will also die when the system crashes.
Men who have worked and saved their entire lives see their savings wiped out by money being devalued is one reality - the other is democrats starting to collect Social Security in their twenties - collecting for 50, 60, or 70+ years and destroying the system for all...
Tell that to the man collected carts in a Walmart parking lot - tell him why that's compassionate.
Yet another reason to get rid of the Federal Reserve System and moved towards a Gold or other value based money standard.
I don’t see how they can every raise interest rates. The Debt bomb has grown so large that we are looking at very low interest rates for a very long time, perhaps forever.
Interest rates will be raised when the bond market forces them to be raised because of inflation. At the moment, the central banks are more powerful than the bond buyers. Inflation is low because the debt provides a huge deflationary pressure. Money velocity is low, despite all of the liquidity provided by the banks.
As to your other point--the gold standard--I think that's only half the cure. I'd like something more solid than fiat paper, but the gold standard alone won't prevent credit-driven booms and busts as long as there is fractional reserve lending. I don't see that going away.
All your points are solid.
I would like to see a Gold denominated commodity based monetary system. But it won’t happen in our lifetime.
The fiat money & fractional reserve system gives too much power to the bankers and politicians, but this system is going to collapse one day. (Probably sooner rather than later).
But they will try to replace it with a similar system rather than moving to a more honest system. Too few people understand the situation to demand real change.
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