U.S. consumers are cutting debt and trying to save more money. The Federal Reserve, in an effort to keep the economy from a double-dip recession, is keeping the benchmark rate of interest artificially low. Record-low interest rates are fattening bank bottom lines. Low interest rates like these make it so banks pay less but still collect quite a bit on their loans meaning banks are making a lot. Savers, investors, pensions and endowments have to pay for the Fed monetary policies with an “invisible tax”.
Now saving is unimportant
U.S. banks are paying savers the lowest average rates on record. Bloomberg did a study with Market Rate Insight suggesting that 0.99 percent was about how much in July was paid towards interest on checking, savings, money market and certificates. Market Rates measured anything that was a rate or bonus paid by 1,300 banks and credit unions in the whole American country. There were more savings rates which were tracked. These were between January 2004 and July 2010. When the national unemployment rate goes up, savings rates go down. The report concludes that when the unemployment rate goes down, interest rates on savings will go up.
Banks set up roadblocks to debt reduction
Fed monetary policy that is holding the interest rate at near zero, some believe, is rewarding banks and penalizing the average citizen. People who want to reduce debt and conserve more seem to have the deck stacked against them. Larry Doyle at Daily Markets writes that miniscule interest rates are squeezing people who live on fixed incomes. Savings accounts generate a negligible returns. Banks don’t have to pay hardly anything to borrow money. This means they’ll continue to raise interest rates on credit cards in order to get more money.
Low interest rates is what we call an invisible tax
The Fed’s interest rate policy might be part of the economic problem. The New York Times had an article by Gretchen Morgenson explaining this. Investors and savers lose about $350 billion a year with this “invisible tax” that the Fed is giving, says Todd E. Petzel of Offit Capital Advisors talking to Morgenson. He got that figure by starting with about $14 trillion in debt issued by the Treasury at an rate of interest near zero. 3 percent has been the typical rating. That is the average over time. 2.5 points is already too low. 2.5 percent of $14 trillion adds up. In fact, savers, investors, pensions and endowments will then lose about $350 billion a year. The money lost is more than 2 percent of gross domestic product and almost 3 percent of disposable personal income.
Bloomberg
bloomberg.com/news/2010-08-24/u-s-banks-paying-depositors-record-low-interest-rates-market-rates-says.html
Daily Markets
dailymarkets.com/stock/2010/08/24/invisible-taxes-loan-sharking-usury/
New York Times
nytimes.com/2010/08/22/business/22gret.html?_r=2 and amp;ref=gretchen_morgenson
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