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. Low interest rates having been helping many banks out. Banks are making a bit of money. The gap between what a consumer pays and what the bank pays is large enough to make extra money with. Some analysts are saying that when Fed monetary policies shore up the banks it bailed out with billions, they’re an “invisible tax” on savers, investors, pensions and endowments.
Reasons for saving gone
Saving doesn’t matter much anymore. Savings rates are the lowest ever recorded. Savings rates being so low was pointed out in a study of July from Bloomberg by Market Rate Insight. This showed that checking, savings, money market and certificates got an average of .99 percent interest. America had 1,300 banks tested by Market Rates. That is where this number comes from. Between January 2004 and July 2010 was when more savings rates were tracked. There is a correlation between unemployment and savings rates. The report concludes that when the unemployment rate goes down, interest rates on savings will go up.
Banks make it harder to settle debt issues
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 save more seem to have the deck stacked against them. Daily Markets’ Larry Doyle explained that those with fixed incomes are having a bad time with low interest rates. Savings accounts generate a negligible returns. Credit card issuing banks make certain they raise interest rates on credit although it is costing almost nothing to get it themselves.
Low interest rates is what we call an invisible tax
The Fed’s rate of interest policy may be causing more economic problems than it is solving, according to Gretchen Morgenson at the New York Times. Todd E. Petzel of Offit Capital Advisors told Morgenson that the Fed’s rate of interest policy is an “invisible tax” that costs savers and investors about $350 billion a year. Since the Treasury lent about $14 trillion with a near zero interest rate, he began there. Generally rates are around 3 percent. 2.5 points is already too low. On $14 trillion, 2.5 percent adds up to $350 billion a year in lost income to savers, investors, pensions and endowments. 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
