Larry Todd

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Banks Like The Low Interest Rates That Stop Savings And Investments

Savings is popular. That is because many just want to cut out debt. Interest rates are extremely low right now. That is mostly since the Federal Reserve is worried about the economy making a double dip. Low interest rates having been helping numerous 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. Savers, investors, pensions and endowments have to pay for the Fed monetary policies with an "invisible tax".

Now saving is unimportant

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. Market Rates measured anything that was a rate or bonus paid by 1,300 banks and credit unions within the whole American country. The report also tracked savings rate fluctuations between Jan. 2004 and July 2010. Savings rates decrease while national unemployment increases. If only unemployment would go down. Then savings rates would get to go up.

Harder to fix debt with bansk

The Federal reserve is keeping interest rates at almost zero. This is helping banks but leaving average citizens out to dry. Getting less debt and saving more doesn't help. The individuals doing this seem to just be running into more debt. Low interest rates effect mostly those individuals who have fixed incomes. Larry Doyle at the Daily Market reports this. You don't get any money out of savings accounts. Meanwhile, it costs credit card issuing banks next to nothing to borrow money while they continue to raise interest rates on consumer credit.

Low interest rates is what we call an invisible tax

The Fed's interest rate policy can 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" 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. Generally rates are around 3 percent. That makes current rates too low by 2.5 points. $350 billion a year in loss to savers, investors, pensions and endowments is what 2.5 percent of $14 trillion adds up to. 3 percent of disposable personal income and 2 percent of gross domestic product is lost.

Additional reading

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

Mendelssohn, the Nazis and Me