Don’t bother saving, Ben Bernanke told Congress one Wednesday, echoing a message the Fed has been sending to the middle class for 15 years. The zero interest rate policy (ZIRP) has been discouraging responsible saving and fueling a massive increase in Wall Street borrowing and speculating. And its unlikely to end anytime soon.
The impact on your wallet is very real. Banks have reduced interest rates on deposits dramatically, leaving savers no option but to gamble on stocks or lose money to inflation every year.
Check out this chart, courtesy of Zero Hedge. It shows how the Fed has been punishing responsible savers over the last decade. The data set is as follows:
1. Total savings in billions (blue line)
2. Average interest rates on savings deposits FRED (M2OWN) (green line)
3. Interest income on savings in billions (red line)
From 1964 to present, the chart shows a steady rise in total savings deposits, with significant growth after 2000. After peaking at 10% in the 1980s, average interest paid on savings declined steadily. It now hovers near zero. Meanwhile, despite the massive increase in the amount of savings by bank customers, income from savings has remained stagnant over the past decade.
Of course, earlier trends parted around the year 2000, when the ZIRP era began. Since then, Fed policy has been focused entirely on making that unemployment number budge, at the expense of encouraging savings.
Even though the Fed’s asset purchases may decline after 2014, ZIRP will likely continue long after.
Despite the punishment savers are taking, the track record for “stimulus” isn’t great. As Daily Reckoning contributor Dan Amoss said earlier this year: “The number you need to remember is zero. Zero is where central banks will peg interest rates for several years into the future. Zero is the number of times in recorded history that the QE/ZIRP policies in place worldwide have boosted any economy to escape velocity…”
The days of parking your life savings with a bank may be gone for good.
For The Daily Reckoning
P.S. Readers of The Daily Reckoning get loads of tips on how to protect your assets from ZIRP and inflation. Click here now to sign up for free.
The bond market is now cracking as the mother of all bubbles reaches its apex. Likewise, the risk asset markets generally are likely not far behind. David Stockman reports to you from the gambling pits. Read on...
Jason M. Farrell is a writer based in Washington D.C. and Baltimore, MD. Before joining Agora Financial in 2012 he was a research fellow at the Center for Competitive Politics, where his work was cited by the New York Post, Albany Times Union and the New York State Senate. He has been published at United Liberty, The Federalist, The Daily Caller and LewRockwell.com among many other blogs and news sites.
Dave Gonigam explores the end of health care as we know it. Plus: What if we paid for groceries the way we pay for health care? And: Can you keep your doctor when this trend collapses in less than 20 years?
Bill Bonner reports on Hillary Clinton's relationship with environmentalists, capitalism, and interest rates...
Charles Hugh Smith reports the negative consequence of devaluation few mention: the skyrocketing cost of imports...
Bill Bonner explains how Hillary Clinton is saving the crony lobbyists and zombie voters from real capitalism...
Jody Chudley explains why you shouldn't use EIA's supply and demand numbers to inform your investments. Instead, he has two industry veterans you should follow...
The fleet of autonomous cars on the road is growing. Stephen Petranek has more on just how many autonomous cars are now registered in the state of California, and when you could get your hands on one.
To a trader, a hammer is an important candlestick formation. Here’s your down and dirty description: A hammer occurs when a stock takes a huge dive at the open, then recovers and plows higher towards the close. What results is a hammer-like shape with a long lower “wick” on the candle. And guess what? That’s bullish.