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.
According to Mr. Rickards, China will reveal it's gold holdings when it can say "Hey, we’ve got our gold, now we’re a player. Now when the international monetary system collapses and the world has to reconfigure the system, we get a big seat at the table."
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.
The latest friend of ours to weigh in on the topic of the value of your money is Steve Forbes. As you’ve been reading this week, we paid a visit to Mr. Forbes recently, to discuss his latest book, Money. In this essay, you’ll find his thoughts on currency devaluation… it’s impact of economic growth and your investments…
Is Democracy really all it's cracked up to be? And, more importantly, does Hong Kong really need it? China's wayward island already enjoys many of the freedoms of most democratic countries including free business, free trade and even low taxes. Chris Campbell ponders this idea today as he observes the protests from afar.
What causes individual investors to underperform the market year after year? Volatility? The Fed? In today’s video, Steve Forbes reveals what’s sabotaging your investment strategy – and the simple steps you can take to see consistent gains.
Why is the global economy such a mess? Why can't the world's foremost economists and financial thinkers seem to get it right? Simple... They don't understand the most basic element that makes up an economy: money. And as Steve Forbes explains, it all stems from the incorrect assumptions of a general theory of money. Read on...
For years the world's wealthiest investors have had the most profitable sector of the market all to themselves. But thanks to Title III of the JOBS Act, that's all about to change... What does Title III actually say? And, more importantly, how will you be able to use it to make a fortune? Wayne Mulligan explains...