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 Federal Reserve is, of course, a bank. So after it has a meeting, it issues a statement outlining the discussion — a “bank statement.” Hmm… Now that I think about it, that must be where the acronym “BS” comes from.I pride myself on explaining complex financial situations in everyday language. However, when it comes […]
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.
Government life support…liquidity injection… or a giant Band-Aid…whatever you want to call it, quantitative easing is the keeping the global economic ship afloat – but for how much longer? Richard Duncan explores…
Ben Bernanke introduced the world to the concept of "quantitative easing" back in 2002. It was an "unorthodox plan" to save the economy from the horrors of deflation. But the monstrous economy it has actually created is in some ways far worse. And as Richard Duncan explains, it's not going to end any time soon. Read on..
While the technical details of Bitcoin may intimidate the novice, they shouldn’t keep him from getting in on a digital currency revolution that -- while taking different forms -- isn’t going away. How do you get the simplest, easiest-to-act-on tips about how to invest, safeguard and grow your digital wealth? Dominic Frisby has more…
The duality is stark. In one hand, we have an energy renaissance underway, in the other, a virus is threatening to wreak havoc on the markets and, potentially, your life. Nothing we’re currently doing to fight the Ebola virus will work in 2014, say the researchers. Nothing we’re currently doing will beat it in 2015, either. We need a new game-plan. Read on…
Lose your shirt in 3D printing stocks this year? Don’t kick yourself. You’re not alone. (Okay, kick yourself a little if it’ll make you feel better.) You need to make sure you don’t lose your 3D-printed shirt in the next tech craze. Because there will be a next time. Look, it’s really not your fault if you got taken for a ride on 3D stocks. Greg Guenthner has more...