Skip to about the 28 minute mark in the video below of Federal Reserve Chief Ben Bernanke’s press conference yesterday and you’ll hear the confusing, not-very-helpful message the central bank has for savers in our super-low interest rate environment.
Basically, his answer to Gregg Robb of Marketwatch about the difficulties being experienced by fixed-income investors makes no sense as he confuses conservative investments with riskier ones in the rather disingenuous answer excerpted below:
In the case of savers, we think about all these issues and we certainly recognize that the low interest rates we’re using to try to stimulate investment and expansion of the economy also pose a cost on savers who have a lower return. And we do hear about that obviously and we do think about that.
I guess the response I would make is that the savers in our economy are dependent on a healthy economy in order to get adequate returns, in particular, people who own stocks, corporate bonds, as well as Treasury securities. And if our economy is in really bad shape, then they’re not going to get good returns on those investments.
So, I think what we need to do is, when the economy goes into a very weak situation, then low interest rates are needed to help restore the economy to something closer to full employment and increase growth and that, in turn, will lead ultimately to higher returns across all assets for savers and investors.
That’s little comfort for all the risk-averse savers out there just looking to get more than one percent on a certificate of deposit when the inflation rate is running at three or four times that amount (by government measure, your results may be much higher).
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In quickly looking at some of the Fed funds/inflation data over the last 50 years, this appears to be a pretty interesting subject worthy of more discussion some other day.
It turns out that Arthur Burns in the 1970s was the only other Fed Chairman to have real interest rates as low and as long as Bernanke will, so, maybe the real correlation for punishing savers is bad Fed chairmen, rather than a bad economy.
there was another clip that should be plastered across just about every site out there. when pressed as to how he would explain to people that its ok for the fed to be ’stealing’ 2¢ of every dollar on an annual basis the bernank responded that its the way other CBs do it and the way its always been done since it staves off deflation. and deflation, as we know, is just plain evil. assets must inflate; wages are irrelevant.
financial policy is set in favor of the banksters by … wait for it … tradition. kinda like the only reason people buy gold. in other words, its all ok since thats what everyone else would do to you.
but hey … so long as we have dancing with the washed up stars and whatever night of the week football to watch … its all good.
Hey, don’t knock bread and circuses – that’s about all a lot of people have left:
http://en.wikipedia.org/wiki/Bread_and_circuses
You nailed it. The response by BB is either stupid or disingenuous.
He ignores the risk-averse savers who should not be in stocks or corporate bonds and he conflates “risk free” treasury securities with corporate stocks and bonds when he argues that savers won’t do well in these instruments if the economy is not doing well.
Equating risk-free Treasury securities with risky corporate stock and bonds shows BB is either enormously stupid for an economist or he is attempting to mislead.
I believe there are so few true savers in America today and there is SO MUCH debt today that BB & Co. are intentionally sacrificing those of us who have cash. That’s what he should have said to the question about “savers.”
TPTB are simply NOT going to let the economy run its natural course where they know interest rates would rise greatly, if left alone. In that case, defaults would be massive and TPTB would be removed.
I’d love to see massive defaults because it’s necessary to clean out the dead wood and get back to sound monetary policy. I’d also love to see losers like BB in the stocks.
Fat chance of that…
How about the honest answer,
“Only a fool saves this worthless paper.”
Money is turning into a $%^& Bradford exchange limited edition plate. Whoops, no, those editions are limited.