A couple of items related to yesterday’s Bernanke’s Disingenuous Message to Savers come via this Reuters report that chronicles the difficulty older, fixed-income investors are having under Fed Chief Ben Bernanke’s policy of freakishly low interest rates and this item at The Aleph Blog that captures my sentiments fairly well.
Bernanke Does Not Understand Savings
Twice in his press conference yesterday, Bernanke showed that he was out of touch with average Americans. He argued that average people could keep up with a 2% increase in the price level by investing in stocks and (presumably short-term) bonds.
(Speaking to The Bernank)
I’m sorry, Ben, but ya gotsta come down from the uneducated ivory tower and wallow in the mud wit da restov us. There are three problems with what you said:
- It’s hard to earn 2% (after-tax) consistently when the Fed funds rate is zero.
- Only the top 20% of the wealthy have enough assets to keep themselves afloat using the asset markets. Most people would like to do something to protect themselves from inflation, but lack the means to do so.
- Average people do not invest, they save at financial intermediaries like banks, S&Ls, and life insurers. Fed policy kills rates for savers. They will not become investors, because they lack the knowledge to do so.
I am again sorry, Ben, because your policies discriminate against the poor, and the lower middle class. Yes, the rich and the upper middle-class clever can escape the penalties stemming from your policies, but the lower-middle class and the poor can’t.
Think of it this way: your policies are making it more palatable for average people to buy gold, because the alternatives in savings are lousy. If there is no income, why not grab safety from inflation?
Author David Merkel then suggests a comparison to Arthur Burns, one of the worst Fed Chairman ever, a subject that will be taken up in the next item that appears here.