U.S. consumers are cutting debt and trying to conserve more money. A double dip recession is the main concern for the federal Reserve which intends on keeping interest rates as low as possible. Banks benefit from the interest rates being so low. This means they get to have much more money. Banks are making a bit of money. The gap between what a consumer pays and what the bank pays is large enough to make additional money with. Savers, investors, pensions and endowments have to pay for the Fed monetary policies with an “invisible tax”.
Now saving is unimportant
U.S. banks are paying savers the lowest average rates on record. Bloomberg did a study with Market Rate Insight suggesting that 0.99 percent was about how much in July was paid towards interest on checking, savings, money market and certificates. Market Rates measured anything that was a rate or bonus paid by 1,300 banks and credit unions in the whole American country. There were more savings rates that were tracked. These were between January 2004 and July 2010. There is a correlation between unemployment and savings rates. The report concludes that when the unemployment rate goes down, interest rates on savings will go up.
Harder to fix debt with bansk
Banks get a reward while citizens are punished with the near zero rate of interest from the Fed. . Low interest rates effect mostly those people who have fixed incomes. Larry Doyle at the Daily Market reports this. Savings accounts do not help much. You end up with less money after inflation. Meanwhile, it costs credit card issuing banks next to nothing to borrow money while they continue to raise interest rates on consumer credit.
Invisible tax
The New York Times’ Gretchen Morgenson explained that economic troubles may be continuing because of the Fed’s interest rate policy. Morgenson talked to Todd E. Petzel of Offit Capital Advisors who gave his opinion. He thinks that about $350 billion a year is spent on this “invisible tax” the Fed has created. Since the Treasury lent about $14 trillion with a near zero interest rate, he began there. Generally rates are around 3 percent. That makes current rates too low by 2.5 points. On $14 trillion, 2.5 percent adds up to $350 billion a year in lost income to savers, investors, pensions and endowments. The money lost is more than 2 percent of gross domestic product and almost 3 percent of disposable personal income.
Additional reading
Bloomberg
bloomberg.com/news/2010-08-24/u-s-banks-paying-depositors-record-low-interest-rates-market-rates-says.html
Daily Markets
dailymarkets.com/stock/2010/08/24/invisible-taxes-loan-sharking-usury/
New York Times
nytimes.com/2010/08/22/business/22gret.html?_r=2 and amp;ref=gretchen_morgenson
