The U.S. Federal Reserve is supposed to be an independent guardian of our banking system, immune from pleas to do this or that from either politicans or regular citizens.
But since Sarah Palin felt free to critique the Fed's recent monetary policy actions (though many, including me, were surprised she even knew what the Fed did), I figured I might as well throw in my own request:
Higher interest rates, please. Higher inflation also, if that goes along with higher interest.
I'll confess to being minimally economically literate. But I know how to balance my checkbook (except when I can't). Last month I dutifully added 26 cents of interest after seeing that West Coast Bank had credited this to our account, which averaged a balance of $3,000 or so.
Wow. In a year I'll almost be able to buy a single large non-fat vanilla latte, my favorite coffeehouse drink.
Recently, though, I've been saving money (and calories) by ordering a grande Pike Place, brewed coffee, at Starbucks. It costs $1.80 and I throw a quarter into the tip jar. Which is almost exactly what we earn each month from our interest-bearing checking account.
In my whole 62 years I can't recall a time when what you earned on savings accounts was throwaway money. As a child I was taught a lesson by my mother that was echoed by financial advice from experts: keep a good share of your assets in savings.
But now people who have been cautious with their money are being screwed by current interest rates. The Fed gives money to banks at essentially zero interest. That also is just about what seniors and other folks who used to rely on income from savings are getting: zero.
Our Schwab money market fund has a yield of .01%. That isn't 1% -- it's one-hundredth of a percent.
I don't want us to go back to the days of super-high inflation, but come on... how are retired people on fixed incomes who have been thrifty savers supposed to survive when interest rates are that low?
Currently the yield on 2-year Treasury notes is .51%, with 10-year bonds at 2.78%. And those yields are higher than they have been for quite a while. We own a 5-year government bond fund that's yielding 2.3% at the moment.
The Federal Reserve has said that it will buy $600 billion of Treasuries in an attempt to lower long-term interest rates and juice the economy. My reaction was "great" to juice the economy and "ugh!" to lower interest rates.
Scott Burns, a financial writer and advisor, calls what's happening "The Great American Bank Robbery." Federal Reserve actions have been a boon to banks, which get money to loan for almost free, and a disaster for seniors and others who have significant savings.
The largest bank robbery in history is in process, but no police cars have been dispatched to the scene of the crime.
That’s because no bank is being robbed. Instead, the banks are robbing their depositors. While all depositors are victims, some people are suffering greater losses than others. I call them “the Solvent Seniors.”
You are a Solvent Senior if you are old enough to be collecting Social Security, and your income on your savings is (or was) greater than your Social Security benefits. We’re talking about millions of people. According to the “Basic Facts of Social Security” 48 percent of married couples and 28 percent of single people have more income from savings and other sources than from Social Security. We’re not talking about rich people here, just people who saved to maintain their independence and dignity in their old age.
Television economist Lawrence Kudlow raves on CNBC about the opportunities in bank stocks and how much money banks can make with virtually no cost for deposits. What Mr. Kudlow and the other talking heads don’t mention is that the same conditions are a disaster for Solvent Seniors.
Worse, this can become a long-term disaster. As I pointed out in an earlier column, if you’re retired and get half your retirement income from interest on your savings, current interest rates translate into a whopping 23 percent drop in income from 2006, just a few years ago. What neither political party nor the Federal Reserve will admit is that every dime our banking system is making through low deposit costs is coming out of the pockets of savers. Some would call this theft, even though it isn’t being done with a gun. Others may say it’s a tax that doesn’t have to be called a tax. You decide.
OK, I will. It's a tax. It's robbery.
It's tilting economic policies in the favor of Wall Street vs. Main Street. I can see this happening every time I see that we've gotten a whole additional 25 cents in monthly interest on our savings of quite a few thousand dollars.
Let's get interest rates up, Federal Reserve -- at least beyond what I put into a Starbucks tip jar when I buy a cup of coffee.