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Federal Reserve Chairman Ben
Bernanke has been somewhat apologetic to seniors in recent months about the
central bank’s low interest rate policies that have turned retirement
calculations upside down for anyone thinking that a nest egg, in many cases
built over an entire lifetime, could provide a decent stream of income when
invested in assets that are virtually “risk free”.
Despite excessive risk taking
being at the heart of the financial market meltdown a few years back that led
to the deepest recession since the Great Depression, the Fed’s policies
in its aftermath have been all about encouraging risk again and, about the
only thing the Fed chairman can offer up to seniors (as short-term interest
rates come up on their four-year anniversary of being stuck at the freakishly
low rate of between 0 and 0.25 percent) is that, their home price might rise
with an improving U.S. economy, presumably allowing them to further enrich
bankers by taking out a reverse mortgage to help make ends meet.
So, it was interesting to see
that the Fed’s low interest rate penalty for seniors was codified in
this USA Today op-ed
yesterday by 75-year old Charles Schwab in which he blames the nation’s
politicians for doing nothing, making monetary debasement by the Fed the only
game in town.
One arm of the government, the
Fed, has decided to lower interest rates to near zero. They say it will help
improve employment, and absent leadership from the Obama administration, they
believe they’re the only game left in town. Growth has not happened
yet; unemployment has remained above 8% for most of the past four years.
Two other arms of the government
— the White House and Congress — have yet to compromise on an
economic policy to get a solution. To add insult to injury, interest rates on
savings in the U.S. are lower than nearly anywhere else in the world. Most
countries pay substantially higher rates.
Unfortunately, because the Fed
has set these low rates, since 2009 savers have had to draw on their
principal to supplement their retirement income. They also have been harmed
further because of modest inflation. The purchasing value of their savings
principal has dropped by at least 8%.
How much interest have Americans
lost? If instead of earning a 0% interest rate for these four years, the rate
had been closer to the more historically normal 3.5%, that would have
put more than $250 billion of interest into savers’ pockets each year.
Not surprisingly, this
commentary also serves as an endorsement of Governor Romney over President
Obama, but, for someone in a position of power writing about the economy
these days, it’s probably hard to write anything on this subject
without being partisan.
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