This extract from Joe Weisenthal lauds Ben Bernanke’s defense of monetary policy and its effect on savers.
I would encourage you to remember that the current low levels of interest rates, while in the first instance a reflection of the Federal Reserve’s monetary policy, are in a larger sense the result of the recent financial crisis, the worst shock to this nation’s financial system since the 1930s. Interest rates are low throughout the developed world, except in countries experiencing fiscal crises, as central banks and other policymakers try to cope with continuing financial strains and weak economic conditions.
He [Bernanke] then goes onto note that saving isn’t just “having money in a bank” and that the main way to benefit everyone (including savers) is to induce growth:
A second observation is that savers often wear many economic hats. Many savers are also homeowners; indeed, a family’s home may be its most important financial asset. Many savers are working, or would like to be. Some savers own businesses, and—through pension funds and 401(k) accounts—they often own stocks and other assets. The crisis and recession have led to very low interest rates, it is true, but these events have also destroyed jobs, hamstrung economic growth, and led to sharp declines in the values of many homes and businesses. What can be done to address all of these concerns simultaneously? The best and most comprehensive solution is to find ways to a stronger economy. Only a strong economy can create higher asset values and sustainably good returns for savers. And only a strong economy will allow people who need jobs to find them. Without a job, it is difficult to save for retirement or to buy a home or to pay for an education, irrespective of the current level of interest rates.
The way for the Fed to support a return to a strong economy is by maintaining monetary accommodation, which requires low interest rates for a time. If, in contrast, the Fed were to raise rates now, before the economic recovery is fully entrenched, house prices might resume declines, the values of businesses large and small would drop, and, critically, unemployment would likely start to rise again. Such outcomes would ultimately not be good for savers or anyone else.
In layman’s terms, Bernanke is saying that if the Fed didn’t act, everyone, including savers, would be in deep **** (trouble) …….so savers should be happy they are being screwed.
via Bernanke: Federal Reserve & Monetary Policy – Business Insider.
So those that used credit responsibly (if at all), that relied on the currency as a store of value, they are the ones to pay the price for the ineptitude of the Fed, the bankers and the Wall Street hucksters? It is the savers that bear the burden of moral hazard while those that participated in risky behavior, used credit irresponsibly, that took on more debt than they could pay or sustain, they escape by dropping their keys in the mail while Wall Street firms profit shorting CDO’s and the taxpayers and savers bail out the banks and insurance co’s? And they wonder why we’re pissed off? Pardon my French, but Fu@k the Fed and Ben Bernanke. If it weren’t for gold, silver and commodities I don’t know what I would do, but it probably wouldn’t be legal.
Quite right. Those who avoided excessive debt and saved are paying for the sins of those who did not.
The meek shall inherit the earth; the actual money will remain with the greedy.
(I have to resort to a little humor here, otherwise my head might explode)
H
Absolutely, it is unfortunate that bankers are so powerful as to avoid paying for their ineptitude, but that may be giving them too much credit, their greed is more accurate. But Bernanke has no choice if the recession is ever to end. And savers are not get anymore screwed than they were yesterday (how low can they go?). It is foolish to leave money in banks when there are some many other vehicles in which you have a good chance of making real money, notwithstanding gold. And I would personally like to see the rates on my credit cards and other debt decline, but I fear this will not happen in my lifetime, regardless of QEn. Savers will only benefit when the economy gets better, when all the boats are afloat, even the ones that don’t deserve it.
There are more and more people who are starting to understand the stupidity of the situation we are in.If I had the opportunity to ask the talking head economists just one question it would be, as the economy needs only supply , demand and money to function effectively , why is it stalled almost everywhere on the plane.t
… because central bankers could not resist juicing the economy up on debt. Now that debt is contracting, we have the reverse effect.
What seems crazy to me is that they are trying to encourage households to resume borrowing — get them back on the juice — that is not a solution. Merely the start of an even bigger disaster.
What central banks need to aim for is a soft landing: using just enough QE to offset deflationary effects of the private debt contraction.
Every time the contraction slows, raise bank reserve ratios to keep it going until debt/GDP ratios are restored to historic levels and bank leverage is halved (15% to 20%).
Colin
This was a rhetorical question for me.I understand what you say but don’t entirely agree.I believe there are two compounding issues that are causing the present universal economic chaos.
1 The ever increasing labor efficiencies in the economy means that the cost of labor would be below the cast if living if it were not for government the intervention of the government imposing minimum wages.
2 The accumulation of capital i( caused by an ineffective taxation system) in the hands of the wealthy elite has caused the return on capital to be reduced to negative amounts ( German 2 year bonds ).
So for the world’s economies to come back into balance there need’s to be an acceptance of these two realities.
I believe that there is much fear and communal breakdown , which means that governments must borrow from the wealthy to support those who can ‘t compete with mechanization. Historically the wealthy had large labor intensive project’s to assist in wealth redistribution. However today the elite seem to focus on personal indulgence , that is not able to keep pace with there asset accumulation. Bottom line is that capitol is supposed to lubricate trade not bury it.
Chris, You seem to approach the issue as a problem of equity/redistribution — “imposing minimum wages”, “ineffective taxation system”, “wealth redistribution”, etc. — where you take from the rich and give to the poor. That views the economy/wealth as a “cake” of a fixed size that has to be fairly divided between all parties. My view leans toward “efficiency” where the goal is to enlarge the cake so that all benefit. The optimal solution lies somewhere between the two extremes: where we achieve both efficiency and equity.
Colin
First I want to thank you being open to listening to to the opinions of people like me who have a different view of economics. In to much of the media , people are shouting slogs at each other , and calling debate.
That said I would make the following points
1 The cake you refer to is this lump of crusted lava we call planet earth. The human animal is basically consuming resources faster than the planet can replenish them.
2 I am opposed to redistribution of wealth and believe that people should only receive what they legitimately earn.
3 I believe also ,as you that “efficiency” where the goal is to enlarge the cake so that all benefit.
4 I believe in a fair tax system.
At the present it is possible for one person to make in a few minutes the same as a whole town in a generation. With the present tax system, some families with zero effort are accumulating vast wealth sufficient to buy whole countries.
This is unhealthy for all of us.
Chris, I agree that people taking sides and shouting slogans at each other is a waste of time. I also believe that with population rising and resources diminishing the world is headed for increased conflict in the decades ahead. I don’t think we should blame the tax system for the unequal distribution of wealth. The tax system should be designed on the basis of efficiency: maximizing output while minimizing costs of tax collection (GST is far more efficient than income tax and could be simpler still without exemptions). We should then look at how we distribute the benefits (from revenue collected) in order to achieve equity. My first goal would be to create equal opportunity through the education system and support services for disadvantaged students. These goals should be measured in generations.
Bernanke is rescuing the Banks from their greedy expansion of margins, on the backs of the surf’s that believed that their productivity could be stored for their descendants / or theirs for a rainy day.
This is the simple lie told by the FEDERAL RESERVE BANKERS, this is the actual betrayal of the honest people that is being contrived.
We have all been conscripted for this indefinite indentureship.
We’re doing this in the best interests of every human being…….HAH, don’t eat that Ardy, that’s horse schmit.
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We won’t be dug out of this indentureship until the banks are reflated, and the bandits that sold the banks insurance to protect them from the crisis are paid in full for their empty promises.
Ever wonder who it was that sold all of those Credit Default Swaps that were supposed to back stop the banks in stead of actual deposits and gold bullion ? And just how many banks have claimed some of that insurance money ?—none.
Truly, I wonder who the people are; they are still collecting premiums for the CDS money stream; but now from the “newly created liquidity pool” .
The working stiff had aquired far too much of the wealth; we can’t have that now, can we ?