The Wall Street Journal is reporting that Federal Reserve officials will begin to spell out plans for short-term interest rates later this month. There is a wide held belief that the central bank's easy-money policies will remain in place for several years. The excuse for low interest rate returns paid to savers is that the near zero rate policy will give the economy a boost.
Tuesday, in minutes of the Fed's December policy meeting it was disclosed that the Fed is still leaning towards an extended era of low rates. What the Fed did not admit or elaborate on was how the policy confiscates the interest income that could be earned by savers and transfers it to the Federal Government in the form of virtually free financing for the $1.5 trillion budget deficits.
Fed Will Probably Keep Interest Rates Low for Years
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A low interest rate environment would be great if the borrowers were anyone BUT the federal government. Only the largest corporations and the government are realizing benefits from this low interest rate environment. The premise that historically low interest rates will fuel the economy is pure nonsense. Who's borrowing? The "Baby-boomer" generation constitutes one third of the U.S. population. Each week more baby boomers are retiring. These retirees are depending on safe investments to generate the lions share of their household income. They have significantly less income to SPEND because rates are so low. Consequently, these retirees are forced to minimize spending. More often than not, the interest they earn on safe interest bearing investments falls way short of their day-to-day living costs. When you have rates so low that 1/3 of the population can't afford to retire or those who are forced to retire can't pay their bills, low interest rates actually become a self-perpetuating drag on the economy. How do we get out of it? Certainly lower rates aren't helping under the current scenario. That's a myth. Retired senior citizens are bearing the burden of Obama's government spending jihad.
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