Federal Reserve Punishes Savers

With QE1 and QE2, the Federal Reserve has tried to stimulate jobs and put a floor beneath stock prices. Inflation is rearing its head, and corporations are showing profits and starting to hire a bit again, but after QE2 … then what?

Most Americans are trying to save money now and pay down debts. Jobs are in jeopardy, and the economy is still shaky. The FED has been running a negative interest rate policy that has punished savers at the expense of borrowers. Big banks, such as Bank of America, are paying savers .05% on savings, and credit card companies are charging 14% interest while mortgage payments are 5% and up.

With inflation rearing its head, who can save money after daily expenses? And who can make any money on their savings with CD rates, money market rates and bank rates so low? Banks are being given access to  FED funds at near 0% rates, and are not loaning the money out but investing in stocks that pay dividends.

The American consumer is getting screwed. As purchasing power falls, that money is going to the bank bailouts, those same institutions that caused the mess in the first place by approving mortgage loans that they would  never originate if they had to keep on their own books.

So what will the future bring?

We look forward to a time when jobs are relatively safe once again, even though we know unemployment will have a new, higher steady rate, and people can live off their savings.

This whole fiasco has not been a “failure of capitalism” as often touted but a failure of regulation, and self-policing by financial powers. The problem of great recessions or depressions always contains a degree of too much debt or too much leverage, and that’s what happened hear yet again as the government tried to give a blessing to the financial sector, hoping it will replace the job losses from the decline in the manufacturing sector sue to offshored jobs. But with banking so went housing, and then construction and everything else.

Until the decks ultimately clear and there is sufficient deflation in housing prices, and necessary bankruptcies to clear debt levels, you and I will be paying for the past profit-maximizing activities of banks whose executives turned aside from the issues as to whether what they were doing was right, rather than just legal or mathematically correct. In the meantime, the FED is subsidizing the agents that got us into this mess, and penalizing the savers, the little guys, who did nothing to cause it but must bail out the big boys.

It might be necesary to save the economy and the whole system, but also doesn’t seem quite fair.