U.S. consumers are cutting debt and trying to conserve more money. A double dip recession is the primary concern for the federal Reserve which intends on keeping interest rates as low as possible. Record-low interest rates are fattening bank bottom lines. Low interest rates like these make it so banks pay less but nevertheless collect quite a bit on their loans meaning banks are making a lot. Endowments, investors, pensions and savers are very affected by this “invisible tax.” The Fed monetary policies cause much of this problem.
Little reward for saving money
Savers are getting the least amount of rates on savings account as possible. Bloomberg did a study with Market Rate Insight suggesting that 0.99 percent was about how much in July was paid towards interest on checking, savings, money market and certificates. America had 1,300 banks tested by Market Rates. That is where this number comes from. The report also tracked savings rate fluctuations between Jan. 2004 and July 2010. Savings rates decrease while national unemployment increases. If only unemployment would go down. Then savings rates would get to go up.
Banks make paying debt harder
Banks get a reward when citizens are punished with the near zero rate of interest from the Fed. Debt is hard to settle for those trying to save and have less debt. Daily Markets’ Larry Doyle explained that those with fixed incomes are having a bad time with low interest rates. You do not get any money out of savings accounts. Banks don’t have to pay hardly anything to borrow money. This means they’ll continue to raise interest rates on credit cards in order to get more money.
An invisible tax is what a low interest rate is considered
The Fed’s rate of interest policy may be causing more economic difficulties than it’s solving, according to Gretchen Morgenson at the New York Times. Morgenson talked to Todd E. Petzel of Offit Capital Advisors who gave his opinion. He thinks that about $350 billion a year is spent on this “invisible tax” the Fed has created. He got that figure by beginning with about $14 trillion in debt issued by the Treasury at an interest rate near zero. Rates have averaged 3 percent over time. It appears like it was too low when it was at 2.5 points. It needed to get fixed then. $350 billion a year in loss to savers, investors, pensions and endowments is what 2.5 percent of $14 trillion adds up to. 3 percent of disposable personal income and 2 percent of gross domestic product is lost.
Bloomberg
bloomberg.com/news/2010-08-24/u-s-banks-paying-depositors-record-low-interest-rates-market-rates-says.html
Daily Markets
dailymarkets.com/stock/2010/08/24/invisible-taxes-loan-sharking-usury/
New York Times
nytimes.com/2010/08/22/business/22gret.html?_r=2 and amp;ref=gretchen_morgenson
