Wednesday, March 7, 2012
"It's punishing savers"
I keep hearing people talk about how low rates are punishing savers. Okay.
If savings are a leakage to demand and we have a shortage of demand don't you want to penalize behavior that results in leakages? That makes sense.
The problem is, there is no direct channel between punishing savers and creating demand. People may very well decide to accept paltry--or even mildly negative returns--if risk aversion is great enough.
In addition, low rates are helping borrowers. That's something that they always forget to mention...double entry accounting. For every saver there is a borrower.