STOP your bellyaching.
That was the message delivered last Thursday to Americans who today make almost nothing on the savings in their bank accounts.
It came from Sarah Bloom Raskin, an insider at the Federal Reserve. Ms. Raskin, one of the governors on the Fed board, made the usual disclaimer that her comments reflected her own thinking. But Fed watchers said her remarks probably mirrored views inside the central bank.
The issue — as anyone looking for income-producing investments knows — is that the Fed drove down interest rates to almost zero to shore up big banks and an economy that those banks helped drive off a cliff. Now savers, who did nothing to create the financial crisis, are being punished.
This is one of the more troubling paradoxes of the Fed’s rescue of the financial system. And, according to Ms. Raskin, it is likely to continue for some time.
So suck it up, America: If it’s good for the financial system, it’s good for you.
Read it at The New York Times
By Gretchen Morgenson
Early in Econ 101, when students are introduced to opportunity cost, they learn that economics is generally not win-win and is often zero-sum — "you can't have your cake, and eat it too." Rather economics involves making reasoned choices among various options. This often results in trade-offs involving costs and benefits, efficiency wrt means and effectiveness wrt policy goals, with some rivals winning and others losing.
In the case of monetary policy, savers are being told that not eating their cake is required to save the bakers who make the cake, that is, the banks that create credit and the financial system that allocates capital. These institutions are integral to the economy while Joe and Jane Saver and their children are much less important when considering the big picture, as the Fed has to do in setting monetary policy.
What they are not told is that this is unnecessary in the first place, and secondly, that it has shown itself to be ineffective. MMT economists would also argue that it is actually counter-productive because it reduces interest payments to non-government and leads to a decrease in non-government net financial assets that would add to effective demand if paid out.
What savers should be told is that monetary policy is ineffective in stimulating effective demand in downturns in comparison with fiscal policy and the opportunity cost of choosing monetary policy over fiscal policy under present circumstances not only disadvantages savers but also hobbles the entire economy through ignorance or cronyism.