The Central Banks' Assault On Savers

Tyler Durden's picture

From Bill Buckler's Privateer:

The Assault On Savers

The best and most basic proof that NO central bank anywhere has the best interests of the actual producing economy of their nation as their focus is the assault on savers and saving. Sustainable economic "growth" is only possible in a situation where more is being produced than is being consumed. This "surplus" is savings which are in turn the life blood of production. When savings are discouraged to the extent they have been over the course of the GFC, one can be sure that the goal of those in charge is not a REAL recovery.

In the UK, Bank of England governor Mervyn King has been apologising to British savers for years over the "necessity" to hold interest rates at non-existent levels. Apologies are all that has been forthcoming. In 2007, savings on call in UK banks attracted an already low average rate of 3.15 percent. The average rate since early 2008 has been 0.94 percent. Since the Bank of England reduced its rates to their present 0.50 percent in late 2008, that average rate has been much lower. According to a recent article in the UK Telegraph, these rates have reduced the interest on savings by at least 70 percent since 2007. This, according to the article, has been done - "to protect an enfeebled economy from outright collapse". What it has done instead is to bring about an all but outright collapse among those who took the definition of the word "economy" seriously. It has impoverished UK savers, especially those on fixed incomes.

The situation is similar everywhere. In the US, anyone who has chosen to live within his or her means over the past four years has paid a heavy price. As is the case everywhere else, the Fed gets things precisely backwards. Their contention is that borrowing is essential for economic "health". In reality, the ability to borrow is the RESULT of the economic health displayed by those who have savings to lend. But what the Fed and the other central banks want to "save" is not the economy, it is the financial system and the imaginary prices of financial assets which form its only foundation.

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Racer's picture

And with inflation way higher than the interest savers are getting, they are in fact paying the banks to hold their money...

Put it in gold or keep as cash under the mattress instead... it will be far safer and the banks don't get to lend it out at massive rates of interest or gamble it away.

Silver Bug's picture

The Inflation war is raging all around us. It is amazing how many people can't see it through the flames.

 

http://ericsprott.blogspot.com/

trav7777's picture

Too bad there isn't a junk button for the fucking OP.  This article is utter GARBAGE.

Where in the HELL do these morons THINK that the money comes from to PAY the stupid coupon on savings?

What, 5% growth is an ENTITLEMENT because you have acquired some shit?  Gold doesn't pay a coupon and NEITHER DOES MONEY.  Unless things produce, they generate nothing.  The days of the compound interest lending ponzi are finished.

devnickle's picture

Trav......
Every post of yours on ZH confirms you are a troll and asshat.....

devnickle's picture

Trav...... Every post of yours on ZH confirms you are a troll and asshat.....

 

Sorry. Browser crash

Popo's picture

Trav,

You're own argument is contradictory.   The ponzi consists of the repeated unbacked emission of currency and the creation of debt.   The "days of compound interest", as you call them, were actually a reflection of lower growth (ie: less of a ponzi) and a much more accurate valuation of risk.

The current interest rates do not accurately assess risk, and as such they are simply creating soon-to-be-obliterated bubbles, that will collapse the global economy as soon as the ponzi (ie: low interest rate money-pump) is turned off.   

IN A HEALTHY CREDIT MARKET, IT IS THE MARKET THAT DETERMINES THE COUPON.    NOT THE CENTRAL BANK.  And ONLY the market can accurately value risk.

What we have in America is not a market.  It's a circle-jerk of primary dealers, the Fed and the Treasury, all taking turns in the middle of the circle.

To take from savers is to *rob* the productive classes and give to the non-productive entities who represent a drag on growth.

My question to you is:  Where do *you* think the money for the coupon comes from?  The unbacked emission of currency???  God, you're an idiot.

Popo

centerline's picture

While I agree with the principles you are pointing out in the context of the current system, they do not account for the fundamental problem that the basis of the system is that of perpetual growth.  It is by nature exponential, requiring a system reset or renumeration at some point.  Cycles, just like so many other things in this world.

This particular fiat run coincided with the industrial/technological age, fueled by cheap and abundant enery (oil).  Population growth charts illustrate the predicament quite well.  On top of this consider social complexity in the developed world... moving from somewhat weak (pre-industrial), to robust, and becoming fragile at the extremes of today (i.e. simply consider supply chain mechanics for a major city).

The inescapable truth is that the mathematics of the world economy do not allow for contraction because the nature of the compounding system is to progressively pull future earnings forward.  And the contraction that is being brought about by real world constraints isn't something that can be papered over (at least not permanently).  The current system has hit a debt saturation point, wherein no future earnings can conceivably be pulled foward and defaults can no longer be avoided.  Right now is nothing more than a state of limbo where CBs are essentially imploding in slow motion trying to avoid defaults.

 

jerry_theking_lawler's picture

yep. correct. the market was doing its job....rates were rising to combat excess money and inflation....but then comes the Fed/Tres....both knew it would be the end of their reigns if left unchecked....rates can and will not rise under the current system. the debt levels can not be sustained. markets will never prices interest rates again under this system.

buy assets, PMs, and maybe a ticket out of the US.....Singapore IS a beautiful place....and may have a real gold/silver exchange soon.

trav7777's picture

this is ABSOLUTE horseshit.

Rates went to infinity because the system became insolvent.  Nobody would lend nor borrow at prevailing rates.  Lockup.

The Fed is offering money at rates that it can find takers at.  It HAS NOBODY lining up to borrow at even ONE percent.

Japan hit this point 20 fucking years ago and you people still can't figure out wtf causes it?  Still bleating over demanding your ENTITLED interest on your stupid "savings"?

As if your money should just "make money" as a function of its existence?  News flash:  the banks have to find borrowers for your money at a rate HIGHER than what they can offer YOU to borrow YOUR money (which is what a fking savings account IS).  If they cannot find borrowers at 4%, how can you expect 5?

If you don't like it, FEEL FREE to advertise your money for loan at 5% and try to find creditworthy borrowers as takers.  You'll find NOBODY because there are people offering money at far lower rates. 

If ANYONE borrows money at 5%, they HAVE TO EARN more than that.  As a company, there simply ARE NOT enough opportunities out there to earn this type of ROI.  In the aggregate, the USA cannot support higher than 0% interest because there is nothing much left to DO that will earn a profit.

trav7777's picture

DUDE, are you fuckin STUPID?

The coupon for your stupid savings comes from LENDING IT OUT AGAIN AT INTEREST.

The entire SYSTEM of "money making money" that asshats like YOU and the OP think is some kind of fucking entitlement are the problem.

You morons seem to regard NOT GETTING your entitled 5% as some sort of egregious insult...never ever bothering to think about how the fuck the bank could afford to pay you to hold your goddamned savings.

What, just for the fuck of it, money should earn some big ass coupon?  Why don't you people with your stupid fucking savings GO LEND YOUR OWN MONEY and see if you can get 5% on it.  You won't have any takers.

The MARKET IS deciding the coupon; there are NO TAKERS AT ONE PERCENT, which is WHY the Fed LOWERED RATES to try to find more borrowers.  You go ahead and try to find takers at 2%; THE FED CAN'T EITHER.  You honestly think the banks are in the business of GIVING their product away? 

TAKE from savers?  WTF?  By NOT paying a coupon?  Savers would have been COMPLETELY wiped out already had it NOT been for the Fed's printing.  All their loans to insolvent institutions (savings accounts) would be VAPORIZED by now.

The reason idiots are losing their asses is because THEY DON'T HAVE SAVINGS.  They have LOANS to INSOLVENT institutions (bank accounts) in the paper notes of a BANKRUPT STATE that they just THINK are savings!

dcb's picture

I usually don't like to get involved is silly discourse, but you are so off the mark it is astounding. Perhaps it reaches the level of an illness.  you really have no understanding, as proof I shall put up something from the nytimes today by grechen morgenson. it's not all all that there aren't borrowers, it's that banks control the transmission mechanism and people can't get the rates the fed gives, but the banks get it and use it to buy assets. this is because the banks are insolvent, and the fed needs to cover it up so the value of the assets have to be inflated.

 

 

this is my comment:

Kudos for Ms. Morgenson for being one of the few writers on the NY times staff who doesn't give a free pass to the federal reserve. Ms. Morgenson does a great job writing about how the transmission mechanism of fed monetary policy does not get transmitted to the public. "“She blithely assumes that everyone who could refinance their mortgages at current interest rates has done so,” Mr. Todd said. “She ignores effects of credit scoring and outrageous fees banks are charging for those refinancings".

Lets be honest, Ms. Morgenson could have talked about credit card rates and fees as well, the difficulty getting small business loans, etc, etc, etc. I must voice a formal complaint to the nytimes editorial staff because when Mr. Krugman always points out how we need loose monetary policy I point out the transmission mechanism is where the flaw lies, but Mr. Krugman nor any other editorial writer addresses this issue. As usual economists think market structure is a topic beneath them that can be ignored, when it is in fact the single most important aspect of economics. Correct policy without proper structure to implement the policy fails

 

Summary: the article is about an officiual of the federal reserve explaining why these low rates are good for the economy, this is countered by the comments above from Mr. Todd.  the rest is my part. As you see the low rates don't get transmitted. the comment is so stupid, if there are no takers, how come I can't find a 5% credit card rate.

link to the article for everyone and yourself:

http://www.nytimes.com/2012/03/04/business/low-rates-for-savers-are-reason-for-complaint-fair-game.html?_r=1&ref=business

 

the rest of my letter.

Had Ms. Morgenson written the piece with a more critical eye, she could have pointed out why someone like Ms. Bloom Raskin in fact should not be in any official position of power, nor anyone like her.

"She said that less than 7 percent of household assets were held directly in certificates of deposit, savings bonds and the like. “Instead, the bulk of household wealth is held in stocks, retirement accounts, business equity and real estate,” she said. “For these other types of assets, rates of return depend primarily on the strength of the economy and how fast the economy is growing. Thus, these returns should be supported, over time, by the accommodative monetary policy that we have in place.”

40% of household wealth is held by the top 1% of wealthy, so her statement should prove to all that the wealthy receive the most benefit from accommodative policy. In addition, wealth is unevenly distributed, with the wealthiest 25% of US households owning 87%[2] of the wealth in the United States, which was $54.2 trillion in 2009.[3][4] While these assets are unequally distributed, financial assets are much more unequal. In 2004, the top 1% controlled 50.3% of the financial assets while the bottom 90% only held 14.4% of the total US financial assets.[6]
http://en.wikipedia.org/wiki/Wealth_in_the_United_S…

The above statistics clearly prove that the intent of federal reserve policy is to help the wealthy, If Ms. Bloom Raskin was interested in helping the majority her use of statistics would have clearly shown the flaw of her logic. Ms. Morgenson should have pointed this out if was aware of this statistic. Again a big thumbs down to Mr. Krugman the "economist" who always fails to mention that fed policy with the current flawed transmission mechanism benefits the wealthy much much more than the rest of the population.

I do no know what level of statistical data has to be given to the NYtimes in order for their editorial staff to point out the obvious, but at least allow someone the editorial space to point out the opposition view along with the data.

 

Zero Debt's picture

It may be you who are off the mark. Because if you think you are saving when you are making a deposit in a bank you are not. By making a deposit, or generally speaking, making a loan, you are a participant in the money market. The bank deposit is a loan to the bank. That is why it earns interest. As a compensation for providing the loan, the bank pays interest. Banknotes are not deposits and hence do not pay interest. And, they have no counterparty risk.

Now suppose that the Fed is there lending out money at 0% interest rate. Then, why should anyone who wants to make a loan do so at an expected 5% rate when the Fed only charges 1%, or even less. Of course you go to the Fed instead.

Why is that so? It is, because behind the Fed's newly created loans, there are no savings to back it. The Fed creates these loans without any backing of surplus wealth, e.g. gold. Obviously when economic actors do not believe the future will be greater than the past, demand for credit fades and you have fewer takers.

Also the point that a lot of money is in stocks etc has a lot to do with rates. There is a known crowding out effect in the sense that lower money market yields forces investor onto higher yielding money market instruments and stocks. So the picture gets distorted.

There is only one point of low rates: to keep expanding the money supply to pay the coupon on the outstanding debt. Nothing more. Otherwise those bonds would go into default and collapse the money pyramid.

Gold Dog's picture

Interest Rate = Time X Risk X Inflation

Bennie lending at zero ignores the above.

Zero Debt's picture

Not sure that this is relevant to Trav's argument.

Real hard (commodity) unencumbered money does not by itself pay interest. Or do you dispute this? Interest is only paid on loans. A deposit is a loan to the bank. Banknotes does not appear as loans on your balance sheet and they pay no interest. Unencumbered gold, which is not lent out or leased out, does not pay interest, nor does a barrel of oil, etc.

The coupon on savings must come from someone taking out a loan and generating a surplus elsewhere in the economy. This surplus may reflect the fact that the loan is paid back by money that appears to be coming from value added, but is in fact coming from systemic inflation of the money supply, or a genuine value added (or some blend of both). There is no clear-cut case in the sense that the coupon must come from either source or the other. In the case of the ECB, when a government is able to make its interest payments because ECB has bought its bonds, the coupon that those bonds are paying out indirectly comes from the inflation of the money supply, not from market participants who believe in the value of the bonds based on their fundamentals. So yes it is absolutely concievable that in many cases the coupon comes from central bank driven inflation, but not in all cases. Just to categorically refute that isn't accurate though.

Trav's argument contains an inconvenient truth which I think is the source of the emotional responses: Effortless sources of income will be drying up as more savers compete for yield, especially when central banks are flooding the system and thereby crowding out genuine savers that do generate a surplus in the physical economy. Ironically, lower rates rather imply that there is competition for good collateral. Good collateral would have to be some form of real, non ponzi quality value added business activity, not house flipping, leveraged bets, insolvent government bonds or funny Fed money.

 

Yankee.go.home's picture

+1 for the inconvenient truth.

Ayn Rand's picture

777    WTF are you babbling about?

trav7777's picture

see above.

The planet is filled with idiots.

dcb's picture

and you have managed to prove yourself one of the biggest. :-)

tmosley's picture

In a free banking system, the money comes from consumer spending.

Think about it before you start screaming and shouting.

trav7777's picture

where do the consumers get their money?

tmosley's picture

From their production.  But that's not the point.  

In a non-corrupt system, the money for interest payments comes from consumer spending.  Think about the limit cases.  If everyone saves every penny in the bank, then interest rates go to zero, because there is a great deal of suply, and no demand.  If everyone spends their money as fast as they can, then interest rates would be arbitrarily high because there is no supply of money to be lent.  Between is a sliding scale based solely on whether society as a whole has a preference for spending or saving at that time.

You keep harping on "exponential functions" as if that meant anything.  If people kept their money in the bank forever, interest rates would just go down until they hit zero.  There is no explosion.  No extinction.  No inevitable systemic destruction.

Urban Redneck's picture

The mentally challenged majority and the intellectually incapable 99% seem to have difficulty grasping the concept that those who have no savings and live deposit to deposit fare WORSE under central bank monetization.  The savers at least have a cushion of safety and relative comfort next to those who must wait for their next iHandout to meet basic needs- that is the sad truth of pointless wars, cult pseudo-science energy & GDP substitutes and Obama paying some fool's mortgage... Thank God the US isn't a democracy.

malek's picture

I wonder why Bill Buckler leaves out the prologue, at least in the cited passage.

When savings are discouraged to the extent they have been over the course of the GFC

Savings have been massively discouraged long ago, as for more then 10 years people were lured into accumulation of debt purely for consumption - the ultimate dissaving.

Now as we here all know the debt has piled so high it can never be paid back and the way central banks are attempting to solve the issue is by devaluating all the remaining real savings.

thatthingcanfly's picture

"Savings have been massively discouraged long ago, as for more then 10 years people were lured into accumulation of debt purely for consumption - the ultimate dissaving."

Exactly. I've never taken a loan to pay for a car, electing to save up and pay cash for my vehicles. But even a stalwart stick-in-the-mud such as I cannot deny being tempted by the low interest loans advertised in America these days. My bank, USAA (a fairly reputable one), is offering me 2% on a car loan. Good grief, with 9% inflation (Shadowstats, not BLS), I can take the loan today and pay it back over the next 60 months with less valuable future dollars - just like the Federal government is doing internationally with its debts. Why the hell not?

Because it's morally objectionable? That's sound enough a deterrent for me; but less so for seemingly all of my peers.

Everyone I know lives paycheck to paycheck, saving nothing. There's no incentive for it.

eddiebe's picture

You got it padner, I'm buying a house with property somewhere where the growin's good on a 30 year fixed...I figure in 10 years I'll be paying 30 cents on the dollar and by the 29th year a nickle. But then the bastards will probably change the rules long before then. I've ordered an industrial jar of vaseline with my last order of ammo.

Errol's picture

eddie, you are making the unwarranted assumption that your income will at least partially keep pace with inflation.  Unless you are one of the cronies of the government, you will be enjoying the 'benefits' of global wage arbitrage.

Peak oil means that everyone's standard of living must decline; winners will be defined as those who lose the least.

eddiebe's picture

Agreed, Errol. I'm betting as inflation continues to follow the money supply upwards, inflation rates will rise, which will cause wages and colas to rise. It's all a throw of the dice, but buying producing land with a dwelling at low financing seems to me as good a bet as any, including gold.

barroter's picture

Agreed.  Being a born skinflint Yankee I've saved and used cash instead of credit for over 90% of purchases.  Although saving generates nothing now.

I can remember people touting their new SUV, home or home theater system and I nearly had to say, "Do you own it or are you paying the bank back for it?" 

At least I outright own what I have, whatever that's worth now. Ah, it is worth something, I don't have the overseer slashing my back to work harder, as I have NO debt to pay back.

CuriousPasserby's picture

I don't save any dollars either. All the money that's left over each month I spend on gold or silver. Paycheck to paycheck, the dollars are gone.

smb12321's picture

Malek - Very astute.  The transformation has occurred in my lifetime.  As a boy I regularly saved & bought things once I had enough money. Now it's instant consuming via debt.  After all, you want to be happy like the grinning dunces on TV maxing their credit cards.

The switch from strong $/savings/low debt to weak $/consumption & massive debt has led to worldwide disaster.   I fear this will lead to loss of liberty, calls for "action" from the government, money printing and even tighter monetary control. 

trav7777's picture

yeah, the usurers have pretty much convinced everyone to behave like post-emancipation sharecroppers

Caviar Emptor's picture

It's just another word for slavery of the debt kind: never being able to buy your way out of the trap. Or in this case, never being able to keep up with the cost of living, working and doing business no matter how fast the hamster wheel flies. 

That's a story that goes back thouands of years. 

Biflation makes it all the worse: when you're standing in quicksand even the ground will eventually look high. In other words, even mild inflation has a high impact when your net worth, real income and return on savings are all sinking

Racer's picture

and if you are lucky enough to make a 'capital gain' most of it is in reality inflationary gains and they don't give you enough of an allowance to compensate... so they can tax you again through inflationary gains... either capital gains tax or inheritance tax after you have snuffed it and your children get to pay more tax instead

JohnKozac's picture

racer, 5 Stars for that one!

Seasmoke's picture

OWN AND SAVE NOTHING COMRADES !!

fonzannoon's picture

What is so hard about understanding that the Fed, and by extension most central banks MUST keep rates at zero? They must do this to limit the interest payments on their ballooning debts? How do so many smart people miss this simple thought?

Conrad Murray's picture

And why do people still think there is a need to pay taxes? The Federal Reserve Corporation's confetti can be printed at will. Taxes are a way to keep the poor poor, and the middle class from moving anywhere but down.

When one pays taxes, he or she is agreeing with the way government operates. It is sending the message, "Yes, I agree with the warfare/welfare state and I fully support it. Here is my financial contribution to the promotion of of these policies."

Stop paying taxes. Stop paying mortgages owned by the DC/NY Axis of Evil. Stop buying "things". Take all of your money out of the markets and banks. Run up as much debt as possible and default. Help bring about the collapse.

oldman's picture

Conrad,

Plus 1 million-1!!!!

You only missed one thing:

Stop voting and thereby paying homage to the myth of a rep[resentative government that only represents those few who pay for all of the drama that the sheeple are so addicted to----it keeps us out of the streets and that is the reason for the 'free elections' of our 'democracy' which might better be spelled 'DE MOCK RACY'.

yeah,

ONE MILLION minus one                         om

Hugo Chavez's picture

Nobody has missed it. Everyone knows why rates must be kept low. However this is punishing savers and the prudent at the expense of poor lending and borrowing decisions. The wrong people are being made to pay for excessive credit expansion. Lenders and borrowers should be the ones paying for their own mistakes. The moral hazard in a system that rewards bad lending and borrowing decisions and punishes savers will lead to huge problems down the road, not the least of which include apathy, cynicism, low productivity, and encouragement of criminal behavior in people who tried to olay by the rules.

trav7777's picture

again, this is WRONG.

There is NO MAGIC fucking source of interest out there to PAY the idiots who think they're "savers"!

If you don't like the rate your bank pays, FIND your OWN borrower who can/will pay you the coupon you want!

It's as simple as that.  Go do it and come back and talk to me.  There are NO TAKERS of credit at higher rates.

tmosley's picture

Yes, there is.  Money to make the interest payments comes from consumer spending.  If there is no consumer spending, then the loans at interest rates that are too high default, and new ones are made at lower rates.

Only a cretin like you would think something so simple is "magic".

oldman's picture

@Hugo

Compadre,

What is this 'moral hazard' I keep seeing at ZH?

It seems more to me like simple 'crony capitalism': one version of a criminal act----what is it called----- collusion?

I don't even know what this means either                om

Shibumi2's picture

sure, keep the rates at zero to make deficit spending easier for the political spineless political class.

 

THEN start raising the rates!

 

What is so hard to understand about that? Kind of like adjustable rate mortgage scam.

DosZap's picture

fonzannoon

How do so many smart people miss this simple thought?

 

Who are you referring to?, I wager 95% of ZH'ers KNOW this.

Doesn't take a rocket scientist to know that if there Fed increases rates, the intake of taxes and funds to the Gov, will not be enough to make just interest payments on the debt.

Sean7k's picture

Well, at least you were nice enough to explain it to him. I'm sure he felt it was a real epiphany.

smb12321's picture

Fonzannoon - You hit the nail on the head!! It is the skyrocketing interest payments no one is willing to discuss.  Citizens already avoid Treasuries - the biggest buyer being the FED.   Of course, it's killing pension funds and the like, forcing them to enter riskier and riskier investments. 

What is it when the government sells bonds to another government entity at interest rates set by that entity and the bonds are then "lent" to the government that will pay interest (borrowed, of course)?  Great post

trav7777's picture

fonz, you're wrong.

The Fed is a bank like any other...and credit is a supply and demand instrument like any other commodity.

Interest is paid by borrowing

tmosley's picture

lol, so the fact that the central bank can print infinibux at any time has no effect on supply and demand?

stopcpdotcom's picture

Picking your brains:

If you were to ask a UK government Treasury minister ONE question, what would it be?

Cheesy Bastard's picture

Would you prefer the guillotine or the gallows?