Abnormally low interest rates have hurt savers.

If a saver has worked for twenty years to earn $100,000 and they have put that money in the bank at zero interest, how much money have they lost when the usual rate of interest in the United States during its history has been about 5%?  According to www.thecalculatorsite.com, the $100,000 saver has not earned $49,178.38 over eight years of zero interest (compared to 5% interest on their capital compounded monthly).

That’s a really big “tax” that savers have paid to the Federal Reserve over the last seven years.  And it bites into people’s retirement money and undermines the value of the work that they did to earn that money.  It also undermines the practice of saving money in a bank (which can be lent out for productive investments).  It also reduces the person’s economic freedom to earn interest on their capital (capital has a proper cost).  What a crazy economy!

As the government continues to promise more “programs” it is useful at this time to consider saying “no” to all of them.  It is government overspending and government debt that led to the Federal Reserve zero interest rate policies that have been followed since 2008.  More government overspending will not fix the non-productive parasitic economy that Americans are struggling under right now.  If you are curious you can go to the site listed above and see how much money you aren’t making on whatever amount of savings you have in the bank.  Even if you don’t have any savings, it’s bad when other small capital holders that have saved money can’t earn interest.  That’s because no interest policy freezes-up the once ordinary opportunity to earn a fair return for putting money in the bank (and bank deposits offer up capital for community borrowing).

The current Federal interest rate of 0.75% is still woefully poor payment to savers.  Interest payments on $100,000 at 0.75% for a year ($752.81, interest compounded daily) as compared with the more usual 5% interest rate over U.S. history ($5,126.75) would yield a shortage of about $4,373.94.  If you add that to the last several years at zero interest rates, the total money lost to the saver of $100,000 is $53,552.32 since severely low-interest rates were adopted experimentally by the Federal Reserve.  Some people have taken a political position and said that savers should put their money into the stock market instead of into a savings account.  But an artificially sustained stock market under QE isn’t an attractive investment for most savers.

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Note:  This “zero interest” from 2008 until 2016 is only an approximation for Federal Reserve policy which paid 0.25% from 2008 until 2016 when the rate went to 0.5%  (Wikipedia lists zero interest rate policy as having ended in 2015).  In 2016 the rate was increased to 0.75%.  Unfortunately, ordinary earnings at 5% interest haven’t been restored as of nine years since the Great Recession.  This hurts savers, especially the elderly, many of whom can no longer earn money by working.

For information on ZIRP, see: Wikipedia, “Zero Interest-Rate Policy,” accessed 10 Feb 2017.

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