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The war on savings - stpioc - 03-12-2016

The war on savings, that's what market fundamentalist often call the unconventional policies of the Fed after the financial crash in 2008. They also argue that the Fed is responsible for the huge increase in inequality. See for instance the very first comment in an article here:


Quote:Inflation is the friend of those who want to keep running debt and printing money which includes the government and central banks. It is not those with money especially at these rates. The Federal Reserve should stop lying. They are essentially bankrupting the baby boomer retiring class to keep bankers junk debt loans they are choking on afloat. Stop it already.

Now let's see who actually saves. Below you see how, from the mid 1980s (after the recovery from the recession), the saving rate is going down for the bottom 90% of households
[Image: 191022_14527966182417_1.jpg]

You see that the savings rate of the bottom 90%(!) of households, after even going negative in the decade before the financial crisis went negative, and is still essentially zero. Since US households save on average is a little above 5% (see figure below).
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[Image: united-states-personal-savings.png?s=uni...603120407n]




This means that basically all the savings come from the top 10% of households, which means that they save far in excess of 5% of their income. 

This basically means that the Fed policies is hurting the rich and favoring the bottom 90% of households, who are also likely to be more in debt so the Fed's efforts to get inflation up would also benefit them.

Of course, this is not a complete picture, the top 10% also hold far more financial assets, which have benefited from unconventional monetary policy, but it does show that it is nonsense to argue that the Fed is bankrupting the baby boomer class in its "war on savings"


RE: The war on savings - fsilk - 03-19-2016

Nice work there, stpioc. The 'funny' thing is, after years of flat out denial, the Republicans only now discovered inequality as they can blame it on the Fed (and Obama), and exploit the anger..


RE: The war on savings - stpioc - 03-20-2016

If You're Over 65, You Should Love the Fed

MAR 18, 2016 7:00 AM EDT
By Narayana Kocherlakota

Conventional wisdom suggests that monetary stimulus is particularly bad for senior citizens: When the Federal Reserve holds interest rates low, retirees tend to get less income from their nest eggs. Over the past eight years, though, they've done a lot better than this simple logic would imply.

Consider the amount of goods and services that seniors consume -- an important indicator of their well-being. According to the Consumer Expenditure Survey, the average household headed by someone aged 65 or older consumed 5 percent more in 2014 than in 2007, adjusted for inflation. That compares to declines of 5 percent for all households and 7 percent for households headed by someone aged 35 to 44.

Averages, of course, can be driven by a small number of households. That said, the apparent rise in seniors' consumption mirrors an increase in median pre-tax income: Families headed by someone aged 65 to 74 saw an inflation-adjusted gain of about 5 percent from 2007 to 2013, according to the most recent (2014) version of the triennial Survey of Consumer Finances. For families headed by someone aged 75 and over, the increase was 10 percent. By contrast, families headed by people aged 35 to 44 and 45 to 54 suffered declines of 4 percent and 17 percent, respectively.

If low interest rates have posed a challenge for seniors, why then have they done relatively well in terms of consumption and income? I can think of at least four reasons:
  • The disappointingly slow wage and employment growth of the past decade has had less impact on seniors than on younger folks.
  • Seniors’ social-security income rises with inflation, maintaining their purchasing power. It doesn't, however, decline when prices fall -- a feature from which they profited (modestly) last year.
  • Many seniors own annuities or bonds that provide them with fixed payments. Because inflation has been surprisingly low, they’ve gotten more purchasing power from these fixed payments than they could have expected.
  • Seniors hold more assets like stocks, bonds, and homes than do younger folks. All of these assets have appreciated a lot over the past seven years, providing seniors with a source of spending money that offsets some of the effect of low interest rates.
All this suggests that the Fed's policies over the past seven years have actually favored seniors. After all, we should assess the appropriateness of monetary policy in terms of macroeconomic outcomes, not in terms of the level of interest rates. And when we judge by outcomes, we have to conclude that monetary policy has not been appropriate for the economy as a whole, because inflation and employment have been too low. Unduly tight monetary policy has systematically shifted the distribution of resources toward people who are not working and who receive payments that are, in large part, not indexed to inflation -- that is, toward retirees.

The tilt of monetary policy toward seniors makes a sort of political sense. I suspect that most Fed policymakers receive relatively little input on the economy from people who are younger than 40 (this was certainly true for me when I worked there). There is also pressure from Congress for the Fed to make choices that favor seniors, as suggested by the questions legislators pose to Chair Janet Yellen.

The aging of the population will be a defining characteristic of the U.S. economy for decades to come. This will probably increase the pressure on the Fed to make monetary policy choices that lead to unduly low inflation and employment. If they want the economy to achieve its full potential, policy makers must resist.