The Fed’s ‘repression’ has cost savers $470 billion, Swiss Re argues

[marmar]

WASHINGTON (MarketWatch) — Artificially low interest rates have cost U.S. savers $470 billion, according to a report released Thursday.

The report, from reinsurer Swiss Re SSREY, -1.94% SREN, +0.16% , argues against current high levels of so-called financial repression.

Swiss Re came up with the $470 billion number by looking at rates from 2008 to 2013. The insurer argues that if the Fed had followed a policy based on the Taylor Rule — a mechanistic way of determining interest rates that some congressional Republicans advocate — the Fed funds target would have been 1.7 percentage points higher on average.

That in turn would have boosted interest income by an average of $14,000 for the wealthiest 1%, and $160 for the bottom 90%.

The report concedes that there are obvious beneficiaries of lower rates too, through lower mortgage rates, higher house prices and a rising stock market. The boost to household wealth from house prices was an estimated $1 trillion and from the stock market was an estimated $9 trillion — dwarfing, then, the $470 billion hit on savings.

The report points out, however, that since the rich are more likely to own stocks, and have pricier homes, this has aggravated inequality. .................(more)

http://www.marketwatch.com/story/financial-repression-has-cost-savers-470-billion-swiss-re-argues-2015-03-26

[Nuclear Unicorn]

1. Well, yeah. The entire plan was.to make savings less attractive than investing or borrowing.

That means, by design, savers have to lose.

Of course.it also means investors aren't as discrete with their money and lenders are lending more but with less capital in reserves. One miscalculation and we're in worse shape than what precipitated the policy.

[upaloopa]

2. Savings always pay less than investing

because of lack of risk.
The low interest rates made owing a home more affordable

[Nuclear Unicorn]

3. Admitted without argument but the rate is being artificially forced lower.

The low interest rates made owing a home more affordable

Assuming the borrower can repay in the first place. However, if too high a percentage become troubled borrowers the banks are under-capitalized because savings is so unattractive -- because of the artificially low returns.

Once upon a time banks only lent money that had actually been deposited. Now they are being encouraged -- if not outright compelled -- to loan the same dollar over and over and over and over again assuming each borrower will, in turn, repay.

We are begging for a disaster.

[upaloopa]

5. I don't agree with that. Banks are flush with cash

as are many corporations. There is nothing artificial about what the Fed does.
There is little if no inflation and employment is improving. There is no reason to raise interest rates.
Savings and investments are not in conflict with each other. A person with extra cash decides on the amount of risk they want to take on and how much return they hope to get. Based on that they put the money in a savings account or in bonds or equity stocks. This whole OP is misleading and worthless.

[Nuclear Unicorn]

7. It's cash that may as well have been pulled from a Monopoly game.

Cash is supposed to represent economic activity. As activity expands the currency supply expands with it to keep pace.

However, the fed strategy was to sell currency at reduced prices to the banks to incentivize their putting currency into circulation to spur demand hoping, in turn, that would increase productivity allowing the reverse situation of economic activity to expand to meet currency supply.

Since that relies on a lower prime rate savers have suffered. Banks aren't being capitalized by savings, the result of actual economic activity; they're capitalized by money waiting for something to happen.

That something is currency speculation, not growth. The speculators know what fed policy is so they know how to bet. It's like playing poker against someone who announces before each had that he's taking a pair of 8's. That's why Wall Street is having a field day while workforce participation remains depressed.

[dawg]

4. The upper classes have always been violently opposed to fiscal stimulus, now ...

they are opposed to monetary policy as well.

Move over Keynes, now you've got to make room under that bus for Milton Friedman.

[geek tragedy]

6. of course bankers want higher interest rates nt