Photo: AP Images
One of the most powerful moments of Ben Bernanke’s press conference yesterday, after the Fed announced QE Unlimited, was when he refuted some myths about the actions taken by the Federal Reserve.He delivered his refutations just before starting the Q&A for maximum effect, pre-emptively taking on his critics.
Among the biggest concerns about Fed action is the idea that low rates “screw savers.”
People attack this on moral grounds (the Fed just shouldn’t be punishing savers) and on economic grounds (low rates are brutal for retirees, and so forth).
Bernanke had a good response.
Here’s what he said:
On the second concern, my colleagues and I are very much aware that holders of interest- bearing assets, such as certificates of deposit, are receiving very low returns. But low interest rates also support the value of many other assets that Americans own, such as homes and businesses large and small. Indeed, in general, healthy investment returns cannot be sustained in a weak economy, and of course it is difficult to save for retirement or other goals without the income from a job. Thus, while low interest rates do impose some costs, Americans will ultimately benefit most from the healthy and growing economy that low interest rates help promote.
So in other words: The main thing is that you can’t save if you don’t have a job, and that’s what the Fed is trying to address. Furthermore, there are lots of kinds of assets that do benefit from low rates.
When the economy returns to health, savers will be able to get paid, just like everyone else. But until then, there’s no special right to earn income on having money in a bank.
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