November 30, 2021

Government Reserve’s Assault on Savers Continues

If the government does not protect the United states people from the Fed’s reckless monetary policies, then the public “could go on strike” and withdraw their money until banks pay us an industry rate of interest.

The front-page headline in the  Wall Street Journal   upon October 14 says it all, “ Inflation Is Back in Highest in over a Decade. ” The Labor Section reported that the Consumer Price Index (CPI) increased five. 4 percent from a calendar year ago.

This should not have already been a surprise to Federal Hold chairman Jerome Powell and his fellow board members neither to its hundreds of PhD economists who drill into the economic data to prediction the economy.

In 2020, when the US economy imploded under the lockdown orders of the federal government plus state governors, the Federal government Reserve’s balance sheet exploded from $4. 17 trillion in February 2020 to $8. 48 trillion in October 2021. In other words, the Federal Reserve bought over $4 trillion in mortgage-backed securities and US Treasury debt in less than two years. This increase in the Fed’s stability sheet in eighteen weeks is more than was bought in the first hundred-plus years of its existence. This unparalleled “ money printing” has already established enormous consequences for the economic climate and the American people, not the least of which is accelerating price inflation.

As the new money developed by the Fed diffuses through the entire economy prices rise in an uneven fashion. Economic areas and geographic regions are affected differently depending on the way the recipients of the newly received dollars spend them, an observation I identified forty years ago in my doctoral dissertation on the spread of inflation through the economy.

The broad measure of the money supply, M2, consists of money, checking accounts, savings balances, small denomination time deposit, and money market money. M2 increased from $15. 4 trillion in Feb 2020 to nearly $21 trillion dollars in Sept 2021— nearly a 33 percent increase in liquid assets how the American people have at their disposal to purchase goods and services in the marketplace.

Any PhD economist must have been able to conclude that opening the monetary spigot complete blast to “ stimulate” because of the lockdowns would raise prices down the road. We are at this point down that road. Cost inflation will probably continue designed for at least two more years. Once price inflation accelerates as it did in the mid- to late 1960s and then again in the early and late 1970s and early 1980s, it takes “ tight money” by the Fed to slay the price inflation dragon.  

Forty years ago was the peak of the double-digit inflation that began in the mid-1970s, when the Federal Reserve inflated the money supply to enhance the economy after the 1973– 75 deep recession. As well as the recession, double-digit inflation connected the US economy. In 1979, to obtain inflation under control President Jimmy Carter appointed Paul Volcker Fed chairman, who ongoing his tight money plan after Ronald Reagan was elected in November 1980. The fed funds price (the rate at which banking institutions borrow from each other immediately, controlled by the Fed) climbed to 22 percent keep away from 1980. Three-month Treasury expenses rates topped out at 16. 30 percent in May 1981, while the inflation rate was about 10. 00 percent. In short, savers were getting a considerable real rate of return on their T-bills and their own money market accounts.

Since the early 1980s the fed funds price has been dropping, not in the straight line, but more like a staircase. Currently, the particular fed funds rate is really a tad above 0 % while the inflation rate has clearly accelerated in the past year to more than 5 percent. The interest rate on bank money market accounts is 0. 02 percent at my bank. Inasmuch as I have a considerable amount of cash reserves— funds for your proverbial rainy day— We and tens of millions of People in america are losing hundreds of billions of dollars in interest because of the Federal Reserve’s super easy money policies.  

To rectify this road robbery I propose the Our elected representatives pass and President Biden sign the Savers’ Protection Act. The act would certainly state that if the interest rate on savings accounts, money market funds, and other short-term devices are less than the rate associated with inflation, savers will deduct the lost savings on their tax return. For example , if someone has $100, 1000 in a money market fund the account should pay out at least the rate of pumpiing for the year. Today that might be about $5, 000. I recommend a tax credit associated with at least 50 percent of the lost interest, $2, 500 or more.  

When the federal government does not protect the American people from the Fed’s reckless monetary policies, which have caused prices to speed up and have blown up another economic bubble, then the public “ could go on strike” plus withdraw their money till banks pay us an industry rate of interest. As every undergrad business student learns in the corporate finance course, the nominal rate of interest on a free of risk asset, such as a bank account, equals the real rate plus the inflation premium. The American people should earn 7 % on their savings accounts. I might be content at this time to earn the inflation price on my money marketplace account.

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