Friday, July 20, 2012

Bernanke Is Killing Savers

Financially that is. Interest rates hit another all time low this past Monday. Yield on the 10-year Treasury note reached a whopping 1.46%. The average interest rate on a 5-year CD was 1.09%. It is as the Fed passed out to all of its governors t-shirts that read, "PLEASE do not save and invest."

10 Year Treasury Rate Chart

Sadly, increases in savings and investment is precisely what an economy trying to recover from a bad recession needs more than ever. The malinvestment that culminated in the bust of 2008-09 resulted in massive capital consumption. What the economy needs is for our stock of productive capital to be rebuilt. This can only occur out of savings and investment. If the Fed is basically telling people not to save by keeping interest rates so low and by attempting to prop up unwise investments, we have should expect nothing other than anemic economic performance in the near future.

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