Americans have no savings, with good reason: housing, education and health care costs are out of control, wages are stagnant, and the Fed has suppressed interest rates


#1

Originally published at: https://boingboing.net/2017/12/09/avocado-toast-poverty.html


#2


#3

If you do have savings and need a non-brokerage place to stow it:

I use Synchrony Bank for my emergency fund and other mid-term savings.

It used to be MetLife Bank, then a GE bank.

15 month CD is 1.65%; high yield savings (accessible by debit card) 1.15%, Money Market (accessible by check book) .85 %

I keep just the month’s expenses and short term emergency money in my local credit union.


#4

And here commenters were laughing/concerned about us discussing easy less painful suicide methods a week ago.


#5

Which political party, based on the last ten years’ experience, is liable to allow interest rates to rise to where small savers will benefit?


#6

It will be tough to pay 5 percent interest on $20 trillion of fedgov debt, y’know. That is why interest rates are being kept at next to nil.

"The federal government can raise aggregate demand, either through direct public investment or by getting more money into consumers’ pockets through welfare state spending. "

Well, we added $10 trillion in deficit spending, plus another ~$8 trillion in ZIRP funny money, from 2009-2016. And the economy seems to have gotten bugger-all better. So something else has been in play.


#7

This particular time bomb will explode when a critical mass of Boomers can no longer put off their retirement even if they “want” to keep working (a lot of their retirement funds were wiped out in 2007-2008). As with so many other things, that generation as a whole* will sacrifice the futures of their children and grandchildren in order to maintain their present (and past – this is also Generation Neoliberalism) comforts.

[* individual behaviour varies – this is not about you, Boomer Happy Mutant]


#8

Also (new) mortgages. If interest rates rose, more people would not be able to finance such expensive homes; while it would be nice to decrease housing prices, much or all of the savings would be eaten up by interest payments. (In the long term it might bring back saving for substantial down payments, but in the near term it would be a huge pain.)


#9

Of course, our policy for the last ten years has been to incentivize speculation and punish savings.

I’ll throw my heart and soul behind the first political platform that uses this graphic:


#10

If you also look at the socio-political view of this scenario, a more accurate view of American prosperity for the voter would be a death knell for conservative and neoliberal politics. Not only has government secured loans made the profit margin of the wealthy continue to grow while the income of their consumers are stagnant, it has made people complacent. This has fostered the "i got mine screw you’ attitude boomers have. This generation has been tamed and housebroken.


#11

‘Last ten years’ is a pretty selective window. Seems that both the Dems and Republicans (edit: and really, most of Wall Street) have been embracing this perverse approach to macroeconomics for much longer than that.

I say ‘seems’ because I am a neophyte of macro and no amount of reading of the finance section of The Economist seems to have furthered my knowledge all that much.

I’ve also read that my grandparents could afford a nice starter home on just three years’ income from full-time work on the average wage. That’s concrete to me and to many others who do not have a B.A. in economics.


#12

This is the biggest non-sequitur in the history of non-sequiturs.

Congratulations!


#13

How? Politicians help set policies and laws that shape our economy. Are you saying that we shouldn’t vote?


#14

The problem is that an interest rate policy that benefits small savers will benefit those with a metric shit-ton of money even more. The benefit of higher rates is largely on the restriction on credit, and choking back on peoples ability to borrow their way to the poorhouse. It would also have the salutary effect of forcing down the prices for big-ticket items that are usually bought with borrowed money, like houses and college degrees. The current prices for them can only be supported by the current low interest rate, low lending conditions. Optimists borrow money, but the real optimists are the people who lend it to them. The degree of debt and lending is in a “vicious cycle” with the concentration of wealth. The wealthy* are increasingly unwilling to PAY people, but are ever-more willing to lend to them. The more money that they have, the more they have to lend, preferably (for them) at either high interest (credit cards, payday lending etc.) or securely (education, because you can’t discharge it in bankruptcy or home loans, because they are secured by the value of the house) But of course loans have to be paid back with interest, which just makes the people who have borrowed ever more insecure, financially speaking.

We really ARE approaching a concentration of wealth and power that resembles third world tin-pot dictatorships. Trump’s election was just another sign of the increasing level of political and financial instability that comes with that kind of economy. At some point, that level of concentration tends to get all non-linear and wonky, and you have a revolution of a kind, hopefully of the not violent type. The great depression and WWII led to the 50s and 60s, which at least for the middle class, were economically pretty good times.

I think that we are going to see another re-alignment of the political parties back to when they were mostly differentiated by economic, rather than social issues, like they were until the 60s and the “Southern strategy.” Both parties had economically populist revolts, and it is a sign of the fundamental weakness of the Republican party that they were the ones where the insurgents elected a president. My hope is that the more socially liberal Democratic party can return to its economically populist roots, because I don’t want to choose between populist bigotry on the one hand and oligarchical liberalism on the other.

Edited to add footnote
*Really, if “corporations are people, my friend,” then they are wealthy people. CEOs and boards of directors are with rare exceptions members of the 01% club and most of them got there by winning the “rich parents” lottery at birth. We all love a rags to riches story, but they are very much the notable exceptions to the rule.


#15

This post gets interest rate policy wrong. Low interest rates encourage borrowing, which increases the money supply. That aids inflation; raising interest rates is usually seen as a way to slow down the economy. This is how Paul Volcker famously brought down the high inflation rate of the seventies, by raising interest rates and throwing the economy deliberately into recession. See this e.g.

In the current climate the Fed has kept interest rates low to encourage investment (to little avail), and raising interest rates is seen as a way to stop inflation (depressingly absent) from appearing.

But high interest rates require high return on investment, which requires high productivity growth. That is not happening. While it would be great if we could save at 11%, the current economy can’t support that.


#16

Thank you. It’s painful to see everyone launch into a discussion of interest rate policy after such a basic error as that.

It used to be, that if you got historically high levels of inequality, you could lower rates and try to inflate your way out of it (Piketty talks about this in his book). Alas, that doesn’t work anymore. If it were possible for interest rates to really go negative, more than a tiny percentage, that would be a good thing!


#17

@simonize, @astazangasta, and @john_c:

Any resources–books, websites, podcasts, etc–that you’d recommend for someone like me who’d like to understand modern macro in order to make more sense of these discussions?


#18

I’m agreeing with this, only I would leave out the ten year thing.

I think people should vote if they feel so moved. But no matter who is in power, no one is going to have the courage to raise interest rates and risk pissing off homeowners, wanna-be homeowners, people who don’t want unemployment to go up, etc. I’m afraid I think Volker and the cover he was given was a once-in-a-lifetime occurrence.

For most of my adult life Fed policy has been:

  1. low inflation (which I agree with, for reasons of stability and predictability)
  2. as much employment as possible under the constraints of #1
    .
    .
    .

324 encourage savings.

After spending waaaay too long at zero interest rates monetary policy is now completely boxed in. Which politician in charge is going to do little to change that, IMO.


#19

Being older makes me think that inflation is rampant, because I compare with prices from 25 years ago. But, in reality, it’s just an effect of compound rates. Looking at this Wikipedia chart, it strikes me that for the last 40 years the CPI has grown almost linearly, instead of exponentially, as it would have with a constant annual CPI change. Weird.


#20

Oh, that’s a hard question. I read a very old macroeconomics textbook years ago, and then have been trying to “modernize” my understanding ever since, by reading various news articles, mostly. The base-level knowledge is extraordinarily dry stuff, no way around it. I think maybe I’d try Khan Academy for that. The Paul Krugman blog is pretty great for making sense of more recent trends. I’m also a fan of Joseph Stiglitz and his books.