Thursday, June 19, 2003

Seattle Times editorial columnist Bruce Ramsey makes a very perceptive observation today: the rock-bottom interest rates of today mean Americans have even less incentive to save than ordinarily.
I have been a customer of a certain money-market fund since 1979. I remember when the fund paid 14 percent. Perhaps that was excessive, though it didn't seem so at the time. But 0.96 percent? Give me a break! After taxes and inflation, it is less than nothing. My saved wages dribble away like antifreeze from a rusty radiator.

Millions of Americans are now presenting their savings to American industry as a gift. The likes of Ford Motor Credit and General Motors Acceptance Corp. offer car buyers great deals on financing, squeezed from the owners of money-market funds. Banks, posting a prime rate of 4.25 percent, haul off our saved dollars like bales of old newsprint.
This is an interesting side-effect of the Fed's monetary policy since 2001. Americans save less and spend more to "boost the economy," and yet the massive and ever-increasing current account deficit means foreigners, not Americans, must finance a larger and larger proportion of economy activity in the US, which puts pressure on the US net investment position and ultimately on the dollar.
The bond bulls point to Japan, whose savers suffer under a 10-year yield of 0.4 percent. "At that rate, you double your money in about 180 years," Grant said. "Before taxes."
All this money with nowhere to go but speculating on the stock market and inflating the housing bubble. In fact, these have become the sites of "saving" in the US. Too big to fail? Or a hard rain's gonna fall?

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