Times Online: Punish Savers and Make Them Spend Money
Wow. I don't know where to start. Let's go with this:
Did you know that if you're saving money, you're a socialist? And that borrowing 'til the banks say "no mas" is the path to freedom? Yeah. It was news to me, too.
I understand the "replace weak debtors" theory, but it's crap. You're asking savers (which does not describe the U.S. government at all, by the way) to step up and borrow. Profits from this "stronger" borrowing then eventually "pay" the bills of the weak debtors — they "take the losses" that the banks cannot, as it were.
If that's what it takes to stabilize the financial system, you can count me out. It's time for a full-on reset.
Right. Which is why U.S. public debt tallied over $530k per household.
Sounds like someone has confused "well-managed" with "well-expanded." Here's one difference: Well-managed debt won't bring about insolvency if (when!) interest rates rise. Well-expanded debt, on the other hand...
More reinforcement of the idea that saving is a Marxist thing to do.
Well, he's right on this part. It is indeed a race to the interest-rate bottom. Good thing there are never any unintended consequences for this sort of policy.
Well, the interest rate on my ING Direct Electric Orange checking is now .5 percent. So yeah, that might as well be zero.
But with my savings collecting 2.5 percent, I'm at least content. Those savings aren't about "income," and never will be. They're about being prepared. They're about stability. Things which the bailout-begging debt-bingers Mr. Kaletsky seems so enamored with will never understand.
That's a tremendous idea. Do it, and I guarantee you every penny I have in any bank comes out and goes in the mattress. You want bank runs? Guess what — you got 'em.
Cost free? I've got news for you, pal: There are always costs. They just may not be of the interest-bearing sort.
At some point, the more a debtor — whether it's your next-door neighbor or that profligate entity in D.C. — needs low-interest financing, the less it will be available. Risk will surface somewhere, and lenders will require that they be compensated for it.
As I write this, 10-year U.S. treasuries offer a yield of 2.41 percent. The 13-week t-bill yields .07 percent. In historical terms, these figures are "on the floor."
Low yields like these mean the prices of those bonds have headed for orbit; i.e., folks are willing to pay up in order to have the AAA-rated safety offered by the U.S. Treasury and its current and future taxing authority. (They're front-running the Fed, too, who as mentioned above have said they'll be buying long-dated bonds in order to further depress rates. Can't allow credit rates to be priced correctly for any increased risk, can we?)
One might argue (with validity, IMO) that this country, after so many years of living beyond its means, is at an important juncture: We can no longer function without (1) dirt-cheap credit, and (2) a bubble existing somewhere.
That current bubble, some maintain, is in government debt (t-bill yields low = prices high).
When this bubble pops, interest rates and debt-carrying costs will rise substantially. Perhaps very quickly. Even the most heretofore highly-rated debtor countries will have big, big problems on their hands.
Their lenders will, too, though. It's mostly a matter of who flinches first.
"If you owe the bank a hundred bucks," the old axiom goes, "and you can't pay, you have a problem. If you owe the bank a hundred million bucks and you can't pay, the bank has a problem."
If you're a saver and owe nobody, you're mostly out of that loop. You have no problem. Except, of course, for the fact that your socialist savings habits will have to be taxed into extinction by entities who never met a spending project they didn't like.
I only thought Fred Thompson, in his "We can't afford to save" video, was being facetious. Turns out I had it all wrong.
No, the guy was prescient.
Mr. Kaletsky, obviously, would attest to that.