Wednesday, October 7, 2009


Geithner Lectures Americans on Saving More

The audacity of these people is astonishing:
"Everyone is going to have to come to terms with the fact that we are going to save more in the United States," Geithner said in an interview with German weekly Die Zeit, conducted on Sunday in Istanbul, and due to appear on Oct. 8.

"If the U.S. starts saving more, that changes the whole world's economic reality," he said, according to the German text of the interview.
Note that Americans have been trying to save more, but their efforts have been just about perfectly offset by the federal government's profligacy. (Paul Krugman had an unintentionally humorous post on this, where he charted this relationship--and claimed that the government had saved the day.)

Think of all the federal efforts designed to reflate the bubbles in our economy--they're trying to stimulate credit card purchases, car purchases ("cash for clunkers"), and of course home purchases. The reason they felt the need to "save the credit markets" was to keep people borrowing. And let's not forget the Federal Reserve's nearly 0% target interest rate.

I know, I know, Krugman et al. could give a very scientific explanation for why we need to borrow several trillions of dollars in the near term, but then we have to reverse it in the medium term. Still, Geithner lecturing us on saving more is a bit like General McChrystal deploring America's culture of violence.

I was at my bank last week, and the teller asked me if I wanted to put some of my savings into a higher-yield account. She showed me a printout of their weekly rates, for various CDs. I believe the highest APY for anything less than three years was about 1.8%, and required a $5,000 minimum deposit. The rate for their standard savings account, for any amount under $25,000, was 0.8%.

When talking to everyday people about the government's destructive monetary policies, I find this sort of example is much more illustrative than, say, pointing to treasury yields or Fed graphs. The numbers make it pretty clear why no bothers to save much.
You Americans aren't saving enough!

We steal your savings by taxing the nominal increase as "profit". We steal your savings by inflating away the value of the dollar. We discourage your savings by keeping interest rates low. We discourage your savings by giving tax credits for debt and spending. We make bubbles which wipe out your speculations and bail out our buddies and hand you the losses. And yet you don't save enough! How can you buy government debt if you don't save???

Really, this is all very complicated. Ruling the world is tough work.

You are dead right. Pick up a tip from Japanese housewives: put it in a higher yielding currency. The Ausies have raised their rates, if they raise them much more borrow USD to buy AUD - it's called the carry trade.

The Japs have been doing this for years. It is the only way to deal with zero rates
Yes, yes, let's definitely save more. I think I'll redecorate the summer cottage first, fly to Rio for a short rest and generally live the life of luxury...

There are people in Washington who really have no connection with what is going on in the country. Save more? Most people would like to find a job and pay down debts first!

Ron D
Post a Comment

Subscribe to Post Comments [Atom]

<< Home

This page is powered by Blogger. Isn't yours?

Subscribe to Posts [Atom]