Monday, August 23, 2010
For Whose Benefit Is Monetary Policy Set?
Read this article: Debt's Deadly Grip by Gretchen Morgenson from Sunday Business (8/22) in The New York Times. At the end of the article she talks about Todd E. Petzel's view on where the Fed is keeping interest rates and how savers are losing out on perhaps $350 billion in lost income. I may have missed it, but I don't believe the use of the words MONETARY POLICY is used in the article. The Fed's policy to keep interest rates low for the purpose of helping the banks make more money for their bottom line is what this monetary policy is all about. I have asked the question many many times in MONEYTHOUGHTS, "for whose benefit is monetary policy set?" Does not monetary policy have more than an obligation to the banks?
Washington and The Fed get away with a lot of shit because people don't understand what the hell is going on. As a result, citizens are mad, angry and upset. But, this stuff is not that hard to understand. Monetary policy is set by the Fed for the banks, but monetary policy should not be set solely for the benefit of the banks. What about all the rest of us that are a part of our monetary system? Are we, as my mother would say, "chopped liver?"
People can't afford to save money in an interest rate environment that pays next to nothing on savings. As a result, savers are forced into becoming investors. People are looking for ways to hedge themselves against the possible loss of purchasing power by holding cash. Washington sets the rules for the Wall Street casinos and people are literally forced to play in the capital markets to try and maintain the purchasing power of their savings. But inflation is way down says the CPI (Consumer Price Index) for the last several years, so the Fed thinks it can rebuild the profitability of the banks on the backs of the poor guys saving their money in saving accounts and bank CDs.
While the Fed keeps borrowing costs for banks low, the banks that issue credit cards have maintained their high interest rates, hence the wide spread between what they pay to borrow and the price they charge the consumer to borrow. Again I ask, for whose benefit is monetary policy set?