Thursday, May 30, 2013

Federal Reserve Bank Monetary Policy Revisited

A few years back, I wrote about our Fed's monetary policy and explained, I thought fairly well, how monetary policy is made totally with a view of, what is good for the banks, and not the consumer of bank services.

This morning I was watching Morning Joe on MSNBC, and I heard one of their stock market commentators say that the stock market is up so high because older people have no other place to put their money because interests rates were paying "squat"! 

This is true. Interest rates on U.S. Treasuries are very low relative to what they have been over the last 25 years.  Interest rates on bank certificates of deposit, known as CDs, also are paying very low rates at the present time.

This has forced people looking for a fair return on their money into the stock market where yields on stocks that pay a quarterly dividend are much higher.  This has made saving money very difficult for seniors in retirement because savings accounts and other fixed income instruments are paying "squat".

Well, at some point, you may be asking what does this have to do with the Fed's monetary policy? The answer is EVERYTHING!!! People in need of income because they are retired must by process of elimination look at the stock market for investment securities that will generate income. And, as a result, this means that millions of Baby Boomers are searching for more income for their retirement. Do I need to draw you a picture?

If the Federal Reserve Bank would consider the plight of seniors in their search for a fair monetary policy for both the banks and for the rest of us who use our monetary system, then perhaps, seniors and others would not have to put nearly all of their money in the stock market.

Meanwhile, the banks are making a killing because they borrow money for next to nothing and make a huge spread by charging high interest rates.

So much for monetary policy being set where it benefits everyone in the system and not just the banks!

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