Florida, with its 27 electoral votes, is critical for any Republican hoping to win this fall’s Presidential election. A key issue in the Sunshine State that should be emphasized is the Fed’s continued subsidy of the banks at the expense of ordinary savers. The Fed, by “Quantitative Easing,” (printing money to buy the bonds the Treasury is issuing to fund Obama’s record deficits) has kept interest rates at record lows. Some argue this will help to revive the housing industry. If so, it has failed miserably, since new home sales were at record lows last month.
The chief beneficiaries of the Fed’s policies are the banks that were instrumental in causing our problems. By allowing them to borrow, from the Fed or from ordinary people, at extraordinarily low rates, they are able to make much larger profits on any loans that are “performing” – that is, on any loans where people are actually making payments. This will let the banks gradually recover from their losses on defaulting mortgages.
Great, we need a healthy banking system, so who loses? Florida’s many seniors do – those who rely on the earnings from their savings are subsidizing the banks. Consider your prudent great aunt and uncle who, after a lifetime of hard work and thrift retired to Florida with a social security benefit of $2000 a month and $1,600,000 in savings. Concerned with security, they opt for safe, no risk investments. They put their money in a five year Treasury bond yielding 0.75%, which earns them $1,000 a month, giving them $3,000 a month to live on. Now $3,000 a month isn’t poverty, they should be able to get by, but $1,600,000 puts them in the 1% in terms of wealth! I suspect they planned to be able to live a little better than what $3,000 a month gives them.
How about a more normal Florida retired couple with savings of $200,000 (still putting them in the top 40% of wealth!)? They would get $1500 a year – a little more than $100 a month. Their lifetime of saving might let them go to Denny’s twice a month in their “golden years.” But wait –If they only get the average social security payment of $1,177 a month, we are talking about real poverty, not Denny’s but the pet food aisle instead.
It is unconscionable for the Fed to force people like this to subsidize the banks and the Treasury. If a Republican candidate promised to pressure the Fed to stop printing money and to allow interest rates to rise, senior voters – 18% of the Florida population and a far higher percentage of voters – would reward him with their votes. And they deserve this benefit – a just reward for years of thrift while everyone else (including all levels of government) spent all they could borrow. This could well be the key to attracting them to the Republican standard in greater numbers. I suspect even a few non-seniors might support a move to reduce subsidies to the banks, while rewarding saving for the future. It would also make explicit the “tax” savers are paying to the Treasury in terms of low interest received on government bonds,
which might put some pressure on the government to reduce spending.
The Fed recently announced that it sees keeping interest rates low for the next several years. How much have you saved for retirement? Multiply it by 0.75%, or even 1.90% (if you are willing to give the Treasury your money for 10 years). Bet you can’t live on that amount!
Filed under: 2012 Elections, Economics, Federal Government, National Politics, Republicans
The only way a new President can do that is to start replacing current Fed Open Market Committee members, including the Chairman (Bernake) whose term isn’t up until January 2014; “pressure” won’t do it.
Now, if the Republican nominee were willing to do that, then yes, it would greatly help with Florida voters (and voters in the rest of the country), and have the added advantage of being the right thing to do.
we need more armchair economists!!!!!