Scott Burns comments on low interest rates

[bb]

I have read a couple of comments by Scott Burns where he declares
low interest rates as a war on seniors by the government. My question
is in the absense of inflation wouldn't interest rates be this low normally
or is there something specific happening now to keep interest rates
low?

[Tuxx]

Operation Prop Up Housing Prices.

[Wagnerjb]

I have read a couple of comments by Scott Burns where he declares
low interest rates as a war on seniors by the government. My question
is in the absense of inflation wouldn't interest rates be this low normally
or is there something specific happening now to keep interest rates
low?

I guess Scott must be misguided if he feels that low inflation and low interest rates don't go together. The comments on "war on seniors" reflects a disappointing view that suggests he is incapable of accepting the fact that a disciplined Safe Withdrawal Rate leaves you not caring about interest rates. Sadly, many seniors constrain themselves to "living off interest only", so the fact that interest rates are low will impact these people. But those that use the SWR do not let interest rates dictate their spending or their investing decisions.

Best wishes.

[nisiprius]

The comments on "war on seniors" reflects a disappointing view that suggests he is incapable of accepting the fact that a disciplined Safe Withdrawal Rate leaves you not caring about interest rates. Sadly, many seniors constrain themselves to "living off interest only", so the fact that interest rates are low will impact these people. But those that use the SWR do not let interest rates dictate their spending or their investing decisions.

If it should turn out to be the case that we are entering a long-term sustained era of lower investment returns than those enjoyed over last century--a period in which interest rates stay low, and in which stocks fail to show their past "extraordinary stability" of returns--then those blindly sticking to what was a safe withdrawal rate in the last century may discover they are overspending.

To quote the original Trinity study:

The word planning is emphasized because of the great uncertainties in the stock and bond markets. Mid-course corrections likely will be required, with the actual dollar amounts withdrawn adjusted downward or upward relative to the plan. The investor needs to keep in mind that selection of a withdrawal rate is not a matter of contract but rather a matter of planning.

It's fine to use the safe withdrawal rate and cross your fingers and hope to ride through a bad patch, but at some point you need to adjust your spending to your actual (total-return) income, not your predicted income.

[Lbill]

Or, as John Maynard Keynes said:

Too large a proportion of recent "mathematical" economics are mere concoctions, as imprecise as the initial assumptions they rest on, which allow the author to lose sight of the complexities and interdependencies of the real world in a maze of pretentious and unhelpful symbols.

[Beagler]

Amen. Any SWR that cannibalizes equity holdings during a period of "subdued returns" (as Mr. Bogle has stated he anticipates) could well lead to a disappointing retirement.

[gotherelate]

Based on the title of this thread, I anticipated something like the following.

Reporter: "How low ARE interest rates, Scott?"

Burns: "Lower than a snake's belly in a wagon wheel rut."

-Grandpa

[xerty24]

Of course there's certainly some truth in his statements that the gov't has chosen to lower interest rates, and by doing so has favored overextended home owners (and flippers, and banks) at the expense of savers. Seniors clearly got the short end of the stick on this one.

It's all well and fine to say you have a sustainable withdrawal rate given reasonable assumptions, etc, but the fact is that 5 years ago interest rates were 5% and now they're 1% (for short-term FDIC savings), and for someone entirely in bonds that's a big hit on their income. Depending on their age, income isn't the only source of their spending (spending capital too), but it's still a bad scene for those who were just getting by, mostly fixed expenses, etc.

AARP should have told all those seniors to go out and vote against the housing bailout, instead of voting for more drug benefits.

[bob90245]

I have read a couple of comments by Scott Burns where he declares
low interest rates as a war on seniors by the government. My question
is in the absense of inflation wouldn't interest rates be this low normally
or is there something specific happening now to keep interest rates
low?

Correct me if I'm wrong. But Fed policy is geared primarily toward the short end. By contrast, bond market participants set rates on the long end. Therefore, if bond market participants expected high inflation, those high expectations should be reflected in long bond rates.

[Sheepdog]

Of course there's certainly some truth in his statements that the gov't has chosen to lower interest rates, and by doing so has favored overextended home owners (and flippers, and banks) at the expense of savers. Seniors clearly got the short end of the stick on this one.

It's all well and fine to say you have a sustainable withdrawal rate given reasonable assumptions, etc, but the fact is that 5 years ago interest rates were 5% and now they're 1% (for short-term FDIC savings), and for someone entirely in bonds that's a big hit on their income. Depending on their age, income isn't the only source of their spending (spending capital too), but it's still a bad scene for those who were just getting by, mostly fixed expenses, etc.

That is well said and something many of us have not considered. Many seniors and those with disabilities in my community,whose only investments are in CDs because they are"safe", will be having extreme difficulty with these interest rates. They will be finding that CDs are not necessarily "safe." They are now having to spend their principal base, not just the interest plus SS, as they have been. That forebodes severe poverty for them down the road.
Jim

[Tramper Al]

Of course there's certainly some truth in his statements that the gov't has chosen to lower interest rates, and by doing so has favored overextended home owners (and flippers, and banks) at the expense of savers. Seniors clearly got the short end of the stick on this one.

It's all well and fine to say you have a sustainable withdrawal rate given reasonable assumptions, etc, but the fact is that 5 years ago interest rates were 5% and now they're 1% (for short-term FDIC savings), and for someone entirely in bonds that's a big hit on their income. Depending on their age, income isn't the only source of their spending (spending capital too), but it's still a bad scene for those who were just getting by, mostly fixed expenses, etc.

That is well said and something many of us have not considered. Many seniors and those with disabilities in my community,whose only investments are in CDs because they are"safe", will be having extreme difficulty with these interest rates. They will be finding that CDs are not necessarily "safe." They are now having to spend their principal base, not just the interest plus SS, as they have been. That forebodes severe poverty for them down the road.
Jim

I am probably dense on this, but I confess I have never really found the distinction between principal and interest to be anything but a rather fuzzy arbitrary line. If you believe your portfolio SWR is 3%, for example, what difference does it make if the prevailing rate on MMFs at the moment is 0% or 6%? I would not think you'd have to adjust your consumption down to 0% anymore than you'd want to increase it to 6%.

It's probably the same reason it seem silly to me when people say something like "I want to protect the principal, so I only invest (this) in bonds" and then go on to chase higher and higher yields with say longer maturity, higher credit risk, foreign currency risk, convertibles, and so on. it seems as if people are always looking for that cash substitute which magically pays way more interest than cash does! Then there are those CEFs with crazy high "yields", but perhaps that is another phenomenon altogether.

[richard]

I have read a couple of comments by Scott Burns where he declares
low interest rates as a war on seniors by the government. My question
is in the absense of inflation wouldn't interest rates be this low normally
or is there something specific happening now to keep interest rates
low?

Interest rates are low because the economy is very weak.

Is Scott complaining that the govt isn't doing enough to stimulate the economy (which would lead to stronger growth and higher real rates) or that it's doing too much to hold down rates?

Correct me if I'm wrong. But Fed policy is geared primarily toward the short end. By contrast, bond market participants set rates on the long end. Therefore, if bond market participants expected high inflation, those high expectations should be reflected in long bond rates.

That's normally how it works. However, the Fed has the ability to trade in longer dated bonds. They did so not too long ago as part of "quantitative easing" although that's unwinding.

[richard]

I am probably dense on this, but I confess I have never really found the distinction between principal and interest to be anything but a rather fuzzy arbitrary line. If you believe your portfolio SWR is 3%, for example, what difference does it make if the prevailing rate on MMFs at the moment is 0% or 6%? I would not think you'd have to adjust your consumption down to 0% anymore than you'd want to increase it to 6%.

Let's say you spend 3% real and you own bonds paying 3% real indefinitely. You are very safe.

Let's say you spend 3% real and you own bonds paying 0% real indefinitely. You could run into a problem after a while.

Perhaps I'm misunderstanding your post?

[letsgobobby]

it's not an age-based war. It's a values-based war. It is war on savers to bail out borrowers.

[Wagnerjb]

I am probably dense on this, but I confess I have never really found the distinction between principal and interest to be anything but a rather fuzzy arbitrary line. If you believe your portfolio SWR is 3%, for example, what difference does it make if the prevailing rate on MMFs at the moment is 0% or 6%? I would not think you'd have to adjust your consumption down to 0% anymore than you'd want to increase it to 6%.

Let's say you spend 3% real and you own bonds paying 3% real indefinitely. You are very safe.

Let's say you spend 3% real and you own bonds paying 0% real indefinitely. You could run into a problem after a while.

Perhaps I'm misunderstanding your post?

I agree with Al's post. Richard - your comments are accurate, but the problem is twofold:

a) Scott Burns isn't looking at real returns. He is complaining about nominal returns, so he is drawing a conclusion from incomplete data.

b) Real rates are positive anyway.

The SWR incorporates real rates into the calculations, so any hand-wringing about nominal rates is misguided - and potentially harmful.

Best wishes.

[savermike]

Amen. Any SWR that cannibalizes equity holdings during a period of "subdued returns" (as Mr. Bogle has stated he anticipates) could well lead to a disappointing retirement.

If bond yields are "subdued"--i.e. high bond prices--someone with an AA would likely be needing to sell bonds not equities, no?

Mike

[beardsworth]

It's not an age-based war. It's a values-based war. It is war on savers to bail out borrowers.

Amen, amen. For years and years, Americans have been constantly admonished––from a variety of sources––for "failing" to save enough. But then, every time "the economy" (as if debt–free or aspiring–to–be–debt–free savers were not part of "the economy"?) gets in trouble, interest rates are slashed to the bone in order to encourage debt. And, of course, interest paid on debt is deductible while interest earned on savings is taxable. "Saving more" is a good thing––but it's not what's "rewarded" by economic policy or tax rules.

Interest rates are low because the economy is very weak.

That's true, but I think it would be more accurate, and more specific, to say that interest rates are low because the economy––and so much of what passes for "growth"––is strongly dependent on debt, and so the economic powers–that–be want to make it as easy and painless as possible for lots of people and companies to incur new debt. The notion that we got into a lot of our current trouble because of past debt explosions does not discourage these big thinkers. And as to how all the new debt will get paid off if the rosy hopes don't pan out, well, as Scarlett O'Hara said, "I'll think about that tomorrow."

Marc

[Beagler]

Amen. Any SWR that cannibalizes equity holdings during a period of "subdued returns" (as Mr. Bogle has stated he anticipates) could well lead to a disappointing retirement.

If bond yields are "subdued"--i.e. high bond prices--someone with an AA would likely be needing to sell bonds not equities, no?

Mike

Can't a low CD yield be due to fed policy alone?

[ddb]

I have read a couple of comments by Scott Burns where he declares
low interest rates as a war on seniors by the government. My question
is in the absense of inflation wouldn't interest rates be this low normally
or is there something specific happening now to keep interest rates
low?

Question for Scott Burns: would the seniors be better off with 5% CD rates and 5% annual inflation, or 1% CD rates and 1% annual inflation?

- DDB

[TO39]

I have read a couple of comments by Scott Burns where he declares
low interest rates as a war on seniors by the government. My question
is in the absense of inflation wouldn't interest rates be this low normally
or is there something specific happening now to keep interest rates
low?

Question for Scott Burns: would the seniors be better off with 5% CD rates and 5% annual inflation, or 1% CD rates and 1% annual inflation?

- DDB

Questions for ddb: would the seniors be better off with 4% CD rates and 5% annual inflation, or 5.5% CD rates and 5% annual inflation? and would the seniors be better off with .2% CD rates and 1% annual inflation, or 1.3% CD rates and 1% annual inflation?

This would be closer to the point Scott Burns was making. IMHO

[fishndoc]

As someone who is managing finances for two elderly parents, I can tell you that inflation for many of the expenses for seniors is NOT ZERO. Expenses such as nursing home charges, and the annual need for medical care (even if care were to stay the same rate) rise every year.

I agree with the statement that this is a planned policy to bail out the over-extended at the expense of the savers.
It seems that most of the population does not understand the concept that when money is spent for a cause, someone has to pay.

[bb]

Please note this thread was not meant to be a rant. I should have said
Scott Burns has implied there is a war on savers, not seniors.

The point of my post was to try and reconcile information from
Scott Burns who seems fairly knowledgeable with reality.

Are there specific government policies that are keeping interest
rates artificially low compared to where the rates would historically
be given the current economy or is Scott Burns mistaken on this
issue?

The thread is not meant to rant, discuss the merits of any government
policies, discuss the economy, safe withdrawal rate, politics, etc. The
thread was locked because people were ranting. Please no ranting.

[TO39]

You said: Are there specific government policies that are keeping interest
rates artificially low compared to where the rates would historically
be given the current economy or is Scott Burns mistaken on this
issue?

I think quantitative easing does this. mostly at the short term duration, which is I think why Scott Burns was referring to seniors being hurt. Seniors are more likely to be SAVERS with short term fixed income. At least in Scott Burns opinion.

[bb]

Specifically what are you referring to as quantitative easing? Would
there not normally be quantitative easing when the economy is weak
and inflation is not a threat?

[grayfox]

When Willie Sutton was asked, "Why did he rob banks?" He answer, "Because that's where the money is!"

Underwater homeowners and banks are insolvent and need a bailout. Who has money? Obviously the savers. You're not going to get any money from people in debt. As they say, you can't get blood from a stone.

So obviously you target the big piles of money that savers have stashed away and figure out a way to transfer money from those savers to those you want to bail out.

How to get the money from the savers to the profligate?

They could just confiscate it all. Didn't Argentina do that with retirement accounts?
They could raise income tax rates on interest and dividends. They could institute a wealth tax. Not popular choices if you want to get elected again.

Back in the 1990s, Russia issued a new ruble that was worth a fraction of the old ruble. People that had saved enough to buy an apartment, suddenly had zero savings and had to start over. In fact, in Russia nobody saves anything anymore because they don't trust the government. Rich people move their money out of the country. There is no savings, no investment and no jobs for most Russians.

Another country that pulled that trick was North Korea. People had saved up a lot of money in the underground economy. Then the North Korean government issued new currency wiping out all the old currency and everyone's life savings.

My point is, when the government needs money, they'll find a way to get it from the parties that have it. The method of taxation they chose this go round is to lower interest rates to zero. Now instead of banks having to pay you 5% for a 1 year CD, with ZIRP they can pay you only 0.5%. The effect is the same as a 90% tax on interest income.

I suppose we should be grateful they just don't seize everyone's bank accounts.

[tibbitts]

Is anyone aware of a study of the inflation rate for senior citizens? There should really be a cpi "letter" for senior citizen essentials. It could be used for ss and pension colas.

Paul

[Beagler]

As someone who is managing finances for two elderly parents, I can tell you that inflation for many of the expenses for seniors is NOT ZERO. Expenses such as nursing home charges, and the annual need for medical care (even if care were to stay the same rate) rise every year.

I agree with the statement that this is a planned policy to bail out the over-extended at the expense of the savers.
It seems that most of the population does not understand the concept that when money is spent for a cause, someone has to pay.

IIRC the CPI has a 6% health care slice. How realistic is that for the average retiree?

[beardsworth]

I've never understood the term "quantitative easing." Or maybe I do. Is it just fancy bureauspeak for "cutting interest rates"? If it is, then I always prefer honest plain language and would rather they just said "cutting interest rates" instead of using the obfuscatory terminology. If it's not the same thing as "cutting interest rates," then I don't get the distinction. Explanations welcomed/appreciated.

Marc

[brick-house]

tiddbits wrote:

Is anyone aware of a study of the inflation rate for senior citizens? There should really be a cpi "letter" for senior citizen essentials. It could be used for ss and pension colas.

Yes, there is. It is called CPI-E. Here is a dated article (2003) that references CPI-E and provides some stats. It is not used for COLAs. The linked article posits that use of CPI-E would fast forward the SS shortfall date by five years.

http://www.newyorkfed.org/research/curr ... ci9-5.html

Mindful of these differences, some have urged that social security benefits be adjusted using a price index that captures the spending habits of older Americans.2 Since the early 1980s, the BLS has calculated such an index: the consumer price index for elderly consumers (CPI-E). This experimental index has never been used to adjust benefits, however, and while several congressional bills have been put forward on the subject, none has passed.3

We find that inflation as measured by the index for the elderly has been consistently higher than inflation as measured by the index for wage earners, with a 0.38 percent average annual difference since 1984. Much of the difference can be attributed to medical care, which constitutes a much larger share of total expenditures for the typical senior.

This link is more recent. On page 5 (Table 1), there is a table showing the differences in cost buckets for each CPI measure (CPI-U, CPI-W, CPI-E). Medical costs increase from 6.5% to 11.07% of expenses.

http://www.bls.gov/cpi/cpieart2009.pdf

[zeugmite]

When Willie Sutton was asked, "Why did he rob banks?" He answer, "Because that's where the money is!"

Underwater homeowners and banks are insolvent and need a bailout. Who has money? Obviously the savers. You're not going to get any money from people in debt. As they say, you can't get blood from a stone.

So obviously you target the big piles of money that savers have stashed away and figure out a way to transfer money from those savers to those you want to bail out.

How to get the money from the savers to the profligate?

They could just confiscate it all. Didn't Argentina do that with retirement accounts?
They could raise income tax rates on interest and dividends. They could institute a wealth tax. Not popular choices if you want to get elected again.

Back in the 1990s, Russia issued a new ruble that was worth a fraction of the old ruble. People that had saved enough to buy an apartment, suddenly had zero savings and had to start over. In fact, in Russia nobody saves anything anymore because they don't trust the government. Rich people move their money out of the country. There is no savings, no investment and no jobs for most Russians.

Another country that pulled that trick was North Korea. People had saved up a lot of money in the underground economy. Then the North Korean government issued new currency wiping out all the old currency and everyone's life savings.

My point is, when the government needs money, they'll find a way to get it from the parties that have it. The method of taxation they chose this go round is to lower interest rates to zero. Now instead of banks having to pay you 5% for a 1 year CD, with ZIRP they can pay you only 0.5%. The effect is the same as a 90% tax on interest income.

I suppose we should be grateful they just don't seize everyone's bank accounts.

I think it all depends on how you look at it. We're led to the firm belief that surplus output can be "saved" in the first place unlike say, food, which naturally spoils. To achieve this feat, many things need to work, among which is a level of trust and dependence on the productivity of others in the future. Just because you "saved" a bunch of notes and certificates, or even gold, doesn't guarantee anything. When there is a financial bubble, it means the future has been overestimated, and the salient result is simply that nobody has saved (or could have saved) as much as they thought, and they indeed need to work more years. Nothing is lost in this, except hubris.

[bb]

Earth to forum members. This thread is not to complain about the
interest rate, complain about government policy, talk about saving.

I am simply asking for a discussion about the current interest rate,
factors which are affecting the current interest rate to try to understand
if any of the factors currently affecting the interest rate are not normally
present when the economy is weak, etc.

What has the historic interest been when the economy had high
unemployment, in or coming out of a recession, etc.

If this is a dumb question I apologize.

[xerty24]

I've never understood the term "quantitative easing." Or maybe I do. Is it just fancy bureauspeak for "cutting interest rates"? If it is, then I always prefer honest plain language and would rather they just said "cutting interest rates" instead of using the obfuscatory terminology

If they said "printing money" it would be too obvious they were stealing money from anyone with wealth and giving it away to the people with debts and/or adjustable-rate mortgages (the main use of the new money is to depress long term treasury rates which are used as benchmarks for mortgages). Wikipedia has more for you..

[beardsworth]

Wikipedia has more for you.

xerty24, thanks for the interesting Wikipedia link. Of course I look at Wikipedia for lots of stuff, but wouldn't have expected to find something there about "quantitative easing" or other highly specific economic terms.

Earth to forum members. This thread is not to complain about the interest rate, complain about government policy, talk about saving. I am simply asking for a discussion about the current interest rate, factors which are affecting the current interest rate to try to understand if any of the factors currently affecting the interest rate are not normally present when the economy is weak, etc. What has the historic interest been when the economy had high unemployment, in or coming out of a recession, etc.

bb, I hope someone will come along to give you something concrete about what you're looking for, but you began the thread by mentioning writer Scott Burns' qualitative thoughts on current economic/interest rate policy (and also used that as the subject title of the thread itself), so that may be one reason why you got a lot of qualitative posts in response. (Well, that plus the fact that people on this forum are never shy about expressing their personal opinions. ) . . . As far as comparing past interest rate policies/rates to past periods of economic weakness (no two of which are exactly alike), I guess there must be sources where you can do your own research and compare, but I wouldn't know where. Perhaps another poster will.

Marc

[Rose21]

I've never understood the term "quantitative easing." Or maybe I do. Is it just fancy bureauspeak for "cutting interest rates"? If it is, then I always prefer honest plain language and would rather they just said "cutting interest rates" instead of using the obfuscatory terminology

If they said "printing money" it would be too obvious they were stealing money from anyone with wealth and giving it away to the people with debts and/or adjustable-rate mortgages (the main use of the new money is to depress long term treasury rates which are used as benchmarks for mortgages). Wikipedia has more for you..

Bingo. When money is created, and then used to buy up treasuries, you're going to keep long-term rates artificially low. Meanwhile, you have insidiously devalued the currency, something which may not immediately show up in higher prices (especially if it is occurring in the midst of a deflationary contraction), but which will most certainly have that effect down the road.

[Beagler]

I've never understood the term "quantitative easing." Or maybe I do. Is it just fancy bureauspeak for "cutting interest rates"? If it is, then I always prefer honest plain language and would rather they just said "cutting interest rates" instead of using the obfuscatory terminology. If it's not the same thing as "cutting interest rates," then I don't get the distinction. Explanations welcomed/appreciated.

Marc

In the old days we referred to it as "running the printing presses." Currency (paper money) appears to make up a smaller share of "money" these days, and a lot of it is done via electronic bank balances now, but the principle remains: creating "money" out of thin air (backed by nothing but "good will"), with the thought that there will be a pullback in money supply 'when the time is right.'

[Beagler]

...When money is created, and then used to buy up treasuries, you're going to keep long-term rates artificially low....

I've always found this fact particularly troubling -- money created out of thin air is used to purchase large quantities of treasuries. Amazing.

[grayfox]

I think it all depends on how you look at it. We're led to the firm belief that surplus output can be "saved" in the first place unlike say, food, which naturally spoils. To achieve this feat, many things need to work, among which is a level of trust and dependence on the productivity of others in the future. Just because you "saved" a bunch of notes and certificates, or even gold, doesn't guarantee anything. When there is a financial bubble, it means the future has been overestimated, and the salient result is simply that nobody has saved (or could have saved) as much as they thought, and they indeed need to work more years. Nothing is lost in this, except hubris.

That is an interesting way to look at it. I will have to ponder that.

I don't really understand how the banking system works, but I was reading somewhere that money is created whenever someone borrows and goes into debt. Like if Joe Homeowner borrows $500K to buy a house, he is really pledging a portion of his labor for the next 30 years. The $500K created is a claim on Joe's future labor.

But if Joe gets becomes unemployed (say because the economy has nothing useful for him to do) and Joe defaults, and the bank forecloses and sells the house for $250K the other $250K vanishes into thin air. But maybe it never really existed in the first place. All that money was only in people's imagination.

I'm beginning to understand why Russians don't save but instead choose to spend it all immediately. It may not be real.

[grayfox]

I think this article by Barry Ritholtz has a good explanation of why The Fed will make sure interest rates stay low for a long time.

The $4 Trillion Dollar Question The Big Picture, Barry Ritholtz



To summarize, in 2006 there was $23 trillion in housing collateral backing $10 trillion in mortgages. Now there is $16 trillion in housing collateral backing the same $10 trillion dollars in mortgages.

This is $4 trillion too high. Basically, if there was mark-to-market the banks would be insolvent even now after all the bailouts.

Then the Fed determined that people don't walk away until negative equity reaches -62%...unless interest rates rise.

So in order to prevent a huge number of new foreclosures, rates must remain low and housing prices need to be propped up.

This Pretend and Extend strategy might go on for many years until all the excess housing is absorbed and prices start to rise again. Ritholz estimates that there are 4 million excess houses and the rate they are being absored is 0.3 million per year. So what is that, about 13 years?

Ultra-low interest rates for the next decade.

[nick22]

The current interest rates are low because of Fed policy and bond rates are low because, despite our problems, US Treasuries and the dollar are still the safe havens in times of economic uncertainty. The issue for savers is that investors are pouring trillions of dollars into 10 year Treasuries at a 3% yield. I am not sure who to "blame" for this, but clearly savers worldwide are valueing safety over yield.

So I guess savers can take the 10 year Treasury at 3%, the 30 year Treasury at 4% or look elsewhere. There is clearly no reason to take a local bank CD at 0.5%, and if that is what people are largely doing, I think I would not blame policy makers so much as blame bad personal investment decision making.

[Rose21]

When the big players can borrow money nearly interest-free, it doesn't take a high rate of return to give them a mighty attractive deal.

[CaptMidnight]

I am a saver who wishes interest rates were higher. I am aware that the Fed, by steepening the yield curve is enabling the banks to earn their way out of their solvency problems with low-cost deposits at the expense of savers like me. However, I do not regard myself as a victim. During the boom years i was benefiting indirectly, but materially, from all the profligate spenders. I always realized that being frugal and debt-free in an economy fueled by heavily indebted consumers was an optimal situation for those like me. But sometimes the shoe is on the other foot.

[bb]

Here is a main point of my confusion. If the economy is weak and
inflation is not a threat why wouldn't the government always want
the lowest interest rate possible? Ideally absenst the threat of
inflation woudn't interest rates be as close to 0 as feasible?