The Cruelest Tax of All (zero-interest-rate policy)

Mises Institute ^ | November 26, 2009 | Sarel Oberholster

[MaggieCarta]

Surely nobody can have a zero need and a 100 percent obligation to contribute.

Well, one can only hope...

[4Liberty]

Lowering interest rates with government intervention (money printing) transfers wealth from lenders (e.g. retirees with savings earning a normal market rate of interest) to borrowers.

It is a welfare program, basically.

The policy causes a zero-sum transfer of wealth from one group to another in the short run (theft).

It destroys capital markets and growth (willingness to save and investment) in the long run (greater poverty).

[secretagent]

Longer term govt bills and bonds have positive interest rates. Private borrowers are all paying rates higher than zero.

Inflation is actually down year over year, so a lender even at zero interest rates gets a tax free increase in purchasing power.

Good points that the article neglected.

But what about the larger point that the Fed has skewed the pricing of interest rates in favor of the borrower, at the expense of the saver?

[Reverend Wright]

secretagent asked: “But what about the larger point that the Fed has skewed the pricing of interest rates in favor of the borrower, at the expense of the saver?”

Yes they have. The reason, I think, is because in the past it has always been necessary to have a very steep yield curve to get an economic recovery going, and they are trying to do that. T-bills fell below zero this week. Negative Tbill rates is a market reaction, not the Fed (it’s below Fed target).

The reason Tbill rates are so low is, I think, that we are near or actually in deflation. If that happens, the situation is even more in the favour of savers - gains in purchasing power, tax free.