Isn’t this unbelievable? All these savers moaning about low interest rates are just being selfish and not doing their patriotic duty to help revive the economy by spending their savings. We’ve got too much capital in the economy and need to consume some of it to start the economy growing again…
All this at a time where they are lamenting the fact that businesses are struggling to get loans from banks and are trying to force banks to lend more.
When my brother and I went last year to negotiate how much we could get out of our bank accounts, the bank functionary apologized profundly the bank couldn’t offer us a better deal. “Interest rates are just too low, this is not doing any of us any good” she said. Stop there for a second and think about it: a low level bank functionary displayed better knowledge and common sense than any central banker.
To give customers better returns banks are pretty much forced buying higher risk titles and bonds. The Greek crisis is sending such huge shockwaves because European banks (particularly French ones) saddled themselves with high risk, high yield Greek bonds to give their customers better returns. There’s a reason why Spanish and Portuguese bonds auctions were such a hit despite ample warnings about their precarious financial situation: banks have to find means to give at least acceptable interests to customers. The ECB is keeping the printing press ready but far from them to downgrade Spanish and Portuguese bonds to the “junk status” they fully deserve (and as the Chinese rating agency did).
PS: has anyone noticed this official is called “Mr Bean”? Can anyone imagine how good would Rowan Atkinson playing a modern central banker?
Aren’t they misunderstanding the Keynesian notion of the “liquidity trap” anyway?
I thought Keynesians were worried about people hoarding savings rather than investing. But money in the bank is being invested, right? Therefore penalising savers telling them they should spend to help the economy is missing the point.
Not that I agree with the Keynesian notion of the liquidity trap, only stating that this policy seems at odds with that idea anyway.