http://patrick.net/...
The governttment's latest move to bolster housing marks yet another transfer from savers to borrowers.
Such transfers have been the norm since the Federal Reserve instituted its zero-interest-rate policy in late 2008—shifting funds away from the likes of depositors, bondholders and pension funds to debtors. The latest iteration came Monday, when the Federal Housing Finance Agency unveiled changes to a program meant to make it easier for underwater homeowners who are current on payments to refinance into a lower-rate mortgage.
And here is our good friend Patrick on the subject:
Yes, savers in theory should have been rewarded by the "free market" for their prudence in avoiding debt. Interest rates should have surged.
But in reality, we don't have a free market for interest rates. Instead, we have the Federal Reserve doing central planning of interest rates, and punishing responsible savers to bail out banks that made really stupid lending decisions.
Ron Paul is criminally insane on health care (just let the uninsured die, or rely on charity, which is the same thing).
But he's totally right about the Fed. The Fed should be abolished.
10:11 AM PT: And more words of wisdom from Patrick:
Bellingham Bill says
The more savers you have, the lower the interest rate they will get.
But interest rates also depend on risk. The real risk to investing in real estate was ignored and people were allowed to buy at very low rates. Now that the risk in lending is more obvious, you would think interest rates would rise to compensate people for that.
I bet the problem is not an excess of savings, but an excess of Federal Reserve cash loaned at 0% for banks, which then turn around and buy US Treasuries with it, getting a guaranteed 1% on 5-year or 2% on 10-year notes at taxpayer expense.
That's just a straight transfer of money from your pocket to the bank's profits.
They don't need your savings when they have Ben loaning as much as they want. They don't need to lend either when they have guaranteed interest from Treasuries.