“The zero interest rate policy is a massive transfer
of wealth from savers to banks.” –Christopher Whalen
If you have any money you know you can’t get much income on it these days. If you have any money in a bank account, whether savings or checking, you aren’t getting any interest you can measure. But guess what, the banks are making a killing on this state of affairs, and not by making loans to business or individuals trying to start a business.
This is from The New York Times on April 16, 2010, This Bailout Is a Bargain? Think Again By Gretchen Morgenson:
“If you are going to do a ledger, you have to do a full and complete ledger,” said Christopher Whalen, editor of the Institutional Risk Analyst. “To talk about making money on short-term transactions with the TARP while you have this huge cost to the nation is incongruous.”
A major factor missing from Treasury’s math is the vast transfer of wealth to banks from investors resulting from the Fed’s near-zero interest-rate policy.
This number is not easy to calculate, but it is enormous. The Fed’s rock-bottom interest-rate policy bestows huge benefits on banks because it allows them to earn fat profits on the spread between what they pay for their deposits and what they reap on their loans. These margins are especially rich on credit cards, given their current average rate of 14 percent and up.
The losers in this equation are savers and investors, especially people on fixed incomes. “All interest-sensitive investors have been transferring what they should be receiving to Uncle Sam and the banking industry,” Mr. Whalen said. “And you are talking about a lot of money.”
Ms. Morgenson quotes Christopher Whalen on when banks will begin lending again:
“The refusal of the Washington political class to address the issue of bank insolvency quickly via restructuring and recapitalization has extended the economic recovery process by years,” he said. “Lending will continue to shrink and real economic activity is suffering. The cost of ‘extend and pretend’ goes into the trillions of dollars of lost economic activity.”
See also, The Real Economy: A Whiff of Irrational Exuberance
The self-congratulation in Washington and in banking boardrooms on the economic recovery carries a strong odor of premature declaration of victory.
