In a recent article Michael Aneiro writes about “Rate Suppression’s Painful Side” (Barron’s, July 30, 2012, p. M9). While rate suppression “has been great for borrowers, ” he says, “It hasn’t kick-started the economy, and it’s been a disaster for many investors.”
He explains that “income investors are stuck with the most paltry yields on record and essentially forced by the Fed to invest in dividend stocks or risky bonds to scrape together yields once found in high grade bonds.”
“Corporate pension funds,” he continues, “are suffering record rates of underfunding, largely due to dismal rates of return, while similar problems have contributed to a spate of municipal bankruptcies in California”.
Last, but not least, “as baby boomers hit retirement age, when investors typically shift money from stocks into bonds, it’s bringing a tidal wave into the fixed-income investing pool just as bond interest rates are near their lowest levels in history”.
In other words, the monetary policy of interest rate suppression, in spite of the lessons from the Great Depression as interpreted by Keynes, has so far produced the very limited overall macro-benefit of pushing on a string. It has, to be true, provided artificially cheap money to banks and borrowers. At the same, it has penalized savers, fixed income investors, and senior citizens.
Though money is now close to free, lunch is not, unless you’re eating somebody else’s.