bank rates

Bernanke: Interest Rates Should Be Lower

Ben Bernanke was at it again Wednesday.

He argued before a Congressional committee that the Federal Reserve is “actually helping savers,” pooh-poohed the effect of gas price hikes on inflation and held firm to the prediction the Fed won’t increase short-term interest rates until at least late 2014.

He actually went one step further, suggesting — given the state of the economy — interest rates should actually be lower.

But, of course, they can’t get any lower.

Bernanke and the Fed made sure of that.

The Fed chairman’s revelation came in the middle of questioning before the House Financial Services Committee, a semi-annual hearing.

Bernanke’s position is made pretty clear in the exchange with Michigan Republican Rep. Thaddeus McCotter, who questioned why savings rates are being “artificially lowered” to help spur borrowing.

You can watch the entire hearing here; McCotter’s questioning begins at about 1 hour, 23 minutes into the appearance.

Bernanke:

“It’s arguable that the interest rates are too high, that they’re being constrained by the fact that interest rates can’t go below zero.

“We have an economy where demand falls far short of the capacity of the economy to produce. We have an economy where the amount of investment and durable good spending is far less than the capacity of the economy to produce.

“That suggests that interest rates in some sense should be lower rather than higher. We can’t make interest rates lower, of course. They can only go down to zero.

“And again I would argue a healthy economy with good returns is the best way to get returns to savers.”

Bernanke has made this argument before, that folks who put their money in safe, government-insured investments have to suffer for the good of the economy.

And he’s also pushed people to take on more risk.

He made that argument again Wednesday, saying he believes that about 10% of the average retiree’s portfolio is in “fixed-interest instruments like CDs.”

Meaning the Fed is only actively trying to prevent people from earning money on a small fraction of their savings.

“Remember,” Bernanke said, “people also own equities, they own money market funds, they own mutual funds. They have 401(k)s and a variety of things.

“Those assets are assets whose returns depend very much on how strong the economy is. And so in trying to strengthen the economy we are actually helping savers by making the returns higher as we can see in what’s happened in the stock market, for example.”

Gee, thanks, Ben.

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Comments (5)
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5 Existing Comments
  1. Elder Wisdom said:
    on March 1st at 01:12 pm

    Gee, thanks, Ben. You can say that again! All my husband and I have to do is live long enough to make our lifetime of frugal savings pay the interest we always planned to support our old age. We never bought a new car, we shopped garage sales and thrift stores and faithfully saved our money to help pay for home health care, gardening and housekeeping assistance so we woiuld not be a burden to anyone, Time is running out. When you are in your 80’s do you know how long late 2014 seems? And if the interest rate do rise it will probably be ever so slow. Gotta live to be a hundred-our new goal!

  2. andy said:
    on March 1st at 03:47 pm

    well… thanks for nothing ben,, you got us in the poor house

  3. Earl said:
    on March 1st at 11:49 pm

    Just about everything he said about retiree’s savings was BS.. I don’t think there are many retirees’ that have their portfolios at 10% CD’s. Maybe one out of 100 (especially after the stock market tanked) He came out and admitted in the next to last sentence of the article that he is sacrificing savers for investors in order to help savers in the who-knows-when future. Many of the will probably be dead by then. He needs to be fired.

  4. John Singer said:
    on March 2nd at 04:19 am

    At least (for now) our meager savings may still be in the system. If we were to start earning 0%, then whatever funds are in the system will end up under mattresses. This would mean less money in the economy, no?

  5. lightrider said:
    on March 3rd at 08:38 pm

    Drug test this guy!!