Monday, December 2, 2013

Savers And Suckers

Last March I wrote about the outrage that was caused by the proposal by the European Central Bank (ECB) to levy a tax on bank deposits in Cyprus in return for a financial bailout of its banks.

I pointed out that we already effectively had in place a United States Bank Deposits Tax.  It is called the Zero Interest Rate Policy (ZIRP) of the Federal Reserve.

This is what I wrote at that time.

What I find interesting is the almost universal outrage about the ECB's attempt to tax the Cyprus bank depositors to pay for the bail out of their banks while the same thing has been going on in the United States with the ZIRP policy with nary a peep from anyone. 
The bank depositors in Cyprus have been earning what historically has been considered a fair return on their savings and now the ECB wants to impose a tax on the savings deposits.  In Cyprus, depositors have had the ability to make a return on their savings of almost 5% before the tax is imposed.  In the United States, due to the Fed's ZIRP, the depositors are getting almost nothing.  There is no need for the deposit tax because, in effect, bank depoistors have already been paying for the bailout of the U.S. banks with the foregone interest on their savings.
In the final analysis, there is almost no difference between what is being done with United States bank depositors compared to what is proposed in Cyprus.
What I find most interesting is the vastly different reactions to the two scenarios.  There is outrage over Cyprus but almost total acceptance in the United States (and other countries that have adopted ZIRP) of what could be considered a 4% indirect tax on bank deposits.

There is no difference between what the  ECB tried to do in Cyprus with the bank deposit tax and what the Federal Reserve (and other central banks around the world) have done with their ZIRP policies.  In both cases the goal is to take money from private savers and give it to governments (to fund their deficit spending) and large financial institutions and banks (to rebuild their balance sheets because of bad loans).

The ZIRP policy has particularly penalized savers over the age of 50+ and pension plans.

A recent study by the McKinsey Global Institute finds that from 2007 to 2012, governments in the United States, the United Kingdom and the Eurozone have collectively benefited by $1.6 trillion from a combination of reduced debt service costs and increased profits remitted from the central banks.  Where did the $1.6 trillion come from?  It came right out of the pockets of savers-most all of which are over the age of 50.

This chart shows the winners and losers from the ultra-low interest rate policies between 2007-2012.  Who have been the winners? Central governments, banks and corporations.  Who have been the losers? Pension plans, savers and those in the rest of the world (China) who loaned us money.

How much longer will the central banks suck away the savers money?  And how long will these suckers continue to take it?

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