U.S. Federal Reserve Chairman Ben Bernanke wants you to believe his cheap money, low interest policies like QE3 actually have benefits for savers.
America's savers, many of whom are retired or nearing retirement, would beg to differ.
You see, low rates at the Fed – which has pledged to keep its interest rates near zero at least through 2015 – means low rates on conventional savings vehicles like bank accounts, certificates of deposit, and money market funds.
Those rates affect $10 trillion in savings-like products, costing savers billions of dollars.
For example, if a saver had $100 in a savings account in 2008 that paid 0.35% interest, she'd have just $102 today. But with inflation, $100 worth of goods in 2008 now costs $107.
That's a loss of 5% in four years, the sort of math that eats away at a retiree's standard of living.
And the rates of 2008 look fantastic compared to what's available now.
The Fed's actions have pushed down interest rates to microscopic levels. The average savings account interest rate has fallen one-third in the last year alone, to 0.08%.
The average yield on five-year CDs last month dropped below 1% for the first time ever. Back in 2007, five-year CDs provided a yield of 4%.
And yet in a speech he gave at the Economic Club of Indiana on Monday, Bernanke said his policies are helping savers.
Bernanke's Pretzel Economics
Bernanke's twist on the environment he's created for savers could be called "pretzel economics."
Bernanke's pretzel economics are based on the idea that what's good for the economy, at least according to the Fed, is good for savers, too.
"Savers often wear many economic hats," Bernanke said. "Many savers are also homeowners; indeed, a family's home may be its most important financial asset. Many savers are working, or would like to be. Some savers own businesses, and — through pension funds and 401(k) accounts — they often own stocks and other assets."
So while you're still getting hosed with near non-existent returns on your savings, the Fed's policies are supposedly compensating for that by shoring up the value of your home and 401(k) plan.
Of course, many people still haven't recovered from their stock losses of 2008-2009, nor have their home values returned to where they were before the bubble burst.
And in defending the Fed's efforts to bolster employment, Bernanke added this cynical observation:
"Without a job, it is difficult to save for retirement or to buy a home or to pay for an education, irrespective of the current level of interest rates," Bernanke said.
How to Protect Your Savings from QE3
Despite Bernanke's attempts to spin it otherwise, his easy money policies have been catastrophic for savers.
It's a "war on savers," says Money Morning's Global Investing Strategist Martin Hutchinson.
"The Fed Chairman is a saver's worst nightmare."
Hutchinson notes that with interest rates at historic lows, "folks with savings have been virtually forced into the market these days in search of higher yields."
But higher yields usually come with higher risk. That means investors seeking a haven from low interest rates and inflation need to choose wisely.
Hutchinson says that means finding investments that emphasize income over growth.
Investments that Hutchinson has recommended to Money Morning readers include mortgage REITS (real estate investment trusts), closed-end mutual funds and high-dividend stocks.
To learn out more about Martin Hutchinson's strategies to fight back against Ben Bernanke's "war on savers," click here.
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Text of Ben Bernanke's Speech to the Economic Club of Indiana
About the Author
Dave has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.