Chart of the Day: Permanent Zero and Personal Interest Income
If you are an American retiree or near-retiree, you’re not happy these days. Five years ago, you were getting a decent return on your fixed income investments. But since then, the Fed has trashed the fixed income market by reducing interest rates to zero percent for "an extended period". The thinking is that this will get people to take on more credit. But the reality is that a lot of people are stuffed to the gills with existing credit and are not creditworthy. The Fed is pushing on a string.
Meanwhile, it is sucking money out of the economy. Ross Perot would tell you that giant sucking sound is the fed reaching into your pocket and giving your interest income to the Treasury by buying up government debt and keeping interest rates at zero. Hat tip to Stephanie Kelton for the chart
Prediction: The next recession will see significant deleveraging and financial distress. The Fed will then move to purchasing municipal bonds, stocks and real assets for fear of a deflationary spiral.
P.S. – If you’re close to retirement, you are going to have to postpone that retirement for "an extended period".
Source: St. Louis Fed