By New York Times
If you’re a retiree who relies on interest income, you know that the tap is running dry. In fact, many investors in certificates of deposits, savings accounts and money market accounts are losing money once taxes and inflation are subtracted from today’s extremely low yields.
Less well known is that measly savings yields are central to the government effort to buy time for the banks to earn their way back to health. It is important to rebuild the banks. But more attention must be paid to the collateral damage from that effort.
Here’s what’s happening: By lowering the short-term interest rate it controls to virtually zero and creating lending programs, the Federal Reserve has enabled banks to borrow cheaply. The banks re-lend that cheap money, but not necessarily to consumers and businesses. They can, for example, lend it to back to the federal government by buying Treasury securities, and earn a nice spread between their cost of funds and Treasury yields.
Continue reading How Retirees Saved the Banks