Many have cheered the Fed’s interest rate cuts, but one group isn’t very happy. I saw this letter to the editor this morning in the Miami Herald:

The Fed keeps lowering interest rates to bolster the economy. I am an 81-year-old retired World War II veteran. I worked hard and saved my money.

With the lowering of interest rates during the past five years, I have lost more than $3,000 a year in income from interest on my savings. I don’t have the discretionary income to buy new carpeting, go to Disneyworld, dine out or give money to my children. I had to drop my supplemental health insurance and keep my fingers crossed. My savings are dwindling.

Multiply my plight by millions of retirees, and you see that compounding this tragedy is not only devastating, but could be contributing to the economic downturn.

The government’s failure to prevent the housing bubble from bursting has worsened this situation.


Cutting interest rates to artificially low levels is intended to help banks and debtors but it comes at the expense of savers. Those who have done the right thing by saving are forced to pay for those who have done the wrong thing. What kind of message are we sending to people with a policy like this?

The Fed’s policies are ultimately self-defeating since savers are the ones who provide the funds that banks lend. One of the reasons banks have a lack of capital is because there aren’t enough savers. Our savings rate fell into negative territory over the last few years and the result is government providing capital to banks. In the long run, current policy will only exacerbate the problem.

And what kind of stimulus will this provide to the economy? If savers lose income, isn’t that a negative for the economy? If the public starts borrowing again, the Fed will have transferred income from savers to spenders. If the public doesn’t start borrowing again, the Fed will have transferred income from savers to banks. Why should the Fed have the ability to transfer income at a whim? In a sense this is no different than imposing a tax on savings except the Fed doesn’t have to stand for re-election. How would the public respond if Congress tried to pass a tax on savings? Isn’t this the same thing as taxation without representation? Didn’t we fight a war over that?

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