Look carefully before buying MyRAs

Article Highlights

  • If the Federal Reserve succeeds in its goal to depreciate by 2% per year, the real return on an account that earns 1.5% annually is negative ½%.

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  • MyRA savers will have accounts worth less in real terms than the money they put in.

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  • A design for MyRAs that would make much more sense would be to have inflation-indexed government debt in these accounts.

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If the Federal Reserve succeeds in its goal to depreciate the purchasing power of the dollar by 2% per year, the real return in the example of a person contributing to an account that earns an annual return of 1.5% is negative ½% per year. At every period the savers will have accounts worth less in real terms than the money they put in.

A design that would make much more sense would be to have inflation-indexed government debt in these accounts. That would protect the savers from the Fed—protection they assuredly need. The program would then be a healthy offset to the Fed's current policy of crushing conservative savers.

Alex J. Pollock
American Enterprise Institute
Washington

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Alex J.
Pollock

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