AEIdeas

The public policy blog of the American Enterprise Institute

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Discussion: (6 comments)

  1. Tom Sullivan

    A typical rotten idea promoted by Democrats. The complete rottenness is ignored by the rotten “news media”.

  2. Benjamin Cole

    I am a bit surprised to see—in a free market arena lie the AEI—a reiteration of the idea that savers are entitled to returns.

    in pure free markets of course, savers take risks and may, or may not, have positive returns.

    Even with a gold standard and savings in the form of gold, there is the risk that gold will fall in value, or that gold is stolen. Banks can fail due to mismanagement or fraud, even in a gold standard (set aside the issue of free banking).

    Sure, there would be private insurance for deposits, but private insurance can fail (see AIG) or the insurance might not cover losses due to fraud, or even is extensive covenants were not met (only bonded employees for example).

    It is tough to lend out anything—including gold—without taking a risk. There is even the threats of snowballing disintermediation reducing the value of all assets, leading to more disintermediation, as savers stuff gold into their mattresses.

    And, due to demographic bulges or other reasons, there may be long periods in which savings are larger than demand for capital. In this situation, banks would charge fees to store gold, probably higher than interest paid.

    Ironically, about the only assurance I can see that depositors get their money back is national deposit insurance (now, the FDIC) and a central bank that can print money and make good on lost deposits, even if extensive.

    That is not free markets.

    Is the Fed too expansionary?

    The record suggests that obtaining strict price stability in modern Western economies, such as Japan and Europe, leads to economic stagnation.

    China has been booming, I suggest not due to commie management, but a central bank that is growth oriented.

    A peevish fixation on a single, difficult to measure nominal variable—inflation—may not be the best monetary policy, and recent history suggests is actually contractionary.

    Inflation is annoying, I grant that.

  3. A much more sensible design for MyRAs would be to have inflation-indexed government debt with positive real interest rates in these accounts.

    No, a much more sensible design would be to let savers/investors choose their own investment vehicles, just as in “regular” IRAs. MyRAs are just a cynical means for the Federal government to con even the poor into lending their pennies to the government.

    Even with a gold standard and savings in the form of gold, there is the risk that… gold is stolen.

    Including by the government. See FDR’s EO Executive Order 6102, “confiscating” all privately held gold.

    Eric Hines

    1. Anonymous Coward

      Poor people don’t usually have bank accounts, friend. (Some do, granted.) I’m all for upwards economic mobility, but really the only people who could make good on these RA’s are middle class.

  4. Well put.

  5. Anonymous Coward

    Why are we comparing savings accounts to inflation? I mean, no shit your money loses value in a savings account. Shouldn’t we be comparing them to the current products offered by the market right now? The current average interest rate on saving accounts is 0.06%, and most major banks only offer 0.01%. I’m no fan of Obama’s, but 1.47% is a helluva lot better than 0.01%.

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