You know by now that the Federal reserve has moved the country as close as it can to Zero interest rates. The assumption is that zero interest rates will motivate the economy and leave more money in your pocket.
There is a huge problem. Zero interest rates mean that no one is making any money on their money or your money.
You give your money to the insurance company to cover any unexpected healthcare costs. The insurance company puts your money into investments which will give a return so that a. they can cover their costs, b. they can pay your medical bills, and c. pay their stockholders for investing in them (if they are a shareholder-owned company). If there is zero interest rates, they are not making any money on your money.There is only a few ways to make money a. cut services, b. reduce reimbursements to providers, c. raise their rates which is why healthcare rates rose 9% in an economy with zero growth.
This scenario is what is driving banks to charge more fees. They are not making any interest (or a very low rate of interest) on your deposits so they have to find other ways to pay their costs.
Some will argue you have to control interest rates or you have inflation. Actually supply and demand drives interest inflation more than interest rates. If you only have 4 widgets and there are 3 buyers, the price of widgets stay low; if you have 4 widgets and 10 buyers you can raise the price because the demand is outstripping the supply. While it is true that interest rates are a "pass along" cost, they are also a "pass along" engine in the economy. Retirees today who are seeing less than a 1% return on their certificates of deposit are not spending money to encourage the local economy.
My prediction: the debate about how the Federal Reserve is managing the economy is going to heat up a lot in the next 12 months.
There is a huge problem. Zero interest rates mean that no one is making any money on their money or your money.
You give your money to the insurance company to cover any unexpected healthcare costs. The insurance company puts your money into investments which will give a return so that a. they can cover their costs, b. they can pay your medical bills, and c. pay their stockholders for investing in them (if they are a shareholder-owned company). If there is zero interest rates, they are not making any money on your money.There is only a few ways to make money a. cut services, b. reduce reimbursements to providers, c. raise their rates which is why healthcare rates rose 9% in an economy with zero growth.
This scenario is what is driving banks to charge more fees. They are not making any interest (or a very low rate of interest) on your deposits so they have to find other ways to pay their costs.
Some will argue you have to control interest rates or you have inflation. Actually supply and demand drives interest inflation more than interest rates. If you only have 4 widgets and there are 3 buyers, the price of widgets stay low; if you have 4 widgets and 10 buyers you can raise the price because the demand is outstripping the supply. While it is true that interest rates are a "pass along" cost, they are also a "pass along" engine in the economy. Retirees today who are seeing less than a 1% return on their certificates of deposit are not spending money to encourage the local economy.
My prediction: the debate about how the Federal Reserve is managing the economy is going to heat up a lot in the next 12 months.
