Monetary policy.  Not too many people think about it, but it affects everything we do.  In my book, “If Everyone were rich, who would make me dinner?”, I explain exactly how low interest rate monetary policy has destroyed the middle class.  Low interest rate monetary policy has been the sole, exclusive reason we face the economic difficulties today.

First, let me explain that the interest we earn on our savings account is supposed to keep up with the rate of inflation.  For example, if inflation rates were measured today the way we measured inflation statistics in 1980, the rate of inflation would be rising at the rate of 13%.  That means, if we had $ 100. in our savings account today, we would have to earn $ 13.00 in interest to keep the purchasing power of our money the same as today.  In other words, $ 100. today, plus the rate of inflation, 13%,  would keep our savings the same but adjusted for inflation a year from now.  That means we would have $ 113.00 in the bank a year from now.  The $ 113.00 a year from now would do nothing more than buy exactly what $ 100. dollars would buy today.  Low interest rate monetary policy allows the banks to pay us only 2% on our money, meaning after a year, we”d have only $ 102.  But, when inflation is running at 13%, by paying us only 2% in interest, we are actually losing money leaving it in the bank.  That’’s because by keeping interest rates low while inflation rates are high, the Federal Reserve is actually stealing the wealth out of our savings.  This is nothing more than robbery to the average American’’s savings, and the labor that went into earning this money.  To say this is an outrage is an understatement.  We are all victims of a bank robbery, with the Federal Reserve riding the getaway car.

Now, you must ask yourself, if low interest rate monetary policy is so terrible, why would the Federal Reserve embark on such a policy?  Notwithstanding the primary reason-to take away your ability to retire, you are being told by the mainstream media that low interest rate monetary policy is the exact opposite of monetary policy instituted during the Great Depression that exasperated an already difficult economic time for all Americans.

The only problem with that rationale is that (although it sounds good), the Federal Reserve’’s low interest rate monetary policy has not passed through to the consumer.

Our current Federal Reserve Chairman, Ben Bernanke, is touted as a “student of the Great Depression”.  He has vowed to continue the destructive low interest rate monetary policy because high interest rates exasperated the Great Depression.  Theoretically, according to economists, high interest rate monetary policy restricted our money supply, thus driving down the cost of goods (deflation), that sent our economy into a death spiral.  By lowering interest rates and keeping them low, we will prevent deflation, and in theory, prevent the events that exasperated the Great Depression.

The only problem is that what is happening is the exact opposite.  A perfect storm of banks acting in concert to keep interest rates they pay us on our deposits and our pension plans, savings accounts, etc., extremely low (using Federal Reserve monetary policy as an excuse), while charging usurious rates to those that need credit due to the fabricated “credit crunch”, whereby our banking institutions have rationalized charging us more for credit than the local loan shark.

Think about it.  We are not able to receive a real interest rate on our savings, but those same dollars we put in our savings accounts that the bank lends out in loans are being lent out using loan shark rates.  Something is very wrong with this picture.

While we insist on creating inflation with low interest rate monetary policy, we are also squeezing the consumer on the back end with loan shark style interest rates.  So, using the Federal Reserve chairman’’s own theory-that high interest rates will exacerbate a Great Depression type economy, our financial institutions have fostered a climate that can lead to another Great Depression, (charging high interest rates to borrowers), while simultaneously creating an inflationary environment amongst themselves with overall low interest rate monetary policy.  The only thing deflating right now are our savings accounts, while the profit margins of our banks skyrocket.

How can the average consumer combat high interest rate charges on the borrowing side when our banks are not paying a fair interest rate on the savings side?

It’’s a recipe for an economy that may end up being worse than the Great Depression, because while we are printing more and more money to bail out wall street, the inflationary effect on increasing our money supply makes our savings dollars worth less.  Compound this inflationary event with the lack of interest paid on our savings, and we lose another weapon in our arsenal to pull ourselves out of this increasingly difficult
time.

We are living in a time of extreme low interest rate policy, while charging consumers extremely high interest rates that can debilitate the consumer on both ends of the spectrum.  In trying to avoid a Great Depression, the Federal Reserve may have just created a Greater Depression.