Since 2008, due to the combination of near-zero interest rates and inflation, savers at banks and credit unions have seen the real value of their savings erode at a rate of about 2 percent a year, 26 percent over the past 13 years, per my calculations.
Now, amid the fog of the war on inflation, a ray of hope is emerging: Interest rates on Treasuries and some brokered CDs are now in the 4 percent range, higher than they have been in 13 years.
But while it feels good to be able to earn more than nothing, the fact is that savers are worse off today. Now, with inflation at about 7 percent, savers are seeing their accounts’ purchasing power shrink to 3-4 percent a year or more. Total losses in the real value of millions of savers’ accounts over the past 13 years have been in the trillions and rising, yet this phenomenon has so far received little media coverage.
Many savers who have managed to put aside money for retirement, a child’s education, a medical emergency or a down payment on a new home have been reluctant to risk their savings in the stock market or other speculative investments. They have kept their money in savings accounts and CDs at federally insured banks and credit unions or in government bonds.
Massive losses in the real value of savings over the last 13 years amount to a silent tax imposed on savers to finance the economic recovery, which in the process brought about historic increases in wealth for leveraged investors.
Does anyone in government monitor savers or even discuss their situation? The Consumer Financial Protection Bureau, created after the 2008 crash to protect consumers’ financial interests, has focused its attention almost exclusively on protecting borrowers. The idea that savers might need a voice at the table doesn’t seem to have occurred to anyone. It seems that there is more concern about losses experienced by speculators in cryptocurrencies than about losses incurred by millions of ordinary middle class savers as a result of inflation and zero interest policies.
Are savers merely collateral damage if more than ten years of sacrifice are needed to implement monetary policy? Can’t something be done about this? Are there policies that could be explored to address the harm experienced by savers? Here are some options to consider.
Congress can make Treasury Series I savings bonds, which are inflation-protected, available to individual investors without a cap on the amount they can buy. These savings bonds, which pay over 9 percent interest, are currently limited to $10,000 a year per person. person and are only accessible via the Treasury website, which is difficult to navigate and sometimes crashes. These bonds can be made readily available through any insured depository institution or registered broker-dealer.
Congress should amend the Humphrey Hawkins Act to require the Federal Reserve, as part of its semiannual report to Congress, to issue a Savers Impact Statement that reports on the impact of inflation on savers and provides an estimate of the total loss in earnings and purchasing power of savings accounts due to inflation and interest rate policy.
Congress may also consider a refundable tax credit that would allow any federally insured financial institution to offer savings deposit accounts with a return equal to that of inflation-protected Treasury Series I Savings Bonds. These inflation-protected savings accounts would have an inflation-adjustment feature like Series I savings bonds. They will be administered by the bank or credit union offering the account and will be a direct pass through to savers (called as such on the saver’s statement, separate from interest paid by the bank).
Offering interest-protected savings accounts would allow banks, including community banks and credit unions, to make more loans to local businesses and individuals. Importantly, more deposits with regulated financial institutions will help mitigate the increasingly obvious risks associated with relying on the unregulated shadow banking system and cryptocurrency exchanges. It may also help slow the demise of community banks, which are disappearing at a rapid rate.
These proposals must of course be examined in the legislative process. They are put forward primarily to start a conversation about protecting savers. To be sure, making federally supported, inflation-protected savings vehicles available to savers would have a budget impact, as would the annual inflation adjustment in Social Security payments. But to the extent that the federal government succeeds in controlling inflation, which it is best placed to do, the budget impact will be substantially reduced.
Federal Reserve Chairman Jerome Powell and his colleagues are fighting hard to get inflation under control. They deserve everyone’s support. The proposals offered here would not strip the federal government of any of the fiscal or monetary tools it currently has to control inflation, but would simply protect savers from the steady depreciation of their hard-earned nest eggs. By offering a safe place to save, the federal government would effectively repeal the silent tax on savings that has prevailed since the 2008 financial crisis.
Is it time for Congress to consider the plight of savers who are responsibly trying to provide for their future needs? Should we start encouraging savings instead of quietly expropriating savers’ funds with inflation, even 2 percent inflation if rates are kept at or near zero? In other areas where our social contract has broken down to the detriment of the “silent majority”, public opinion has slowly boiled over as people felt the establishment wasn’t listening.
This is not a partisan issue: There are millions of hurt savers, Democrats and Republicans. Anyone want to take up their case? Could the current round of high inflation provide a catalyst?
Jeremiah S Buckley is a financial services attorney practicing in Washington, DC. Buckley was previously a minority staff director for the US Senate Banking Committee, and he played an important role in drafting many of the laws that affect the consumer financial services industry today. This article reflects the author’s personal views and not the views of his law firm or any of its clients.
