Help older Americans by raising interest rates

By RALPH E. SHAFFER

Stephens Media

Politicians, bankers and lobbyists have almost unanimously agreed that lower interest rates are a key to job creation and America’s economic recovery. The Federal Reserve cut the cost of money to an almost non-existent interest rate, while the national government made direct loans to corporations too big to fail. That left millions still out of work, so here’s a truly radical idea: produce jobs by raising interest rates on saving accounts.

Such an unheard of solution will draw scorn from the economic establishment, but it will have the support of millions of older citizens. They’ve seen their hard-earned dollars dwindle in real value as the cost of living, even in the midst of a recession, escalated at a rate much higher than the measly return savers got on their deposits.

It wasn’t just the government that bailed out Wall Street. Retired middle class Americans contributed more than their share in the form of lost interest.

An increase in interest paid on saving deposits, many belonging to retirees, would help all Americans. Retirees would spend that extra cash on much-needed home repairs, on travel, services, or retail goods. That spending would create the jobs that the country so desperately needs.

Moreover, this solution benefits those hurt by artificially low interest rates set by the Fed to aid other segments of the economy

Diminished interest income may not have been so bad had it been the only portion of a retiree’s income that fell. For many seniors, retirement turned sour when the fixed income they depended on suddenly became flexible. Their annual income spiraled downward as companies reduced their pensions, dividends were cut, bonds became worthless or their 401k plans fell in value.

But they still had income from their saving accounts… for awhile. As children of the Great Depression, these seniors knew the dangers of the stock market. Instead of putting their retirement dollars there, they sought the highest form of security, federally insured certificates of deposit, commonly called CDs.

They had saved for their old age, working overtime or moonlighting at a second job. In their last few working years they had finally made what seemed to be enough to comfortably retire. Interest rates on CDs had been substantial for decades, exceeding inflation. By the time they retired, the home mortgage was paid off, the kids were through college, and health insurance covered much of their medical costs.

All that changed when the Federal Reserve board cut interest rates to almost nothing. Millions of seniors had counted on the 4 or 5 percent return on their one-year CDs each year. But very quickly after the stock market crashed, interest on saving accounts was reduced to 1 per cent, if you were lucky, and in most cases far less. Some families who once took in $10,000 or more in interest annually now earn much less than half of that.

However, that house that they bought new years earlier is now aging along with them, needing an expensive new roof. The heating and air conditioning system, decades old, is erratic. The service company keeps it going, but the repairman shakes his head as he leaves after every visit. The termite inspector says the house needs to be completely repainted, and various appliances give notice they, too, are about to go.

While the retirees’ costs escalate, their income declines. The only hope for middle class seniors is a resumption of interest rates that are set by the free market that both Republican and Democrat politicians so loudly proclaim.

This November, with the economy on their minds, middle class retirees should seek out the congressional and presidential candidates who will offer a fair return on their savings. That fair return will encourage spending — and creation of those much-needed jobs.

Ralph E. Shaffer is professor emeritus of history at Cal Poly Pomona in Southern California and an occasional columnist for Stephens Media.