Federal Reserve Officials: Americans Are Saving Too Much Money So We Need To Purposely Generate More Inflation To Get Them Spending Again

Some top Federal Reserve officials have come up with a really bizarre proposal for stimulating the U.S. economy.  As unbelievable as it sounds, what they actually propose to do is to purposely raise the rate of inflation so that Americans will stop saving so much money and will start spending wildly again.  The idea behind it is that if inflation rises a couple of percentage points, but consumers are only earning half a percent (or less) on their savings accounts, then there will be an incentive for consumers to spend that money as the value of it deteriorates sitting in the bank.  Yes, that is how bizarre things have gotten.  It is not as if U.S. consumers are even saving that much money.  Several decades ago, Americans typically saved between 8 and 12 percent of their incomes, but over this past decade the personal saving rate got down near zero a number of times as Americans were living far beyond their means.  Once the recession hit, Americans very wisely started saving more money, and so now the personal saving rate has been hovering around the 5 to 7 percent range.  This is well below historical levels, but the folks at the Fed apparently are eager for Americans to pull that money out and start spending it again.

In an article entitled “Fed Officials Mull Inflation as a Fix“, Wall Street Journal columnist Sudeep Reddy described this bizarre new economic approach that some over at the Federal Reserve are now advocating….   

“But as the U.S. economy struggles and flirts with the prospect of deflation, some central bank officials are publicly broaching a controversial idea: lifting inflation above the Fed’s informal target.”

Does increasing inflation as a way to stimulate the economy sound like a good idea to any of you?

These are supposed to be some of the brightest economic minds that our nation has produced.

Unfortunately, it is becoming increasingly apparent that the folks running the Federal Reserve do not have a clue about sound economic policy.

Anyone who lived through the “stagflation” days of the 1970s should know that inflation does not spur economic growth.

But now some of the most prominent Fed officials are publicly proposing that we should purposely generate more inflation so that “real interest rates” (interest rates with inflation factored in) will go down.

For example, during a recent interview the president of the Federal Reserve Bank of Chicago, Charles Evans, made the following statement….

“It seems to me if we could somehow get lower real interest rates so that the amount of excess savings that is taking place relative to investment needs is lowered, that would be one channel for stimulating the economy.”

If you truly grasp what Evans is proposing here, your jaw should be dropping.

He is basically coming right out and saying, “Hey, let’s go out and crank up the inflation rate so that American consumers will start recklessly spending their money again.”

So are Americans really saving too much money?

Of course not.

Just take a look at the chart below.

Americans are actually still saving far, far less than they used to.  As you can see from the chart, in the 1960s and 1970s Americans would usually save somewhere between 8 to 12 percent of their incomes.

Today, we are still well below that level.  But we have made some progress from the reckless days of five to ten years ago when Americans were living far, far, far beyond their means and basically saving next to nothing….

So now some top Fed officials want to undo all that.  They apparently want Americans to grab their credit cards and to run out to the stores and spend wildly like they did a few years ago.

But spending recklessly is not going to repair our economy.  In order to have a healthy, balanced economy you need to have a healthy personal saving rate.  Encouraging Americans to spend every last nickel they have may boost economic figures in the short-term, but it will make our long-term problems even worse.

But it is not just Federal Reserve officials that are advocating this kind of nonsense.  Just a few months ago, IMF chief economist Olivier Blanchard suggested that it might be a good thing if western nations doubled their inflation targets from two percent to four percent. 

It seems like almost everyone is in an inflationary mood these days.

The Federal Reserve keep dropping hints that it is ready to print lots more money and unleash another huge round of quantitative easing.

Just this past week, the Bank of Japan shocked world financial markets by cutting interest rates even closer to zero and by setting up a 5 trillion yen quantitative easing fund.

In fact, nations all over the world have become increasingly eager to devalue their national currencies in an attempt to gain an edge in international trade.

So after years of relatively low inflation, it looks like our leaders are almost eager to tangle with the inflation tiger once again.

But it might not be so easy to tame the next time.

Once a really bad inflation spiral gets going it is really hard to stop.

But in the end, it is not going to be Barack Obama or the U.S. Congress that is going to decide if we pursue these inflationary policies or not. 

Ultimately, these decisions are in the hands of the unelected, unaccountable Federal Reserve.

If you don’t like it, too bad.  When was the last time a U.S. president or the U.S. Congress really stood up to the Federal Reserve?  It just doesn’t seem to happen.

The Federal Reserve is going to do what the Federal Reserve wants to do, and the rest of us are going to have to live with it.

Of course we could all try to elect candidates who would demand more accountability from the Federal Reserve this fall, but unfortunately those kind of candidates are few and far between.

The sad reality is that at this point, the Federal Reserve is pretty much completely and totally out of control.  The U.S. dollar has already lost over 95 percent of its value since 1913, and now the Federal Reserve is giving every indication that inflation is going to get even worse in the years to come.

But flooding the system with more paper money is not going to solve anything.  Instead, it is just going to make it even harder for average American families to buy milk and bread and to put gas in the car.

Inflation is a hidden tax on every single dollar that we already own.  It is a destroyer of wealth and a wrecker of currencies. 

But now some of the top officials at the Fed see inflation as a key tool in creating “economic growth”. 

With such a clueless collection of idiots running our economy (and the Federal Reserve does run our economy) do any of you actually believe that there is hope for the U.S. economic system in the long run?

103 U.S. Banks Have Collapsed So Far In 2010 – Do You Know If Your Bank Will Survive?

Have you ever noticed how almost all U.S. bank closings are now announced over the weekend?  It is almost as if someone wants to keep the increasing number of bank closures out of the news cycle as much as possible.  The Obama administration continues to use phrases like “green shoots” and “economic recovery”, but the truth is that the U.S. banking system is in the middle of a meltdown.  On Friday, federal regulators shut down 7 more banks.  That means that the total number of U.S. bank failures has reached 103 for 2010 so far.  Last year (which was a really bad year for bank closings), we did not break 100 until October.  Of course federal officials promise that “the worst is almost over”, but can we really trust anything that they tell us at this point?

When it comes to the health of the U.S. banking system, the statistical trends certainly do not look promising. 

At the end of 2008, there were 252 U.S. banks on the FDIC’s problem list.

At the end of 2009, there were 702 U.S. banks on the FDIC’s problem list.

About halfway through 2010, FDIC Chairman Sheila Bair said that 775 banks (approximately 10% of all U.S. banks) were on the problem list.

Does anyone else notice a trend developing?

It is time for everyone in the financial world to admit that the U.S. banking system is dying.

Do you know if your bank if on the problem list?

You might want to go check.

Not that your money is going to suddenly disappear.

Even if your local bank fails, the FDIC will guarantee your bank account, right?

Yes, it will.

But the FDIC is far from healthy at this point.

The FDIC is backing approximately 8,000 U.S. banks that have a total of about $13 trillion in assets with a deposit insurance fund that is pretty close to empty.

Well, actually “empty” is not quite the right word.

It was recently reported that the FDIC’s deposit insurance fund is sitting at negative 20.7 billion dollars.

And the FDIC estimates that the seven bank failures on Friday will reduce the fund by another $431 million.

Ouch.

The truth is that the FDIC is rapidly turning into a gigantic financial black hole.

The red ink just seems to be endless.

The FDIC now estimates that their funds will experience a $60 billion reduction due to additional bank closings between now and 2014.

And to be honest, that figure is way too optimistic.

So who is going to bail the FDIC out?

The same source that bails everyone out.

The U.S. taxpayers.

But isn’t that bad?

Yes, all of these bailouts are going to cause the U.S. national debt to continue to explode, but what else can we do?

Are we just going to shut down the FDIC?

That wouldn’t go over too well with anyone.

No, the truth is that this is the system that we have built.

All the crap flows downhill and ultimately ends up in the laps of U.S. taxpayers.

The bad news is that it looks like large numbers of banks are going to continue to fail.

You see, right now the American people are simply not doing a very good job of paying their bills.

During the first quarter of 2010, the total number of loans at U.S. banks that were at least three months past due increased for the 16th consecutive quarter.

Just think about that for a moment.

Would you consider 16 in a row to be a trend?

In an economic system built on credit, it is absolutely imperative that most people pay their debts or the whole thing will come crashing down very quickly.

And right now it is undeniable that things are unraveling at a staggering pace.

So who is benefiting from all this?

Well, there is one segment of the banking industry that is actually performing quite nicely in the midst of all of this chaos.

Many of the largest banks in the U.S. have been reporting very large profits as they gobble up larger and larger shares of the U.S. banking market.

In a previous article entitled “Are We About To Witness The Greatest Banking Consolidation In U.S. History?”, we noted the rapidly growing power of America’s megabanks….

Back in 2000, the “Big Four” U.S. banks – Citigroup, JPMorgan Chase, Bank of America and Wells Fargo – held approximately 22 percent of all deposits in FDIC-insured institutions.  As of June 30th of last year that figure was up to 39 percent.

The Founding Fathers of this country warned us of the danger of big banks getting too much power, but we have not listened to their warnings.

Now we have monolithic global banks that are so immense in size that we seem almost powerless to control them.

In fact, the six biggest banks in the United States (Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo) now possess assets equivalent to 60 percent of America’s gross national product.

The truth is that these sharks aren’t shedding any tears when your local banks die off.

Why?

Because they know that many of the customers from the banks that have died will soon come their way.

The reality is that all of the legislation and regulations implemented during the past 30 or 40 years have rigged the game massively in favor of the big global banks.

So dozens upon dozens of smaller banks are going to continue to die and the megabanks are going to continue to eat up increasingly larger portions of market share.

So if you still have money in a small local bank, enjoy it while you can.

From now on, the small bank in America is an endangered species.