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The FED is clearly justified in a policy that hurts savers

November 21, 2013

This is an absolutely amazing exchange between the next FED Chairwoman and Senator Mike Johanns:

“I understand that savers are hurt by this policy,” Yellen said under questioning from Republican Nebraska Sen. Mike Johanns about low interest rates.

“You know, explain to the senior citizen who is just hoping that a CD will earn some money so they don’t have to dig into the principle,” Johanns asked, “what impact you’re having on a policy that says we’re going to — for as far as the eye can see or foreseeable future — keep interest rates low.” “They are hurt by that policy,” the senator added.

Yellen said she agreed. “But you know, if we want to get back to business as usual and a normal monetary policy and normal interest rates, I would say we need to do that by getting the economy back to normal.”

Yellen was not called upon to defend these policies, which she has signaled an interest in maintaining and expanding. She also suggested savers should be willing to see their wealth eaten away for what the Federal Reserve considers the greater good of society.

She argued that savers “play many different roles in the economy” and if they “take into account the broader array of interests they have in a strong economy, they would see that these policies — even though they may harm them in one respect — are broadly beneficial to them as I believe they are to all Americans.”

“They may be retirees who are hoping to get part-time work in order to supplement their income,” Yellen told the Senate Banking Committee. “They may be people who have children who are out of work and who are suffering because of that or [have] grandchildren who are going to college and coming out of college and hope to be able to put their skills to work finding good jobs and entering the job market when it’s strong.”

Yellen, the vice chairman of the Federal Reserve Board of Governors, made the comments during her confirmation hearing before the Senate Banking Committee.

Oh how I wish I could have asked just a few follow-up questions of Ms. Yellen; like:

Ms. Yellen, please explain to me how you define ‘strong economy’? Has your monetary policy created a ‘strong economy’ after 5 years of unprecedented monetizing? Do you see any hazards in this ‘strong economy’ that have been created by your policies?

You suggest, Ms. Yellen, that retirees could be helped by hoping to get part-time work to supplement their income. I appreciate that you used the word ‘hope’ and ‘part-time,’ as these seem to be the only jobs left in your ‘strong economy,’ but am I to understand that this is your suggestions for retirees who have lost all the interest income due to your policies? That they can supplement that loss by being a door greeter at WalMart as long as you continue on these extreme accommodative policies, which apparently will be forever?

But the (adult) children who you reference are out of work and college students attempting to enter the job market are going to be negatively impacted by the retirees who have lost their interest income and are hoping to take the same entry level, part-time jobs? And are these same college students now burdened with overwhelming debt coming out of college due to your monetary policy that encourages unprecedented levels of debt?

I’m sorry, you didn’t understand the question? Let me rephrase it. Isn’t it your policies that have the unemployed, the recently graduated, grossly indebted college student and the pauper retiree who has lost his interest income all fighting for the same minimum wage, part-time, no-benefit job? In fact, I believe what you are saying is that the retiree could be fighting for this same part-time job with his own children and grandchildren, so at least they could commute to the job interview together!

One more question: who is the biggest saver? No it’s not the 1 percenters, it is pension funds. Do you suggest they seek part-time work to overcome your policies that hurt savers?

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