government policy: anti-saver, pro-spendthrift

Don’t believe the hype about America’s new culture of thrift – the economic playing field has rarely been tilted so sharply against savers and in favour of spenders. Minuscule short-term yields and rising taxes on passive income are the unpleasant flipside of stimulus. The fact that a government living in fear of a deflationary recession is happily propping up grasshoppers at the expense of ants... [more]

Don’t believe the hype about America’s new culture of thrift – the economic playing field has rarely been tilted so sharply against savers and in favour of spenders. Minuscule short-term yields and rising taxes on passive income are the unpleasant flipside of stimulus. The fact that a government living in fear of a deflationary recession is happily propping up grasshoppers at the expense of ants should come as little surprise. But only a study of demographics makes it clear why the majority of Americans prefers the status quo. Nearly $8,000bn in savings is held in short-term interest-bearing instruments. Yet an investor buying two-year Treasury notes now receives 0.6 per cent interest, less than a fifth of what he got as recently as 2007, and the return on shorter maturities is virtually zero. The picture is no brighter for those whose wealth is in bricks and mortar. Americans who own all or most of the equity in their homes have seen it decline by more than a fifth. They should, in theory, be better off than those with big mortgages whose equity has shrunk far faster or vanished entirely, but American borrowers have a unique reset button. Hundreds of thousands of borrowers are strategically defaulting – walking away from their mortgages even when they have the ability to pay, taking advantage of these loans’ non-recourse nature. America’s frugal can be justifiably bitter about years of putting off instant gratification, but life is not fair. Their country needs its spenders to spend, consequences be damned. http://www.ft.com/cms/s/0/84cecbc0-90ef-11df-85a7-00144feab49a.html?ftcamp=rss [less]