Both take issue with the idea that savers are being stolen from via low rates. Both point out that the world doesn’t owe you a positive return and that positive returns are quite hard to find at the moment for everyone. Your cash isn’t getting much of a return and neither is my human capital. Ce la vie, I’m afraid, in the absence of reflationary policies.
As you’ll all be aware, I think in graphs, so I wanted to try to visually represent this. Unfortunately the legend reads SAVINGS/GSP/S500 which is a bit scary. But allow me to explain. Here’s the graph from FRED. It’s for the US because their data portal is easier to use than the damn ONS website and represents savings as a proportion of GDP relative to the current stock market valuation.
Why does this mean savers can’t have nice things? I’ll put a break in here if you want to guess in the comments.
This is kinda a response to Aziz’s graph that simply shows savings relative to GDP. I wanted to add a prediction of future wealth and I’ve used the S&P 500 as a dirty proxy for this. The spikes followed by the elevated rates are recessions and slow recoveries, the sorts of things that make owning safe assets now look good and future economics prospects look bleak.
What you see in this is an graph illustrating what I said in my last post. Saving is buying something now to sell in the future, usually via a financial intermediary. That is difficult in itself, but centuries of financial innovation now make it routine. But when lots of people want to buy something now and nobody thinks that lots of people will want to buy it then you will be unable to find a decent return.
In the late-1990s and in the mid-2000s bubbles popped which reduced the expected future value of the world’s assets and made people want to hold more safe assets right now. This pushed down returns to savers mechanically. Even though some savers think it was the evil machinations of central bankers, that makes no sense.
Look. Demands for higher interest rates are demands for transfers from people in the future to people in the present. It’s a ludicrous demand which would coincidentally have disastrous results, but it’s perfectly respectable. This either shows how hard economics is or how stupid economics is without political economy. I’m not sure, but either way there’s no way to save today’s savers by demanding higher interest rates.