Fed protects debt or savings?

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Submitted by jrock on August 31, 2006 - 4:11pm

Does anyone else get as annoyed as I do everytime the Fed and it's minions start fretting over, or issuing empty assurances about, maintaining the inflated value of housing? When was the last time you heard one of these bankers or economists talking about protecting the value of the dollar for people who have actually lived within their means and struggled to save money rather than mortgage themselves into oblivion? Why do we always have to listen to what the Fed is going to do or should do to protect the financial standing of people who speculated on inflated assets with borrowed money? Just once I'd like to hear what the Fed is going to do to protect the savings of people who are trying to live a fiscally responsible existence, who aren't leveraged to their eyeballs with no-money-down option adjustable rate loans. I just wish somebody would point out in a significant recognized media outlet that every effort the Fed makes to bail out the debt-ridden housing market is, in equal part, an effort to neutralize the efforts of people who have actually been SAVING MONEY to buy house.

‹ Nightmare mortgages So Cal Housing Blues... ›
Too few people are savers,
Submitted by powayseller on September 1, 2006 - 5:21am.

Too few people are savers, so the Fed focus is on helping the masses; 70% of GDP is consumption, and most Americans are up to their eye balls in debt. At my elementary school, most moms work now; the PTA President told me thiw year we've got a bunch of incoming kindergarteners with working moms; volunteer work is down as more moms are working to pay off all that debt and have no time to help at the school. They're overextended; you can see it everywhere.

Why would the Fed help the 1% or so (just a guess) of Americans who save?

Also, the Fed's goal is monetary stability, so they must react to large trends that would cause inflation or deflation, not to the minor trends caused by the savers.

Its even more sinister and
Submitted by barnaby33 on September 1, 2006 - 7:21am.

Its even more sinister and self-interested than that. If you owe the bank 1000 dollars its your problem. If you the banking system 3 trillion in adjustable rate mortgages, its the banking systems problem.

Josh

Actually, the Fed's goal is
Submitted by technovelist on September 1, 2006 - 7:21am.

Actually, the Fed's goal is inflation. That's why it was created in the first place, so that the government could spend more than it takes in taxes. However, if people realized that, they wouldn't be able to get away with it anymore. Thus, they are always trying to bamboozle the public into believing they are "fighting inflation", when in fact ending inflation is easy: just stop printing money.

This seems like as good a
Submitted by poorgradstudent on September 1, 2006 - 12:02pm.

This seems like as good a place as any to put this thought I've had lately:

Would Deflation be such a bad thing?

From my understanding, deflation tends to raise wages and rewards savers while lowering corporate profits and hurting borrowers.

It also does tend to raise unemployment.

Over the past couple years wages have not increased, while corporate profits have been flying high. I wonder if a little deflation would be good for the economy right now.

Yes, of course deflation is
Submitted by technovelist on September 1, 2006 - 1:45pm.

Yes, of course deflation is good for savers and bad for borrowers. But what is the biggest borrower in the world? Hint: its initials are "USA". And it just so happens to have a magic "money" printing machine to make sure that there is no deflation, courtesy of the Federal Reserve. Thus, deflation cannot happen until and unless the Federal Reserve loses the ability to inflate, which in turn can happen only when no one will take their funny "money" any more, i.e., after a hyperinflation that wipes out the "dollar".

I think I've heard Rich say
Submitted by sdduuuude on September 1, 2006 - 1:51pm.

I think I've heard Rich say the Fed doesn't really care about limiting inflation. It only strives to limit the public's perception of or expectation of inflation. Someone else may have to explain that in full, or link to one of Rich's articles.

Wow. Just after I posted
Submitted by sdduuuude on September 1, 2006 - 1:57pm.

Wow. Just after I posted that, I noticed this from this morning.