The Central Bank War On Savers—–The Big Lie Beneath

The central bank war on savers is rooted in a monumental case of the Big Lie. Here is what a retired worker who managed to save $5,000 per year over a 40 year’s lifetime of toil and sweat in a steel factory now earns in daily interest on a bank CD. To wit, a single cup of cappuccino.

Yet the central bankers claim they have absolutely nothing to do with this flaming economic injustice.

That’s right. A return that amounts to one Starbucks’ cappuccino per day on a $200,000 nest egg is purportedly not the result of massive central bank intrusion in financial markets and pegging interest rates at the zero bound; it’s owing to a global “savings glut” and low economic growth.

Thus, Mario Draghi insisted recently that ultra loose monetary policy and NIRP are,

……… “not the problem, but a symptom of an underlying problem” caused by a “global excess of savings” and a lack of appetite for investment……This excess — dubbed as the “global savings glut” by Ben Bernanke, former US Federal Reserve chairman — lay behind a historical decline in interest rates in recent decades, the ECB president said.

Nor did Draghi even bother to blame it soley on the allegedly savings-obsessed Chinese girls working for 12 hours per day in the Foxcon factories assembling iPhones. Said Europe’s mad money printer:

The single currency area was “also a protagonist…….”

Actually, that’s a bald faced lie. The household savings rate in the eurozone has been declining ever since the inception of the single currency. And that long-term erosion has not slowed one wit since Draghi issued his “whatever it takes” ukase in August 2012.

Euro Area Gross Household Saving Rate

Yes, double-talking central bankers like Draghi slip in some statistical subterfuge, claiming “current account surpluses” are the same thing as “national savings”. Actually, they are nothing of the kind; current account surpluses and deficits are an accounting identity within the world’s Keynesian GDP accounting schemes, and for all nations combined add to zero save for statistical discrepancies.

In fact, current account surpluses and deficits are a function of central bank credit and FX policies and their impact on domestic wages, prices and costs. Chronic current account surpluses result from pegging exchange rates below economic levels and thereby repressing domestic wages and prices, and chronic deficits from the opposite.

Stated differently, what central bankers claim to be “excess savings” generated by households and businesses, which need to be punished for their sins, are actually deformations of world trade and capital flows that are rooted in the machination of central bankers themselves.

That much is evident in Draghi’s own numbers. He chides Germany and the eurozone for fueling the savings glut as represented by 5% and 3% of GDP current account surpluses. But that’s a case of the cat calling the kettle black, if there ever was one.

During the 14 years before Draghi’s mid-2012 “whatever it takes” ukase, which meant that he was fixing to trash the then prevailing exchange rate of 1.40-1.50 dollars per euro, the eurozone did not have a current account surplus!

What Draghi sites as the problem he is fixing is mainly his own creation. That is, it is a result of the 25% currency depreciation the ECB effected under his leadership, and also the temporary improvement in Europe’s terms of trade owing to the global oil and commodities glut. And even in the latter case it is central banker action that originally led to the cheap credit boom of the last two decades and resulting over-investment in energy and mining production capacity.

In any event, the eurozone surpluses since 2011 shown below do not represent consumers and business failing to spend enough and hoarding their cash. To the contrary, these accounting surpluses are just another phase of the world’s massively deformed system of global trade and capital flows. The latter, in turn, is the fruit of a rotten regime of central bank falsification of money and capital markets.

Euro Area Current Account to GDP

In fact, when savings are honestly measured, there is not a single major DM economy in the world that has not experienced a severe decline in its household savings rate over the last several decades. The US household savings rate, for example, has not only dropped by more than half, but in so doing it was going in exactly the wrong direction.

That is, the giant 78 million plus baby boom generation was demographically ambling toward the inflection point of massive retirement waves beginning in 2010. The savings rate should have been rising toward a generational peak, not sliding into the sub-basement of history.

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