Double Your Money In Just 61 Years
In an post titled Slow Compounding, Floyd Norris of the New York Times notes the effects of low interest rates on savers in the US:
I did a little arithmetic. My son is an 18-year-old college freshman. If he puts $100 into such an account now, and rates remain constant, he will have doubled his money in time for his 79th birthday party.
In 61 years, you have to wonder how much that $200 will buy. More or less than $100 worth of silver?
And when you consider that prices are rising at 3-9% annually, depending on your source, it's clear that savers will slowly be wiped out. Adding insult to injury, the tiny bit of interest earned is taxed as regular income.
The Fed says that near-zero percent interest rates are justified for an "extended period". As long as that period goes on, anyone who holds dollars will lose purchasing power.
Here's a chart of historical CD-rates. Clearly, punishing savers in such a way is not sustainable.
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