Courtesy of Pam Martens.
Pundits were out in force yesterday celebrating the six-year anniversary of the bull market in stocks. Notably, no one was talking about the fact that the runup in stock prices has coincided with a six-year zero interest-rate policy (ZIRP) by the Federal Reserve, making the stock market a dandy casino to borrow low on margin and speculate high on risk; or, in the case of corporations, to issue tons of new debt and buy back their own stock.
As mind-numbing as it is to comprehend, it was December 16, 2008 when the Federal Open Market Committee of the Federal Reserve released this statement: “The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent.” And there we have stayed for six long, arduous years with nothing but periodic threats to hike rates coming from the Fed.
Seniors who were subsidizing their meager Social Security checks with interest from Treasury securities or Certificates of Deposit have watched their supplemental income cut by 50 to 75 percent, depending on the maturity of the instrument, as a result of the long period of low interest rates.
The elderly and those unemployed or underemployed might have been able to withstand these low rates for a year or two without dipping into principal to make up for the yield loss, but after six belt-tightening years, many have succumbed to simply eating into the principal to make up for the shortfall.
The Federal Reserve reports that: “Rates of ownership of certificates of deposits fell markedly between 2010 and 2013, from 12.2 percent to 7.8 percent. The amount held in those accounts also fell, with the median declining 25 percent and the mean declining 17 percent. These declines are, at least in part, attributable to low interest rates over this period…”
ZIRP has effectively been a wealth-stripping mechanism for millions of Americans. In August of last year, the Federal Reserve released a study showing that 52 percent of Americans would not be able to raise $400 in an emergency by tapping their checking, savings or borrowing on a credit card, which they would be able to pay off when the next statement arrived. That statistic puts into somber perspective just who it is that’s benefiting from the six-year bull market in stocks.
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