Fed's Late-2014 Interest Rate Pledge: What Can Savers Do?
We learned yesterday that the Fed will likely keep rates near zero until at least late 2014. The FOMC policy statement changed from "exceptionally low levels for the federal funds rate at least through mid-2013" to "exceptionally low levels for the federal funds rate at least through late 2014". This technically isn't a guarantee that rates will stay near zero until late 2014. However, Bernanke suggested in his press briefing that it would likely take a dramatic improvement in the economy for this to be revised.
I think we all can agree that the Fed's efforts to stimulate the economy by keeping interest rates near zero have had a devastating effect on the incomes of savers. What can savers do? Several readers in my yesterday's Fed post suggested a petition to draw attention to this issue.
Based on the success of the Bank of America debit card fee petition, I think it's reasonable to give an online petition a try. However, this issue is more complicated. Who should the petition be directed to? What should be asked? And how realistic should be the petition's goal?
So here's my plan. If you like the idea of a petition, leave a comment with who you think the petition should be directed to. Also, describe what should be asked in the petition. From these comments, I'll create an online poll and let the readers decide the "who" and the "what" of the petition. Based on the poll and the comments, I'll write an online petition.
Before commenting, you might want to review iPetition's Guide to see how to write a successful petition. Note that tip #9 is to be practical and realistic:
The change you're advocating should be concrete and achievable. If visitors to your petition think you're just shooting for the moon, they're unlikely to sign the petition, even if they support the cause.
The debit card fee petition definitely met this criteria. It was easy for Bank of America to cancel their plans for the debit card fee. We have to ask if the change we're advocating is achievable.
Asking for Monetary Policy Changes More Favorable to Savers?
For our specific case, I doubt that asking Bernanke to change direction on monetary policy is achievable. If you believe his words in the press briefing, he thinks the Fed's monetary policy has helped and will continue to help the economy. There are many economists and pundits who will cite evidence to support Bernanke as in the case of this Washington Post op-ed. However, many economists and even a few at the Fed disagree. Two years ago I wrote about economists urging the Fed to get away from the zero-interest-rate policy. Reader me1004's comment is a good summary of the economic reasons against Fed's policy. There is a lot of debate over monetary policy. Unfortunately, I don't think a petition will help change the Fed's opinion on this issue.
Another possible target of the petition is the President. With an election coming up, the President might be willing to show support to an important constituency like seniors. However, he doesn't have much influence over monetary policy. His main influence is through his appointments to the Fed's Board of Governors. As reader Lou described in his comments, Obama's appointments have been supporters of the current monetary policies. This Washington Post page lists Obama's appointments, and this Reuters article gives an opinion on how dovish or hawkish each FOMC member has been. It should be noted that Bernanke and Elizabeth A. Duke (also considered dovish) were both nominated by Bush.
Asking for Tax Policy Changes Favorable to Savers?
Instead of asking for a change in monetary policy, the petition could ask for other ways the President could help savers. There are many tax reforms that could help. I reviewed two of these in this 2010 post. Mitt Romney's plan is to "Eliminate taxes for taxpayers with AGI below $200,000 on interest, dividends, and capital gains." The problem with tax reform is that it has to go through Congress. So it may make more sense pushing tax reforms to our Congressional representatives.
Asking for the Return of the Pre-2008 Savings Bond Annual Purchase Limits
There is one change that the President could enact immediately and without Congressional consent. That change is to return to the pre-2008 annual purchase limit on savings bonds. The savings bond program is under the Treasury which is under the President. So the President should have the power to make this change. In addition, this change could look politically popular to seniors and even to his base since it would reverse a policy that started in the Bush administration.
The Treasury did increase the annual purchase limit of online savings bonds at the start of this year. However, this change essentially just kept the limit the same as last year since paper bonds can no longer be purchased at banks.
The Treasury never did provide a good explanation of why they cut the annual limits to such an extent in 2008. The Savings Bond Advisor shows how extreme this change was in this post:
From 1941 to 1947 the annual limit was $3,750 (over $35,000 a year after adjusting for inflation). From 1947 to 2007 the limit was $30,000 per series. The Treasury still has not explained why the limit is so much lower now than it has been historically
The downside of this change is that it's not going help us a lot. Being able to purchase $60K in I Bonds instead of $10K in I Bonds per year won't make up for the ultra low interest rates. Also, the I Bond hasn't been a great deal now that the fixed rate is zero. However, I Bonds are now a better deal than TIPS. This Savings Bond Advisor post has an interesting review of the Fed's new inflation target and its new 2014 rate pledge in how they impact I Bonds. He describes why this is favorable to I Bond investors:
I bond investors should do better than others in the near term because they are protected from inflation. And they'll continue to do better than new TIPS investors because the fixed rate on I bonds can't be negative.
The above reasons are why I think the return of the pre-2008 annual purchase limit is the best change to advocate in a petition. The petition can still mention that savers have been punished unfairly by this extreme monetary policy. It would say that we understand that direct control of monetary policy is outside the scope of the President's powers. Thus, we ask for this specific action that the President can take without Congress to help savers. It's a reasonable change that can show his support and concern for savers.
The main goal of the petition may not be something specific. It may be to just raise awareness of how savers are being punished. Savers in the UK started the organization called Save Our Savers for this purpose. Here is how they described their purpose:
Savers are fed up with being punished for their prudence while politicians bend over backwards to seek borrowers' votes - now a new action group aims to get a better deal for depositors and investors.
I first reviewed this group two years ago. The site continues to publish interesting policy commentary like The dangers of prolonged low interest rates.
Websites like Save Our Savers and online petitions may not be able to solve these issues, but they can raise awareness of how current policies are unfairly punishing savers. On the issue of the petition, leave a comment about what you think of an online petition in general. If you do like the idea of a petition, what should it ask for and who should it be directed to? If there is enough interest in a petition, I'll create a poll based on the comments to decide about the "who" and the "what" of the petition.