Savers Get Paid Again


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Just an interesting article I came across.

Savers Get Paid Again​

Posted November 22, 2022 by blair

Cash is back! It was only a year ago that people were so desperate for yield that the Wall Street Journal asked me if savers should put some of their home down payment savings in the stock market. Now we have high-yield savings accounts topping 3%. Three-month Treasuries are yielding 4.4% and 12-month paper is near 4.75%. These yields could top 5% if the Fed raises rates again in December as expected. Savers are getting paid again. What a sweet relief to the decade-plus of ZIRP policies (zero interest rate policy).

I remember 5% CDs (certificates of deposit) in the early aughts. Back then, Suze Orman still pined for 8% money market rates on afternoon talk TV. When I learned about the risk-free rate in college, the long-term average was 3%. But for more than 12 years, the Fed Funds rate was below 3% and for most of that time near zero. Zero-interest rate policy began after the Great Financial Crisis and only ended with the September Fed hike. Europe even toyed around with negative interest rates for a while. It was wild.

ZIRP is not the normal state of the monetary system. Where we are today is normal. Savers should be paid to wait, and the risk-free interest rate should not be zero. That was insane. Everyone got so high on the supply of free money that we forgot the basics of how money works. Unwilling to park cash in zero-interest savings accounts, investors went on a mad dash of risk-taking.

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Everyone got so high on the supply of free money that we forgot the basics of how money works
Oh boy. The author of that article probably doesn't even realize the irony of his statement being true but not for the reason he intended.
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