Parsing through my ordinary routine in keeping up with current events, I stumbled across this article on Business Insider, commentary is probably a more appropriate description for it, about the ECB’s plan to take interest rates negative and how it would rip off people who have savings accounts.

For most people this conjecture makes obvious sense. For me, however, it’s real headscratcher because if we’re to believe inflation targeting proponents, the best thing that the central bank can do for everyone involved is to control inflation, or rather, squeeze every drop of inflation out of the economy as possible. And of course once that happens, it has an impact on real and, by implication, nominal interest rates because the lower inflation is, the lower the nominal rate will be in order to remain neutral. At least that has been the experience with tight money since 2008, it lowers the Wicksellian interest rate.

There have been many complaints about inflation, especially in the 00’s in the name of so-called savers, even still when it is at modern historic lows. And so the political system responded, hit it with a hammer along with the rest of the economy and individual financial lives in the ensuing severe disinflation, and now these savers don’t care much for the predictable result. The inflation is gone. There’s been a dramatic reduction in the perception of stealth taxation. The FDCI did its thing and protected them from loss. Though, I really am sorry that the political system lacked the foresight to inform them that the whole thing was a tradeoff, that if your savings don’t erode with inflation, you get it with negative interest instead. Bank savings accounts are and have always been poor investments and putting a wig and lipstick on a pig leaves a pig.

As a disclaimer though, I don’t own a savings account at a bank. I use a brokerage account and ROTH IRA instead. And I’ll leave aside the things I find inflammatory about these claims in general, that parking money in a bank savings account is poor investment, probably worse than Treasury bonds; and that these people who choose to make this poor investment seem to feel a misplaced righteous indignation from supposed higher moral ground as “savers,” as if they don’t do foolish things with money while people who make better investments that involve some element of risk are somehow reckless; and then use this supposed moral ground to try to convince their neighbors and the government that their investment deserves to be protected above and beyond FDIC protections and the massive financial regulatory scheme as a priority over everything else – that it should also dictate monetary policy. I do not sympathize in that way with people who don’t know how to take care of themselves and believe they should be treated the same as everyone else. Actually, it would be much better to can FDIC as it induces the wrong kind of incentives in bank behavior both in what they do with deposits and what they advocate politically.

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