Saving the Economy

While it is ever more apparent that effective measures need to be taken to stimulate the flagging economy – and others throughout Europe - careful consideration must be given to the form that such measures take and the effects that the actions have on different groups of people. In my opinion we need to do more on behalf of the saving community.
There has been far too much reliance on keeping both short and long-term interest rates low. There should be a much greater emphasis on public works such as transport infrastructure, power generation and increasing the nation’s limited fuel storage capacity.
In the present circumstances interest rate cuts have only a very limited positive impact on the economy, mediated as they are through the banks, as we continue bumping along the bottom in the worst recession since the 1930s.
Moreover, reductions in interest rates adversely impact on savers immediately and are only partly passed on (in some cases loan charges were actually put up by banks) to borrowers. And the exorbitant rates that continue to be charged on credit cards, not to mention usurious payday loans, are a disgrace.
Savings are the bedrock on which long term investment should be built. Not only this, but savers, particularly older people in or near retirement, are having their incomes severely reduced by interest rates held for years at derisory levels on savings accounts even at banks that it might be thought had retained some shred of respectability.
Ways must be found to moderate this highly adverse impact on highly responsible people who have paid their taxes and who are trying to live within their means and provide for themselves. Whenever it is pointed out that state pensions are protected (so far) it is rarely mentioned that pensioners who have savings have lost hundreds or thousands of pounds of income by the slashing of interest rates.
Furthermore, the economic effect of interest rate cuts can even be the opposite of that intended. The substantial income reductions for savers mean that they have less money available to spend. Twenty years ago in Japan the experience was that as interest rates were progressively pared back people reduced consumption and saved harder to make up the lost income. Annuities for those coming up to retirement have also fallen and financial institutions already cream off huge chunks of people’s private pension savings.
As we see all to frequently, it is no use relying on the banks to be reasonable about interest rates to savers. There needs to be action by the Government. This it could take through National Savings and Investments (which used to be called the National Savings Bank). We certainly need a bank that is operated in the people’s interest and which provides secure and reasonable returns to savers. If the Government won’t provide such a bank then local authorities should be re-empowered to step in to act in the public interest.
These practical measures I admit are vain hopes in the atmosphere of austerity that the Government and its friends in the right wing press has persuaded people is unavoidable. This is not so and if a principled stand was taken against this negativity there would be more cause for optimism than there is now.