Is Ben Bernanke really “punishing” savers?

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Savers, Ben may actually be smiling on you (Richard Clement/REUTERS)

The Federal Reserve Chairman Ben Bernanke has caught a lot of flack, to say the least, about the central bank’s decision to use government dollars to buy Treasury bonds. The plan is commonly called QE2, and it is supposed to drive down interest rates and boost the economy. Some say it won’t work. Some say it will create inflation. Some say it will create new financial bubbles.  Some say it’s not big enough.

So far, at least to me, the criticism of Bernanke’s plan that resonates the most has been that it hurts savers. Banks and large corporates get a big bonus from the Fed. And to a lesser extend home buyers. People who have money in the bank? Not so much. My post a few weeks ago about the Fed possibly starting a civil war was getting at how that will play out.

But it turns out, as Pat Regnier points out in a very good post on the blog of our sister publication MONEY,  the argument that the Fed is anti-savers is not as compelling as I thought. Here’s why:

Like most arguments, Regnier says the Fed anti-saver meme works as long as you don’t really dig into the argument. Here’s what he has to say:

But let’s be careful about language here. When you hear the word “saver,” you probably think of a set of character traits: Hard-working, future minded, willing to put off today’s pleasure for tomorrow’s security. An ant, not a grasshopper.

But low rates and (potentially) higher inflation don’t hurt people who simply have a knack for saving. They hit people who have already accumulated a lot of savings. Not all those people are especially virtuous ants. And not all people with low savings are silly grasshoppers.

Regnier’s point is that it is very hard to save if you don’t have a job. So if Ben Bernanke’s plan keeps more of us employed more of us will be able to save. But I think there is a larger point here about what we mean when we say savers. So Bernanke’s plan does hurt a particular type of saver. Someone who has already accumulated a lot of wealth and keeps that wealth in conservative investments, i.e. savings bonds, CDs and their bank. But that’s not most of us. For most of us, the most important savings vehicle we have is our 401(k) plan. And most of those plans are invested in the stock market. And with people living longer, even retirees are keeping more of their money in the stock market.

Bernanke’s plan won’t hurt 401(k) and stock savers. Low interest rates are good for stocks. Even inflation is not that bad for stocks. The market tends to outperform bonds, real estate and other investments when inflation is rising. So for most of who are still working at our savings QE2 ain’t that bad.

Of course, if the Fed’s plan creates hyperinflation, then it’s bad for everyone–savers and banks alike. But the Fed might not be the most likely source of hyperinflation. Here’s the only thing I would say to Regnier: Even if this “has already saved” group is not the majority of savers or even not that big, in terms of boosting the economy it could be an important group. People who are living off their savings are more likely to spend more when their savings income goes up. And less when interest rates fall. The rest of us, hopefully, don’t boost our savings when our 401(k) balance goes up. Our added savings from low-interest rates will have very little impact on the economy. So in terms of boosting consumption among savers overall, interest rates do matter.

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