Whatever happened to savers and the savings ratio?

A feature of the credit crunch era has been the fall and some would say plummet in quite a range of interest-rates and bond yields. This opened with central banks cutting official short-term interest-rates heavily in response to the initial impact with the Bank of England for example trimming around 4% off its Bank Rate to reduce it to 0.5%. If we go to market rates the drop was even larger because it is often forgotten now that one-year interest-rates in the UK rose to 7% for around a year or so as the credit crunch built up in what was a last hurrah of sorts for savers. Next central banks moved to reduce bond yields via purchases of sovereign bonds via QE ( Quantitative Easing) programmes. In the UK this was followed by some Bank of England rhetoric heading towards the First World War pictures of Lord Kitchener saying your country needs you.

Here is Bank of England Deputy Governor Charlie Bean from September 2010.

“What we’re trying to do by our policy is encourage more spending. Ideally we’d like to see that in the form of more business spending, but part of the mechanism … is having more household spending, so in the short-term we want to see households not saving more but spending more’.

Our Charlie was keen to point out that this was a temporary situation.

“It’s very much swings and roundabouts. At the current juncture, savers might be suffering as a result of bank rate being at low levels, but there will be times in the future — as there have been times in the past — when they will be doing very well.

Mr.Bean was displaying his usual forecasting accuracy here as of course savers have seen only swings and no roundabouts as the Bank Rate got cut even further to 0.25% and the £79.6 billion of the Term Funding Scheme means that banks rarely have to compete for their deposits. This next bit may put savers teeth on edge.

“Savers shouldn’t see themselves as being uniquely hit by this. A lot of people are suffering during this downturn … Savers shouldn’t necessarily expect to be able to live just off their income in times when interest rates are low. It may make sense for them to eat into their capital a bit.”

In May 2014 Charlie was at the same game according to the Financial Times.

BoE’s Charlie Bean expects 3% interest rate within 5 years

There is little sign of that so far although of course Sir Charlie is unlikely to be bothered much with his index-linked pension worth around £4 million if I recall correctly plus his role at the Office for Budget Responsibility.

House prices

I add this in because the UK saw an establishment move to get them back into buying houses. This involved subsidies such as the Bank of England starting the Funding for Lending Scheme in the summer of 2013 to reduce mortgage rates ( by around 1% initially then up to 2%) which continues with the Term Funding Scheme. Also there was the Help to Buy Scheme of the government. I raise these because why would you save when all you have to do is buy a house and the price accelerates into the stratosphere?

The picture on saving gets complex here. Some may save for a deposit but of course the official pressure for larger deposits soon faded. Also the net worth gains are the equivalent of saving in theoretical terms at least but only apply to some and make first time buyers poorer. Also care is needed with net worth gains as people can hardly withdraw them en masse and what goes up can come down. Furthermore there are regional differences here as for example the gains are by far the largest in London which leads to a clear irony as official regional policy is supposed to be spreading wealth, funds and money out of London.

There is also the issue of rents as those affected here have no house price gains to give them theoretical wealth. However the impact of the fact that real wages are still below the credit crunch peak has meant that rents have increasingly become reported as a burden. So the chance to save may be treated with a wry smile by those in Generation rent especially if they are repaying Student Loans.

Share Prices

This is a by now familiar situation. If we skip for a moment the issue of whether it involves an investment or saving as it is mostly both we find yet another side effect of central bank action. In spite of the recent impact of the North Korea situation stock markets are mostly at or near all time highs. The UK FTSE 100 is still around 7300 which is good for existing shareholders but perhaps not so good for those planning to save.

Number Crunching

There are various ways of looking at the state of play or rather as to what the state of play was as we are at best usually a few months behind events. From the Financial Times at the end of June.

UK households have responded to a tight squeeze on incomes from rising inflation, taxes and falling wages by saving less than at any time in at least 50 years. According to new figures from the Office for National Statistics, 1.7 per cent of income was left unspent in the first quarter of 2017, the lowest savings ratio since comparable records began in 1963.

This compares to what?

The savings ratio has averaged 9.2 per cent of disposable income over the past 54 years,

Some of the move was supposed to be temporary which poses its own question but if we move onto July was added to by this.

In Quarter 1 2017, the households and NPISH saving ratio on a cash basis fell to negative 4.8%, which implies that households and NPISH spent more than they earned in income during the quarter.

The above number is a new one which excludes “imputed” numbers a trend I hope will spread further across our official statistics. It also came with a troubling reminder.

This is the lowest quarterly saving ratio on a cash basis since Quarter 1 2008, when it was negative 6.7%.

As they say on the BBC’s Question of Sport television programme, what happened next?

The United States

We in the UK are not entirely alone as this from the Financial Times Alphaville section a week ago points out.

Newly revised data from the Bureau of Economic Analysis show that American consumers have spent the past two years embracing option 2. The average American now saves about 35 per cent less than in 2015……….Not since the beginning of 2008 have Americans saved so little — and that’s before accounting for inflation.

Comment

One of the features of the credit crunch was that central banks changed balance between savers and debtors massively in the latter’s favour. Measure after measure has been applied and along this road the claims of “temporary” have looked ever more permanent. Therefore it is hardly a surprise that savings seem to be out of favour just as it is really no surprise that unsecured credit has been booming. It is after all official policy albeit one which is only confessed to in back corridors and in the shadows. After all look at the central bank panic when inflation fell to ~0% and gave savers some relief relative to inflation. If we consider inflation there has been another campaign going on as measures exclude the asset prices that central banks try to push higher. Fears of bank deposits being confiscated will only add to all of this.

Meanwhile as we find so often the numbers are unreliable. In addition to the revisions above from the US I note that yesterday Ireland revised its savings ratio lower and the UK reshuffled its definitions a couple of years or so ago. I do not know whether to laugh or cry at the view that the changed would boost the numbers?! I doubt the ch-ch-changes are entirely a statistical illusion but the scale may be, aren’t you glad that is clear? We are left mulling what is saving? What is investment?

But we travel a road where many cheerleaders for central bank actions now want us to panic over an entirely predictable consequence. Or to put it another way that poor battered can that was kicked into the future trips us up every now and then.

 

 

 

The Bank of England is piling up problems for UK pensions and savers

Yesterday Bank of England Chief Economist Andy Haldane took to The Sunday Times to reinforce his views. Presumably he felt that the print equivalent of more Open Mouth Operations would tell us more about what he means by a monetary “sledgehammer”. In it he offered very cold comfort to savers who will be affected by the interest-rate cuts and QE (Quantitative Easing ) he is such a fan boy of.

Understandably, some savers are feeling short-changed. Although I have enormous sympathy for their plight, the decision to ease monetary policy was, for me, not a difficult one.

Actually punishing savers is not a new policy for the Bank of England as Deputy Governor Sir Charlie Bean – just about to arrive at the Office for Budget Responsibility which is ever more breathtakingly described as independent – told savers this back in September 2010.

Savers shouldn’t see themselves as being uniquely hit by this. A lot of people are suffering during this downturn … Savers shouldn’t necessarily expect to be able to live just off their income in times when interest rates are low. It may make sense for them to eat into their capital a bit.”

Sir Charlie then used the forecasting skills he will apply at the OBR to predict better times ahead for savers.

It’s very much swings and roundabouts. At the current juncture, savers might be suffering as a result of bank rate being at low levels, but there will be times in the future — as there have been times in the past — when they will be doing very well.

Actually the swings only go backwards and the roundabouts long stopped spinning. An example of that has happened overnight according to MoneySavingExpert.

Depressing news for savers. Santander 123, the bank account that’s topped savings tables for over four years, will take a hammer to the interest it pays from 1 November. It comes on the back of this month’s base rate cut of 0.25 of a percentage point from 0.5% to 0.25%, but it’s slashing its rate far beyond that, cutting the headline interest from 3% to just 1.5%.

Of course such cuts do not apply to Sir Charlie who has his Bank of England pension linked to the Retail Price Index as well as his salary from the OBR.

Annuities

The issue here is a consequence of the rise in the price of long-term UK Gilts and the consequent fall in yield. Last week Bank of England Governor Calamity Carney sent in his bond buyers in this area but was gamed by the holders and ended up pushing prices much higher than intended. Of course Andy Haldane will consider this to be a success as he explained to Parliament in from June 2013.

Let’s be clear, we have intentionally blown the biggest government bond bubble in history.

The bubble is of course a lot bigger now and is much larger than any West Han fan will be able to blow later. The thirty-year UK Gilt yield is a mere 1.24% so let us review the consequences for annuities which of course depend on such yields. From This Is Money.

A decade ago, a 65-year-old with a £100,000 pot could get £7,092 a year from an annuity, though without any link to inflation…….At the beginning of July, a 65-year-old saver would have been offered just £4,800 for each £100,000 by insurance giant Legal & General……Today it offers £4,462 a year on the same deal — 8 per cent less than a few weeks ago, according to research by annuity expert William Burrows.

The numbers quoted will be lower should annuitants want inflation protection or to provide an income for their spouse.

A clear consequence of this can be seen below. This is from the Association of British Insurers on the first year of pension freedom where the rules on how you take your pension were relaxed.

£4.3 billion has been paid out in 300,000 lump sum payments, with an average payment of £14,500.
£4.2 billion has been invested in 80,000 annuities, with an average fund of £52,500.

We do not know the individual circumstances behind this but I note that money has shifted from being for future consumption ( an annuity) to presumably consumption now ( cold hard cash). Another way of describing this is borrowing from the future. A problem is that annuities pay out for the rest of you life whereas if you take the money and run it may well run out. Please do not misunderstand me annuity rates now are so poor I can understand why people do not take them and I wonder how many of those taking them are getting higher rates due to ill-health.

As the Bank of England blunders into the UK Gilt market I can only see annuities getting less attractive and looking even poorer value.

The Millennial problem

There is a consequence from all of this from younger workers and present and future pension savers as summed up by Bloomberg.

Younger workers will “have to save more — which they appear reluctant to do — or be prepared to work much longer.”

As I have pointed out before such age groups (millennials are 35 and under) have tended to be more affected by the credit crunch in terms of real wages. So they have less money out of which they are expected to pay more whilst in many cases paying off student debt and facing ever higher house prices. That road leads to such phrases as “Generational Theft”

This will not be helped by the Lifetime ISA situation which as recently as the beginning of this month was described like this by City-AM.

A YouGov poll said that 44 per cent of Britons between the age of 18 and 39 would favour using the government’s new lifetime Isa in order to put money aside for older age. Such a decision would put them on a “collision course” with auto-enrolment.

So even then one government policy was clashing with another. Well today the Lifetime ISA concept itself seems to be struggling. From The Financial Times.

The planned launch of a new savings account for under-40s in April is in doubt after providers warned that the government’s failure to provide key details means they will not have enough time to hit the deadline.

The UK pension system has seen far to many ch-ch-changes and these have progressively weakened confidence in the system. A decade ago I passed one of the advanced examinations on the subject only for there to be changes year after year!

Defined Benefit Pensions

On the 9th of this month I pointed out the pensions desert which would suck up the extra £70 billion of Bank of England QE liquidity.

The deficit of defined benefit pensions, which pay out an income linked to an employee’s final salary, jumped £70bn as a direct consequence of the decision to reduce interest rates by 0.25 per cent, according to Hymans Robertson, the consultancy.

We should not be surprised as this as the architect confessed to this only in May.

Yet I confess to not being able to make the remotest sense of pensions. ( Bank of England Chief Economist Andy Haldane).

He and his colleagues are proving it almost daily. Rather like at the Emirates yesterday there is a danger of “You don’t know what you’re doing” being sung.

Comment

We see that as I have pointed out many times before the savings and pensions sector of the UK economy have been targeted by the Bank of England. The  doing “very well” promised by the then Mr.Bean back in September 2010 has not only failed to appear things are getting worse. This makes the economy unbalanced and creates real damage as the corporate sector acts to fill pension deficits and younger workers face have to put ever larger sums of money away. Meanwhile though in an Ivory Tower in Threadneedle Street.

The purpose was to support growth and jobs.

No mention of the inflation target Andy? Oh and even he does not seem to think it will work.

At the same time, no one on the MPC is under any illusion that monetary policy can fully insulate Britain from the long-term effects of the decision to leave the EU.

He looks a rather dangerous gambler who by his own confession is responsible for one of the largest shifts of wealth in history.

Over recent years, there have been fairly rapid rises in UK asset prices — houses, shares and bonds. These have increased measured national wealth by as much as £2.7 trillion since 2009.

Yet apparently the consequences are nothing to do with him and we need ever more. My view on the consequences comes from the Red Hot Chilli Peppers.

Scar tissue that I wish you saw

 

What has happened to savers in the credit crunch era?

Sometimes official new releases are more revealing than they would wish to be. For example there is a planned Help To Save scheme being floated ahead of tomorrow’s Budget. As the Help To Buy scheme for houses indicates a situation in distress with house prices far too high to be affordable we are immediately on yellow alert as to the state of play in the savings market. From the BBC.

Millions of low-paid workers who put aside savings could receive a top-up of up to £1,200 over four years, the government has announced.

Employees on in-work benefits who put aside £50 a month would get a bonus of 50% after two years – worth up to £600.

That could then be continued for another two years with account holders receiving another £600.

These schemes always initially look a good idea although those who are in similar circumstances but are excluded will no doubt find it frustrating. One may also have a wry smile at the fact that this is very similar to the Labour governments plan for a savings gateway which was abandoned because it was “not affordable” But fundamentally we are left wondering why savings needs such help.

The Bank of England is not so keen

Back in September 2010 Deputy Governor Bean of the Bank of England made a right Charlie of himself in a car crash style interview with Channel 4.

Indeed when asked this question.

This bad news for savers is the point of what you are doing?

He replied “yes”.

Mr Bean continued.

“It’s very much swings and roundabouts. At the current juncture, savers might be suffering as a result of bank rate being at low levels, but there will be times in the future — as there have been times in the past — when they will be doing very well.”

Savers are still waiting Charlie! Meanwhile he revealed the plan such as it was.

What we’re trying to do by our policy is encourage more spending. Ideally we’d like to see that in the form of more business spending, but part of the mechanism … is having more household spending, so in the short-term we want to see households not saving more but spending more’.

The attempt at sympathy fell rather flat too.

“Savers shouldn’t see themselves as being uniquely hit by this. A lot of people are suffering during this downturn … Savers shouldn’t necessarily expect to be able to live just off their income in times when interest rates are low. It may make sense for them to eat into their capital a bit.”

Charlie himself was doing the opposite as his index-linked pension grew by £522,900 that year according to the accounts published by the Bank of England. Of course he has been provided with additional work in retirement via the Bean Review of UK Economic Statistics making his pronouncements head down the ” let them eat cake” road. Or as Hall and Oates pointed out.

You’re out of touch
I’m out of time (time)

Help To Buy

Whilst lower mortgage rates can improve mortgage affordability for a time they cannot help with the issue of raising a deposit or equity. So we have the Help To Buy ISA.

If you are saving to buy your first home, save money into a Help to Buy: ISA and the government will boost your savings by 25%. So, for every £200 you save, receive a government bonus of £50. The maximum government bonus you can receive is £3,000.

Such is the desperation on this front that the providers seem willing to make a loss on it. From Moneywise.

First-time buyers can now get 4% interest from Santander’s Help to Buy ISA as the bank has today matched Halifax’s market leading best-buy rate.

These interest-rates as I shall explain later are far higher than can be got in other circumstances. Perhaps we get a clue here as to how much banks make from their UK mortgage books and can afford to subsidise deposits to get borrowers on the hook.

For those unaware of the UK system Individual Savings Accounts or ISAs offer income tax relief.

Savings and Deposit Interest-Rates

Moneywise gives us a theme that keeps being repeated or as the great Yogi Berra put it “It is just like deja vu all over again”

Banks and building societies continue to cut rates on both their fixed rate bonds and cash Isas…….On easy-access cash Isas, Post Office has cut its Online Isa rate from 1.45% to 1.2% for new savers. Virgin Money pays the top rate at 1.41% on its Defined Access Isa, but you are restricted to three withdrawals a year. Coventry BS Easy Isa pays 1.4%.

You may note that the Post Office has acted as if there has just been a Bank Rate cut of 0.25%, are they getting ready? The Bank of England records it like this.

The effective rate paid on households’ outstanding time deposits decreased by 2bps to 1.44% in January and the rate for households’ new time deposits increased by 4bps to 1.36%.

Interesting isn’t it how everybody seems to get the top rate? Perhaps they should invest everyone’s savings.. Oh hang on maybe not.

The Bank of England has chopped and changed in the savings rates used in its database ( I wonder why…) but the ISA rate nearly goes back to Charlie’s speech as we have 2.41% in January of 2011 as opposed to the 0.81% of February. So savers have continued to lose over time as interest-rates have fallen as they wonder when they will be doing very well as Charlie Bean promised? Oh and is 0.81% the new 1.4%.

How much do we save?

This is measured except the number produced includes imputed saving described as “conceptual payments” and yes our old friend imputed rents gets a mention. Well to its credit (sorry…) the Office for National Statistics tried again last month and sang along to this from Stevie V.

Dirty cash
Dirty cash
Dirty cash
Dirty cash

On this basis negative saving began in 2003 and might reasonably be considered a sign of the times and a warning. This fell to an annual rate of around -6% in 2008 before springing up like Zebedee from The Magic Roundabout to just over 5% in early 2009 in a clear reaction to the credit crunch as fear led to more saving as well as more fear at the Bank of England! Next we saved for a bit until it went negative again in late 2013 where it has remained.

Under the series including imputed saving the savings ratio is usually some 5% or so higher.

Comment

In essence official policy in the credit crunch era has been to reward debtors and to punish savers. Charlie Bean made that plain and this was reinforced in the summer of 2012 as the Funding for Lending Scheme was brought in to reduce further mortgage and savings interest-rates. Unlike Lewis Carroll it is always “Jam Today” for the UK establishment. It is a bit like the famous saying of St.Augustine.

Lord, make me chaste (sexually pure) – but not yet!

This has even moved into the world of inflation as savers have recently benefited from the fact that it has fallen. If we move beyond which measure to use then real rather than nominal interest-rates have improved especially compared to 2011 when the dilatory efforts of the Bank of England saw most inflation measures go above 5% per annum. It failed to spot that punishing workers, consumers and savers would have only one result. However of course it wants inflation higher as the game continues! The moral hazard issue continues also as Lewis Carroll reminds us.

Alice:How long is forever? White Rabbit:Sometimes, just one second

Meanwhile today we get an update on the basket for the UK official inflation measure. Apparently it is more important to include coffee pods and cream liqueur than owner-occupied housing.

I will be on Share Radio which has gone national on Dab after the 1pm news today.

 

 

 

 

 

 

In a world of negative interest-rates they will try to take cash away from us

A central theme of this website has been to predict and then analyse the trend towards negative interest-rates. It is an adjunct of a world where central bankers feel the need to apply ever stronger doses of monetary stimulus as previous doses disappoint. Another way of putting this is that the junkie style culture they have pursued requires ever larger hits. At the moment the main outbreak of negative interest-rates surrounds the Euro area where the European Central Bank has reduced its main interest-rate to -0.2%. This has forced Switzerland and Denmark into a corner where they have reduced to -0.75% and it was only last Thursday that I analysed the reduction to -0.35% by the Riksbank of Sweden.

The concept of central planning is also on the rise as we see capital controls (more literally deposit controls and a closed stock exchange) in Greece and all sorts of machinations,edicts and threats in China against sellers of equities. In China what goes up is apparently not allowed to go down! Although to be fair it is general central bank policy that equity prices should be pushed higher with the Bank of Japan most explicit on that front under Abenomics. Also central banks like to see house prices rising with the Bank of England at the forefront of a group which again includes Sweden’s Riksbank where policy in recent times has driven house prices higher. So in asset markets the message from central bankers is “come on in the water’s lovely” as they tease us with hints of capital gains. This of course provides us with an alternative to cash savings and whilst it only applies to a section of them it is another attempt to move us away from them.

The Proposal To Scrap Cash

The paragraph above showed pressure on some types of cash holdings via an attempt to make both holding equities and investing in houses more attractive. Of course these have quite different risk profiles and so there are plenty of other types of cash holdings in existence. So it was inevitable that someone would have what they consider to be a brainwave and suggest scapping it entirely! As it happens Willem Buiter (who was my tutor for a year at the LSE) of Citi suggested it back in April so let us examine the rationale.

Central bank policy rates have been constrained by a perceived or actual effective lower bound (ELB) on nominal interest in recent years. The existence of the ELB is due to the existence of cash (bank notes) – a negotiable bearer instrument that pays a zero nominal interest rate.

The essential point here is that 0% is something of a rubicon in interest-rate terms because depositors and savers have an easy alternative once interest-rates fall below it. They can simply hold cash and avoid the negative interest-rates that the central bank is prescribing for the economy’s health at that point. Of course whether the central bank is correct in prescribing such medicine is a moot point but let us indulge that line of thought for a moment.

Following this logic and noting where we are makes central bankers unhappy as to coin a phrase the perception that their policies are “maxxed out” may grow.

We view this constraint as undesirable and relatively easily avoidable from a technical, administrative and economic perspective.

You may note the “relatively easily avoidable” and we get an explanation of how.

We present three practical ways to eliminate the ELB: i) abolish currency, ii) tax currency or iii) remove the fixed exchange rate between zero-interest cash currency and central bank reserves/deposits denominated in a virtual currency.

You may note that as Debbie Harry put it “One way or another” this paper has plans on your cash!

Tucked away in it was a rather damning view of Quantitative Easing (QE) and the emphasis is mine.

The option to lower interest rates significantly below zero would have been valuable in the past as an alternative to large-scale asset purchases (QE) by the Fed and the Bank of England and today in Japan and the euro area. Compared to QE, significantly negative interest rates would create fewer financial stability risks and political legitimacy risks.

Central bankers out of office seem suddenly to have a different view of house and equity market prices rises don’t they? “Wealth effects” suddenly morph into “financial stability risks”.

How long might interest-rate go? The example quoted is that of the Taylor Rule which would have had interest-rates at -5% back in 2009. At such a level you can see that cash would be very attractive and why the official view would head towards abolishing it.

Is it the banks again?

If we move to Bank of England research we see the central banking view of the money supply.

Whenever a bank makes a loan, it
simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money……Most money in the modern economy is in the form of bank deposits, which are created by commercial banks themselves.

You can see that the broader measures of the money supply would head south rapidly if individuals withdrew money from banks to hold cash. This is in many ways what we are seeing play out in Greece right now. Negative interest-rates would create yet another credit crunch.

The ELB

So far I have put this at 0% for simplicity but as Willem Buiter points out there are costs to holding it.

Storage, safekeeping, insurance, transportation and handling costs of currency imply that the effective lower bound on interest rates is not zero, but somewhat negative (and uncertain).

The ECB has set interest-rates at -0.2% because it thinks the ELB is there. Actually I think that we have a zone between 0% and -2% depending on individual solutions. Also this is in the rational world whereas us humans are prone to Ying and Yang changes and in an irrational one the ELB would be 0% and could if you think about it (fear of deposit haircuts) perhaps even be perceived to be positive.

What do the Danes think?

Denmark cut interest-rates to -0.75% back on February 6th so we have some information on the effects of such a move. Here are the latest thoughts of its central bank. It is happy that wholesale money markets have followed its move but the retail sector is much less clear.

Banks have not introduced negative interest rates for households, probably reflecting that negative interest rates could induce some households to cash in their bank deposits.

So 0% is proving to be a rubicon although not in all areas.

The rate of interest on corporate deposits moved into slightly negative territory for the first time in April 2015.

One area is to my mind outright dangerous.

Insurance companies and pension funds (the I&P sector)…… For the I&P sector, the rate was substantially negative in both March and April.

How will industries that offer long-term contracts many of whom rely in effect on positive interest-rates work in a world of negative interest-rates. I recall a comment pointing out that UK pensions now had illustrations showing negative returns well what if the average expectation becomes that?!

On the other side of the coin some mortgage borrowers will be doing something of a jig.

.Interest rates on adjustable rate loans with fixed interest periods up to and including three years fell into negative territory in January and February.

Before all this happened it was easy to assume that banks would plunge deposit rates into negative territory but it would appear that they are afraid to do for the reason stated below.

If bank customer deposit rates fall into negative territory, customers can convert their deposits to cash.

Banking would then begin to eat itself.

Comment

Savers may be mulling the trends above and letting out a sigh of relief about the apparent 0% barrier for retail deposit rates. But should they move to ban or tax cash it would disappear and they should be very afraid of the likely next step! Meanwhile the Willem Buiter view confirms that standing up for savers is very unpopular in both official and banking establishments.

Many of these will refer to negative nominal interest rates disapprovingly as ‘punishing savers’. Most of that is simply people talking their own books and/or a failure to distinguish between nominal and real interest rates.

He even tries a bit of what he presumably considers abuse by labelling such thoughts as “German” and counters by arguing this.

. But it is important to highlight that discouraging saving (and encouraging spending) is not a bug of significantly negative interest rates, but a feature.

I am not sure that savers would think that! Here we get to the nub of the issue which is twofold. Firstly central bankers have shifted the balance between savers and debtors in the credit crunch era to “improve demand”. However this shift has required ever higher doses of measures as we see interest-rates not only be reduced but we face the possibility and maybe probability that on this road we need ever more cuts in interest-rates. We are always on the edge of a cure which turns out to be a mirage and repeat. Or as Taylor Swift put it.

I knew you were trouble when you walked in
Trouble, trouble, trouble
I knew you were trouble when you walked in
Trouble, trouble, trouble

In essence we are back to the central bankers thinking they know better than us, of which the easiest critique is the existence of and record so far of the credit crunch.