Yesterday, the ECB sent Benoit Coeure out to explain to the uneducated masses that the concern over negative interest rates is overdone because not everyone is saving money.
In Germany, the ECB has recently been repeatedly criticised for hurting savers through the currently very low interest rates. But people are not just savers – they are also employees, taxpayers and borrowers, as such benefiting from the low level of interest rates. Thanks to improved economic conditions, stimulated not least by monetary policy, real income and employment in Germany have increased in recent years. In other words, we need low interest rates now to ensure a normalisation of economic conditions, including higher returns on savings in the future.
Not to be outdone, the wizard behind the ECB curtain himself decided to comment on the matter. During a speech today at the annual meeting of the Asian Development Bank, Super Mario picked up where his colleague left off, and educated the people a bit further. Mario told everyone that if they would just take some of their savings and invest in stocks, those pesky negative interest rates wouldn't be a problem. Alas, if European savers could just be like their U.S. counterparts and have less than 15% of their assets sitting in cash instead of the unthinkable nearly 40% that those crazy Germans keep, all would be well with the world.
For a start, savers can still earn satisfactory rates of return from diversifying their assets, even when interest rates on deposit and savings accounts are very low. For example, US households allocate about a third of their financial assets to equities, whereas the equivalent figure for French and Italian households is about one fifth, and for German households only one tenth. By contrast, German households keep almost 40% of their assets in cash and deposits, and French and Italian households approximately 30%. The equivalent number is less than 15% for US households.
So there we have it. For those who are saving for retirement, or just wish to be completely risk averse, the ECB's answer to you is too bad. The central planners would like you to invest in stocks so that the next time the market plummets, your cash can be transferred to those that know how the game works, leaving you with nothing at all…
Once again, for those who can't see the trend here, central banks only exist to take money from those that actually work (i.e. savers), and transfer it to their good friends who own all of the assets (i.e. those telling you not to save).
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