Punishing Savers…!

Right.  Saving is a good thing right?  I’ve got that right haven’t I?  I mean, I should put some money away for when my income might dry up or perhaps I might fall ill or heaven forbid I make it to an age where I want to consider retirement.  If I put this money into a savings account it’ll be nice and safe and those jolly clever fellows at the bank can use it carefully and cautiously to perpetuate the fractional reserve banking system by providing liquidity into the financial markets to people who want or need to borrow.  Right, that’s a good thing…..right?

Not according to this raving looney Anatole Kaletsky who has just written an article for TimesOnline titled….get this…”Punish savers and make them spend money” and subtitled “Near-zero interest rates and even a tax on bank deposits are necessary to force those with cash to use it productivel” (emphasis mine)

Instead of reducing taxes on interest payments, the Government could tax all bank deposits and other risk-free savings. This would create a negative risk-free interest rate, encouraging savers either to invest in property, shares and other productive assets – or simply to save less and consume more.

Riiiight.  Lets see.  The problem that the global financial system is facing is that the banks are not lending. As I see it there are two reasons for this:

1. Fear – banks fear they won’t get repaid
2. Reserves – some banks are short on reserves.  Fractional reserve banking says that you lend out a fraction of the deposits you take but keep plenty of dosh around you so that those depositors that want to withdraw their funds can be repaid, provided they don’t all turn up at once, al la Northern Rock, to make withdrawals.

Fear is frankly going to take time to rebuild the confidence necessary for lenders to be happy about lending.  Banks however might be happier to lend to one another if the counterparties they were lending to had good reserves.  More reserves held equals smaller fractions in the fractional reserve banking system and thus lower risk.  These reserves come from savers so tell me again why Mr Kaletsky wants to punish savers with the primary consequence of driving bank reserves down and reducing liquidity, exacerbating the root of the problem. It’s madness!

If, heaven forbid, the unelected morons at Downing Street wake up tomorrow and decide this is a good idea there will be a flight of capital.  Savers won’t just role over and say…”Honey, you know what, I think I’m going to do my bit for the global economy today, lets go and blow our retirement fund on a new BMW”.  No, savers will withdraw their cash and put it somewhere well out of reach of the thieves.  They’ll buy gold, silver, wads of currency and a shoebox and stuff it under the bed.  They’ll find ways to expatriate money and the banks will see deposits shrivel away making the problem even worse than it is now.

I don’t get how seemingly intelligent people can draw such barmy conclusions, but we’re surrounded by them