For millions of individuals in America’s disappearing middle class, most of whom are struggling to save enough money to finance even a modest retirement, safe investment opportunities are difficult to find. Changes in tax depreciation laws in the 1986 Tax Reform Act made real estate a substantially less attractive investment. That left the stock market and bank savings accounts and certificates of deposit as the only venues for the average small investor.
For years now, the Federal Reserve has been loaning money to America’s banks at extremely low or no interest. Thus, banks are able to borrow the money they need, no longer relying heavily on customer dollars placed in certificates of deposit and savings and checking accounts to generate revenues. As a result, the interest rates paid by banks on CDs and checking accounts are minimal at best. Most owners of relatively small accounts see their savings increase by mere pennies a month. For those hoping for any sort of reasonable return on their investments, the stock market has become the only game in town.
Those Americans born in the 1920s and 1930s remember the days when local post offices sold savings stamps that could be collected and converted to savings bonds earning reasonable (and dependable) interest when held to maturity. Perhaps the U.S. Postal Service should be permitted by Congress to resume selling savings stamps and bonds, thus providing a dependable place for ordinary folks to invest their hard-earned savings. The primary drawback to such an idea rests with the Federal Reserve, whose stated goal is to achieve two percent inflation annually. To protect our savings against inflation would require a return in the order of five percent.
Federal savings bonds also would become even more attractive to private investors should the interest on those bonds be tax-free, as is interest on municipal bonds. And paying interest on savings bonds to individual Americans makes more sense than selling federal bonds and paying interest to China.
Perhaps what really needs to happen is stronger congressional oversight of the Federal Reserve and changes in the rules that govern its formation of monetary policy. Failing that, America’s small investors can only watch anxiously as the denizens of Wall Street act more like lemmings, following one another over a cliff, than astute financial agents, while financial markets continue to bounce up and down like a yo-yo.