Paying the Price for Free Money

by Laura Ehrenberg-Chesler on August 24, 2012

in Bonds,Debt,deficit spending,Fixed Income,inflation/deflation

As a follow up to my post of August 16 entitled “Free Money can be Costly”, I thought a portion of Mr. Yardeni’s research on Tuesday, was worth posting today.  He does a good job drilling down on two  segments of society who “pay the price” for all of the “free money” that has been pumped into the system over the past few years.

As I discussed last week, the problem with all this “free money” is that it violates one of the central premises of economics: There is no free lunch. That would be obvious if inflation were rising rapidly. Everyone recognizes that inflation is a tax on income earners and creditors. But who is paying the price for all the free money now when inflation remains so subdued?

The answer is fixed-income investors who are earning record-low yields on their investments. The answer is our kids, who will be burdened by all the debt we are accumulating because it seems to be free money. The winners are the current beneficiaries of deficit-financed government spending. In other words, central banks are enabling the fiscal excesses of our governments by financially “repressing” fixed-income investors and facilitating the “theft of generations.”

“Repressing fixed income investors” is a particular hardship on the elderly, as many live on fixed incomes, and are dependent on those very low yielding bonds and CD’s to make ends meet.


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