I wrote praising one aspect of Fed Chief’s Bernanke’s regime: “The Fed has correctly held interest rates effectively at zero, and should do so for some time to come. When faced with a potential depression, we need active government tools to fight it.”
Low interest rates are a great way to fight a depression. But a commentator on my blog got it right: Low rates have creamed senior citizens who have had to rely on financial markets, including interest from savings and certificates of deposit as well as risky stocks and bonds to deliver stable pension income.
Couple the low interest rates and returns with high fees and we have a failed, if not corrupt, pension system. This all came about because of the decline in traditional pensions and the rise of 401(k)’s fueled primarily by Wall Street lobbyists. Firms also dumped their good pensions because they had to compete with employers who didn’t offer good pensions .
Alicia Munnell at Boston College rightly links the rise of 401(k)’s to risky retirements. I propose Guaranteed Retirement Accounts that provide a guaranteed return on savings but still let people control how much they save. We need both stable pensions and the use of interest-rate policy to fight the business cycles.
We need drastic pension reform that delinks pensions from the finance markets they’re tied to so closely, leaving seniors having to take all the risks and getting hardly any reward.