One might assume that low interest rates should benefit the economy as a whole. While there could be many positive arguments for this Central Bank policy one must assess the motivation behind it.
Banks and the capital markets really want one thing – your money, and if they can’t have that, they want you to be indebted to them. Over the past decade we have seen interest rates collapse to record lows with a reciprocal increase in fees, all kind of fees. Fees have served as a screen to help keep interest rates low and guide investors away from safer and more traditional investments (i.e. GIC’s, bonds). In fact fees have become an indirect “tax missile” for municipalities, educational institutions, the health care system, adjuncts to provincial money-grabs and so on. Fees have artificially kept politicians in office by avoiding the ongoing necessity for increasing taxes.
Bay Street knows full well that 95% of investors are dumb to non-traditional financial instruments and high-risk investment strategies. These “Consumer-SAPS” for lack of a better word have placed great faith in financial advisors and in a Central Bank policy that helps to enrich corporations with inexpensive operating lines and access to cheap money while paying risk-averse investors NOTHING. This simple strategy forces many investors away from their simplistic savings approach into a financial arena filled with wolves and blood-suckers.
The Federal Government should guarantee low-risk RRSP investors a minimum return of 5-6% per annum. This creates a safety net for the average saver and established long term wealth preservation for many of these people. We seem to make all the concessions for large corporate and government pensions and the average tax-payer is left holding the bag and re-taxed to refill the aforementioned pensions if they run dry.
Fund managers are driven by the need to create profits for investment houses. They don’t care how they do it nor do they care about the outcome for individual investor. The enormous growth in the Asian markets can in some way be attributed to investment strategies by fund managers in North America. This is how you lost your job. These fund managers invested in low paying jobs with large returns in countries that ultimately made your job disposable. But these funds have fees too, not to mention risk.
The reality is that fees should be eliminated and interest rates should reflect the true economic reality of our financial position. Radical Keynesian economic strategy cannot continue to dominate what should be a free market system or should I say FEE market system. John F. Kennedy introduced “zero-interest government backed money” five decades ago and was shot. Does the Central Bank intend on a similar strategy or are we going to keep giving Bay and Wall Street cheap money and make it appear that our CEO’s are incredible market leaders and rewarding them with enormous unwarranted bonuses?
OK everyone break for recess, we have to come up with another fee.
Thank you,Joseph Pede
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