From Prof. Perry's Carpe Diem:
Higgs: Immiseration of Personal Interest Income
Last week I had a CD post on how the Fed's zero interest rate policy has significantly reduced personal interest income and it generated a lively discussion. Robert Higgs had a related post last Friday titled "The Fed's Immiseration of People Who Live On Interest Earnings," here are some of his comments:
"Fed’s policy of acting to hold interest rates well below free-market rates in recent years has had the effect of greatly diminishing the earnings of people who rely on interest income. Such people include especially many retirees who do not wish to hold risky assets with substantial variability of earnings. In the past, many retired people have held the bulk of their wealth in the form of bank certificates of deposit, bonds, and bond-heavy mutual funds, hoping that their incomes would be secure and predictable when they were no longer working. The Fed’s actions in recent years have taken a heavy toll on such people’s earnings."
MP: Bob refers to a graph showing personal interest income in nominal terms, displays a graph of the PCE price index, and discusses how the effects of reduced personal interest income would be even more dramatic if adjusted for inflation. The chart above combines those two charts into one, and displays real personal interest income adjusted for inflation...MORE