Time to give the real capital providers a break

The Federal Reserve Board's low-interest-rate policy has hurt retirees, which was anticipated by InvestmentNews in an editorial last year. It could fairly be said that the recovery from the 2008 financial crisis has been funded significantly by retirees through the low interest rates that they have been receiving on their lifetime savings. In an effort to recapitalize the banks and shore up the financial system, the Fed has kept short-term interest rates near zero. It allowed banks to borrow from it for near-zero interest and then use much of the money to buy longer-term Treasury securities, locking in a nice profit and allowing them to rebuild their capital. Banks are beginning to lend to some businesses, as demonstrated by JPMorgan Chase & Co.'s loan guarantee to AT&T Inc. for its proposed takeover of T-Mobile USA Inc. As a result, many of those that contributed significantly to the creation of the crisis have profited, often receiving large salaries and bonuses. But the very low interest rates mean many of the nation's approximately 52 million retirees have struggled to make ends meet because their interest income has been slashed. Many have had to take more out of their retirement savings each month than they had planned, reducing future income. One might even suggest that the retirees have funded the bankers' bonuses. Simply in the interest of fairness, the Fed should be considering the welfare of the retirees, especially as the economic recovery seems to be solid. It should allow interest rates to rise by ending its easy money policies. The longer it continues these policies, the more likely it will be that the nation's retirees will twice pay the bill for the recovery because the more likely it is that the policies will cause significant inflation. The easy-money policy has weakened the dollar and has contributed to the increase in the prices of commodities, especially oil, which is increasing inflationary pressures. Inflation hits retirees harder than workers because their incomes generally don't keep pace. Even when Social Security is adjusted for inflation, their other income streams often don't keep up. They might be able to buy some protection against inflation through Treasury inflation-protected securities and by increasing their exposure to stocks, which historically have performed well until inflation tops 6%. But most won't, because they have no one to guide them. And if inflation should get out of hand and surge above 6%, history suggests that stocks will lose value also. The best solution would be for the Fed to end its easy-money policy now, allow interest rates to rise and head off significant inflation. Let's give retirees of moderate means — and that's most of them — a break.