To the editor:
I would like to provide a little balance to a piece written by Dr. Larry DeBoer and published on Sept. 27, “Trend toward lower interest rates means positive news for everyone.”
Here is the other side of the equation.
The negatives of low interest rates
Low interest rates cause the following harm:
Savers earn meager interest rates and often take on more risk to meet income needs during retirement. Low interest rates penalize savers and encourage spending. Many in our society need more encouragement to save.
Low interest rates have increased the problem of underfunded pensions. Low rates require companies and governments to set aside more money to meet future obligations. Companies and the government have not increased pension funding, so the problem of underfunded pensions has gotten worse.
When banks pay little on CDs and savings accounts, banks bring in less in deposits and have less money to lend. With less money to lend, banks get very selective of borrowers, and this limits loan growth.
In summary, not everyone benefits from low interest rates as stated in the earlier column.
Bart T. Fox