Over the last few years central bankers and governments monetary and fiscal policies have been directed at stimulating economic growth through consumer spending. Despite policies of low or negative interest rates and fiscal (Government spending) stimulus global economic growth has remained subdued, because consumers are borrowing, not spending.
The world is seeing the largest transfer of wealth from savers to borrowers in modern history, as a consequence of these policies. Savers are being asked to “foot the bill” for previous government economic policy failures. So how is this so?
By governments forcing bondholders to take a loss (“haircut”) on sovereign debt, e.g. Greek debt. Investors carry the loss for borrowers.
By central bankers engaging in Quantitative Easing (QE) where they buy back debt and they are looking at cancelling the debt. If so, the borrower is able to walk away and the cost is ultimately borne by the taxpayer.
By governments funding budget deficits through low or negative real returns on Government debt, e.g. Japanese 30 year bonds. Investors are being asked to pay for budget repair on the back of the government credit rating.
Borrowers getting access to above normal levels of debt that are not available during more “normalised” interest rate settings.
Australian savers are subsidising borrowers through the taxation system, where they should be rewarded.
Policy makers and politicians are not talking about this greatest wealth transfer in history from savers to borrowers. Why? We all intuitively know it.
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