Low interest rates are in all a net negative.

This is a follow up to the posting on how low interest rates will not improve the housing situation.  Let's also examine how very low interest rates are also causing problems in other areas of the economy and might actually be impeding the recovery.

 

I can only think of two areas currently getting a net plus for low interest rates. One, the federal government gets to finance their ever growing debt with low and getting lower interest rates.

Two, if you are one of the few people considering buying a home your mortgage will be the lowest rates in about half a century. 

 

However there are many areas that are getting hurt by low interest rates.  First are retirees and savers who are getting virtually nothing on their savings deposits. Simply put retirees did not expect to be making less than 1% on their savings at this point in their life.  A point made this morning on CNBC is that many of the new mortgages that are delinquent now are from older citizens who no longer can use money saved over the years to pay for mortgages since the interest earned is so low they can not make the payments. Honestly these citizens who did what they were supposed to do and saved wisely are now being punished for their efforts. Maybe President Obama and Fed Chairman Bernanke need to consider that next time they think low and even lower rates are so wonderful.

 

Another of the areas getting hurt by low interest rates is the hit many pension funds take from having lower interest from their bond portion of the fund and how to make that up going forward.  Corporations and many US states and municipalities now will need to find additional money to fund their pensions to make up for lack of interest rate values when bond future values are reduced by lower rates.Money that could be going towards hiring people or investing in their business now goes towards pension coverage. Remember when the Congress and president passed the new regulations on pensions with lots of fanfare requiring pensions to fund their assets closer to what is expected, well now it comes to bite them back.

 

The point here is low interest rates might be a boom to some, but it hurts many that the press does not consider or cover.