Savers can be forgiven for feeling a bit persecuted right now.
Interest rates are being slashed, so they're earning nothing on their savings. Newspaper columnists focus on how savers should be forced to spend, to bail out companies and individuals left collapsing under their self-inflicted debt burdens. Property pundits ponder how we can push house prices higher, as if high property prices are a good thing.
Worst of all, there's a spendthrift government, eyeing up savers' assets and trying to figure out ways to confiscate them to pay for its own mistakes.
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But then, what's new? This has been the condition of savers since time immemorial. The good news is that if you can see out this latest attack on your wealth, the current slump will present you with some good opportunities
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Savers have always been under attack
Savers are under attack. But this is nothing new. The whole history of saving and generating private wealth has been the tale of individuals trying to stay ahead of government attempts to confiscate it, whether through direct taxation, or through inflation. We just happen to be writing a new chapter right now.
It's not as if saving was encouraged before the slump, for example. All through the boom times, the notion was that saving was pointless. If you weren't leveraged up to the hilt, preferably in some sort of property-related asset, then you were stupid or timid or both.
And the tax system has been skewed towards encouraging speculation and consumption rather than thrift sound investment. For example, pension funds were robbed in 1997, making investment in shares and companies less attractive, which was a key factor behind the disastrous "my property will be my pension" myth that took hold with the buy-to-let boom.
And let's not forget the financial sector. Much of the fund management industry is composed of middle-men whose primary function in life is to cream off as much of an investor's returns as they possibly can in the form of fees and commissions and performance bonuses.
Governments still want to return to the days of easy credit
So if you were hoping, as a saver, that you'd be somehow congratulated for your foresight now that the good times are over well, that was probably wishful thinking. After all, the cheerleaders of the boom now look stupid. They didn't see anything wrong with the credit bubble. So now that it's burst, they need to find another culprit to blame.
Already, the new bubble-denier narrative is that everything would have been fine if only the Federal Reserve hadn't let Lehman Brothers go to the wall.
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This notion is tripe or "tosh" and "a myth" as panellists at Davos this year described it. As Harvard historian Niall Ferguson points out, "this is a crisis of too much bank leverage which began in August of 2007 and indeed had its root before the notion that saving one investment bank could somehow have prevented or mitigated the crisis is a fantasy."
But this won't stop governments from trying to return the financial system to the good old days of easy credit. And for that, they need to make debts less onerous.
There's no such thing as 'controlled' inflation
The most politically acceptable (i.e. underhand and sneaky) way of robbing savers to pay the indebted, is to create inflation. And indeed, the consensus seems to be moving towards the idea that a bout of "controlled" inflation is exactly what we need to get us out of this mess.
This idea that inflation can be "controlled" and applied with surgical precision like defibrillators to a collapsed economy, would be funny if it wasn't for the fact that people take it seriously. The whole conceit of central banking is based on this idea that the economy is like a car. To maintain a steady pace of growth, the central bankers just need to press the accelerator (lower interest rates) or hit the brake (raise them) every so often.
But the current crisis demonstrates firmly that economies can't just be fiddled with like a giant machine. If central banks and governments embark on creating inflation, I'm sure they can create it. What I'm not convinced of is this idea that they can control it.
Savers shouldn't lose heart
But savers shouldn't get too downhearted. For one thing, inflation is falling for now. So even though getting a decent return on your savings isn't easy, in real terms, you should still be able to stop your money from becoming worth less (and if you're willing to take some risks, you can get a decent income from other sources as we point out in the current issue of MoneyWeek if you're not a subscriber, you can subscribe to MoneyWeek magazine).
And more to the point, at least you have some savings. It's better to have a nest egg to defend, than to be sitting in a home that you can barely afford, with a maxed-out credit card, praying that you won't lose your job in the next round of redundancies.
The whole point of saving in the first place is to have some control over your future. Having money of your own gives you independence and opportunities as any adolescent getting their first pay packet realises. And as the financial crisis continues to unfold, there'll be plenty of opportunities for people with capital. So hang on to it, and don't be ashamed of being a saver.
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