As every Econ 101 student learns, people respond to incentives and the Federal Reserve has created some of the strongest incentives possible with their policy of keeping interest rates near zero. As discussed in this NYT article, millions of Americans are paying a high price for a safe place to put their money: extremely low interest rates on savings accounts and certificates of deposit.
Mr. Gross said he read his monthly portfolio statement twice because he could not believe that the line “Yield on cash” was 0.01 percent. At that rate, he said, it would take him 6,932 years to double his money.
As the sting of market losses in 2008 fades with time, coupled with no reward for saving money, the continued flight to risky assets like stocks, real estate, and commodities, seems highly likely.
