So one of the biggest concerns that I see, as a moderately well-off family with young kids, is that the options for long-term savings, which we'll need to get kids through college, are beyond hopeless right now. Either I put most of the money into the stock market and pray that it doesn't tank 8-9 years from now, or I put it in savings or CDs, where the anemic interest rate doesn't keep up with inflation. Granted, I am *EXTREMELY* grateful that nearly all of our debt is paid off (the mortgage exists, but it's going away soon), but for those of us who are skeptical because the market is due for a reality check, there are no reasonable ways to save! I'm not asking for the 12% average returns that the market sees, but is it unreasonable to ask for 3-4%? Even, dare I say, 5% if I'm willing to let you use my money for 7 years? This is not a new problem - it's been discussed since the interest rate started hovering around 0 - but it is an ignored problem that is only getting worse.
Isaac, I agree with your take on inflation, except for one thing. If inflation starts to get out of hand, many economists say that it will take more than just the Fed acting. It will also take Congress getting on the same page and cutting deficits. As Noah Smith noted in your interview: "So it seems to me that if we borrow and borrow and borrow, and have the Fed buy up all the bonds, and then this causes inflation, we will get some warning. We will get some lead time, we’ll see inflation start to rise and everyone will freak out and say it's time to cut deficits, it's time to raise interest rates." Does anyone really think Congress has the backbone to cut deficits? Both parties have shown very little fiscal responsibility and no indication that they want to agree on any issue, much less one that could very likely be disfavored by many of their constituents. It's all about getting re-elected.
So one of the biggest concerns that I see, as a moderately well-off family with young kids, is that the options for long-term savings, which we'll need to get kids through college, are beyond hopeless right now. Either I put most of the money into the stock market and pray that it doesn't tank 8-9 years from now, or I put it in savings or CDs, where the anemic interest rate doesn't keep up with inflation. Granted, I am *EXTREMELY* grateful that nearly all of our debt is paid off (the mortgage exists, but it's going away soon), but for those of us who are skeptical because the market is due for a reality check, there are no reasonable ways to save! I'm not asking for the 12% average returns that the market sees, but is it unreasonable to ask for 3-4%? Even, dare I say, 5% if I'm willing to let you use my money for 7 years? This is not a new problem - it's been discussed since the interest rate started hovering around 0 - but it is an ignored problem that is only getting worse.
Isaac, I agree with your take on inflation, except for one thing. If inflation starts to get out of hand, many economists say that it will take more than just the Fed acting. It will also take Congress getting on the same page and cutting deficits. As Noah Smith noted in your interview: "So it seems to me that if we borrow and borrow and borrow, and have the Fed buy up all the bonds, and then this causes inflation, we will get some warning. We will get some lead time, we’ll see inflation start to rise and everyone will freak out and say it's time to cut deficits, it's time to raise interest rates." Does anyone really think Congress has the backbone to cut deficits? Both parties have shown very little fiscal responsibility and no indication that they want to agree on any issue, much less one that could very likely be disfavored by many of their constituents. It's all about getting re-elected.