Saving was once drummed into our heads as the prudent thing to do. How many times did you hear, “A penny saved is a penny earned”? Now some argue it’s not worth anyone’s time to pick one up.

Blogger Shane of Domain Shane fame gives a number of reasons for not picking up pennies. (He will pick up quarters.) He’s figured out that he earns two cents a second, so stooping down to pick up a penny is a losing proposition. “The time it takes to pick up a penny, I could have kept moving and made double what I put in to it,” writes Shane.

The writer is in his 40s and says picking up pennies is bad for your back, writing, “… if I hurt something, it will take 125 years of picking up pennies to pay for the doctor.” Shane also worries about hygiene, complaining that money is dirty.

Uncle Sam can’t even turn a profit making the coins, losing millions making pennies that cost 1.83 cents each.

If we shouldn’t pick up pennies, what should a person do with a tax refund? Best-selling author John P. Strelecky says don’t save money you overpaid the IRS; spend it on making memories. Live your life for today, says the life coach. Strelecky’s point is the saved money’s not going to grow much anyway.

While John Maynard Keynes was worried about people saving too much, I’m always stunned to see articles like “Financial Hoarding: The Downside of Saving Too Much.” Personal finance blogger Connie Mei writes as if saving is a mental defect. You’ve got it bad, she claims, if you feel anxious about spending money and think about ways to save. I don’t think Ms. Mei’s parents grew up during the Great Depression like mine did. She says you should live a little, and besides, your money isn’t earning any interest in a savings account anyway.

The idea of “saving for a rainy day” wasn’t about the amount of interest you’d receive on the money. When most of the population worked on a farm, hired hands didn’t work on rainy days and certainly didn’t get paid when they didn’t work. Diligent types like my grandfather would work on his equipment when the rain kept him out of the fields, while many of his neighbors spent the day in the local bar. One has to “make hay while the sun shines,” and the prudent farmer made sure his equipment was ready to seize the moment.

What’s happened is the Federal Reserve has destroyed the saving ethic that’s as American as apple pie.

Around the time Nixon was pulling the plug on what remained of the gold standard, the personal savings rate in America was north of 12.5%. These days, it’s 5.4%, and that’s up from 2.2% in the boom year of 2005. The 2008 crash tightened people’s belts. However, prudence is not bursting out all over. Wall Street Journal reporter Mark Whitehouse says the personal savings rate has increased “in large part because it counts reductions in personal debt, such as mortgages and credit-card balances, as savings.” But most debt reduction, Whitehouse points out, has been driven by defaults, rather than paying back.

It’s clear that since the last tethers tying the dollar to gold were cut, money production has soared, and a casualty has been the savings ethic. When the government’s money was gold or tied to it, a worker simply had to exercise the discipline to put some money away every paycheck. Now the dollar earns zip, while its value is eroded by inflation. (Send your thank-you letters to the Eccles Building, Washington, DC.)

Janet Yellen (and before her, Ben Bernanke) doesn’t want your money sitting in savings. If you can’t bring yourself to blow it at the mall, Fed chairs want your money in stocks or other risky assets. As Jim Grant, founder of Grant’s Interest Rate Observer, said on CNBC the other morning, “The Fed was wanting us all to get out of savings accounts and into junk bonds and equities.

But there’s a problem with that. In his book, The Ethics of Money Production, Jörg Guido Hülsmann explains:

Carpenters, masons, tailors, and farmers are usually not very astute observers of the international capital markets. Putting some gold coins under their mattress or into a safe deposit box saved them many sleepless nights, and it made them independent of financial intermediaries.

Hoarding paper money is financial suicide, and savings accounts yielding next to zero are the same thing. So, the average person must become a securities expert, follow financial news, spend time constantly supervising one’s investments, and have a good dose of luck. Even if the average person can do all that, Professor Hülsmann points out, “Inflation forces them to spend much more time thinking about their money than they otherwise would.”

Hülsmann continues:

Similarly, people will tend to prolong the phase of their life in which they strive to earn money. And they will place relatively greater emphasis on monetary returns than on any other criterion for choosing their profession.

Government money creation makes people materialistic. Career, family, and home decisions are driven solely by monetary concerns. “Many of those who tend to be greedy, envious, and niggardly anyway fall prey to sin,” writes Hülsmann. “Even those who are not so inclined by their natures will be exposed to temptations they would not otherwise have felt.”

The Fed’s grandiose monetary scheme has taken price fixing to a new level, creating what Grant calls a government-imposed bull market. “Interest rates now are not discovered as one discovers prices in a free market. They are administered and imposed,” he said. These imposed rates create asset bubbles and force common men and women to become gamblers and speculators.

Price controls haven’t worked in 4,000 years of government attempts. This government interest-rate imposition doesn’t work either; instead, it distorts the capital structure, the economy, and, most important, people’s values. The result is that a generation of people are being made poorer at the hands of the Fed.

 


This article originally appeared on October 17th, 2014 at Casey Research.
The original image used to make the cover was taken by Sh4rp_i (CC BY 2.0 — cropped).