Janet Yellen and 'negative interest rates': America, this is the last nail in a saver's coffin

Federal Reserve Chair Janet Yellen talks at a news conference following the March 2014 Federal Open Market Committee meeting while at the Board of Governors of the Federal Reserve Sysytem in Washington, March 19, 2014. (REUTERS/Larry Downing)

Most Americans have some money in a bank account. And if you’re one of them, you’re losing money. As low as inflation is, it’s higher than the pitiful interest you get from your savings account. So a savings account is a bad bet right now. But it could get worse…a lot worse.

Imagine having to pay your bank to take your money! It sounds crazy, but that’s what Fed Chief Janet Yellen says could happen here. It’s called a negative interest rate. Many central banks around the world have begun to use negative interest rates, and Janet Yellen told Congress this week that she “wouldn’t take them off the table” as a potential “tool” if the economy slips into a recession.

Wall Street loves this. Corporations are addicted to cheap money. They can borrow money for a pittance to cover their payrolls and a lot of other expenses. And they’ve recently got in the habit of borrowing money to buy back their own stock, which increases their stock price (at least temporarily). In fact, companies have borrowed so much for these stock buybacks and super generous dividends that Morgan Stanley recently warned: “…corporate balance sheets are no longer as pristine as they were in the immediate aftermath of the financial crisis.”

But the major concern I have is that all these financial schemes come at the expense of Main Street. Negative interest rates may start out just affecting certain bank deposits at the Federal Reserve. But eventually banks will pass on their costs to depositors…which means negative interest rates for average folks. So unless you invest in the stock market, or take all your money and stuff it in your mattress, you’ll be paying a bank to hold your cash.

Of course Janet Yellen has a political problem with negative interest rates…and she knows it. She acknowledged this week the questionable legality of starting down the negative-rate road. But more than that, in an election year, she probably doesn’t want to start a fight with Congress.

While President Obama wants the Fed to do anything to prop up the stock market and make the economy look good, he’s a lame duck. Janet Yellen knows that President Obama won’t be the one reappointing her as Fed Chair. So it’s Congress that she has to answer to before she’ll ever have to answer again to President Obama. And Congressmen are more worried about the demographics of savers than they are about an artificial boost to Wall Street.

Most savers are older folks. They vote more regularly than any other demographic. If these voters are forced to pay banks to take their money, they’ll demand blood…and politicians smell blood faster than sharks. Janet Yellen would be their target. And she doesn’t enjoy the heat of battle the way some former Fed Chairs (like Paul Volker) did.

Bottom line, does Janet Yellen want to have the “tool” of negative interest rates to ward off a recession? Probably. Does Wall Street want to make easy money even easier? Definitely. Would the savers of America stage a popular revolt if negative interest rates are employed this year? You bet.

So my hope is that voters will prevent what would amount to another Wall Street bailout at the expense of Main Street. Wall Street should never rise at the expense of Main Street. After all, that’s what the Fed was created to prevent.