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August 15, 2012 at 09:11 AM
The staff at the Federal Reserve Bank of New York has done a fancy study and discovered what I know from my telephone, and what you might know from your own experience with meeting payroll this week: Many small business owners are strapped for cash, even if sales are OK, in part because they have virtually no access to credit.
That might not look like a health insurance story, but, of course, it’s a huge health insurance story.
The Federal Reserve Board has been doing all that it can to help the economy, in part by decreasing business owners’ borrowing costs.
Those low rates are devastating the consumers who have done their best to plan for the future and the life insurers who have tried to help those consumers, by slashing the returns life insurers get on the reserves backing any product with guarantees that could end up extending over a long time horizon, such as long-term care insurance (LTCI), long-term disability insurance or annuities that offer guarantees.
The damage done to the insurers might be worth it if the Fed could show that the low rates were actually increasing home sales or helping businesses.
Maybe the low rates are actually helping some profligate businesses that ran up huge amounts of variable-rate debt back when the getting was good, and even some large, sensible corporations with great credit ratings that still have an easy time selling bonds on Wall Street.
But home sales continue to be weak and, as the New York Fed has demonstrated, the low rates aren’t doing small business owners much good because (with, obviously, plenty of exceptions, but maybe not all that many exceptions) small business owners have a horrible time getting credit at any legal rate.
