Disability Insurance Observer: Yellin' at Yellen

Janet Yellen, the new Federal Reserve Board chair, seems to be inclined to keep interest rates low because, she says, inflation still seems to be low, and because she thinks keeping rates low will help employment.

Seriously, Federal Reserve Board people, let me say, as a moderate-income worker and a would-be home buyer: Do not try to do me any favors by trying to keep rates at an unrealistically low level.

We all know that the low rates are destroying disability insurance businesses and other businesses that depend on investments in high-rated bonds by depressing rates.

But I think you can make a case that the low rates, combined with a punitive atmosphere that scares lenders away from taking on risk, are also hurting disability insurers by hurting employment.

If a worker has a serious disease, or could fake having one, why the heck would that worker try to keep working in such a scary environment?

Employers face tough regulations, erratic customer demand — and the knowledge that, when it comes time to meet payroll, small and midsize employers have no practical way whatsoever to borrow money to smooth over fluctuations in cash flow.

Some economists question how much influence the Fed really has over rates in the real world. Maybe rates are low because of what the Fed is doing, but maybe rates are low because the banks and other borrowers have a hard time “selling” money.

Or, maybe, in the actual real world, rates have to be low because, otherwise, the big banks would implode. Maybe Yellen’s “We’re keeping the rates low for the job hunters,” is a euphemism for, “Do you know how quickly Big Bank X will go splat if we raise rates half a percentage point?”

But, just in case rates really are low because of jobs and home buyers, not because of rickety big banks: The more I personally have to do with credit, the more I wonder whether the real cause of ongoing economic problems in Japan, and the current stagnation in the United States, might not be alleged efforts to help the economy with low rates.

The truth is that no one in the United States who faces financial constraints can get new loans right now.