Do you want to lend your hard-earned money to the US government? In exchange for the high, high interest rate of 2.8%? It’s a most generous deal, even though the Federal Reserve is committed to dollar devaluation at the rate of 2% per annum. So you are getting 0.8% per year, assuming that the Fed hits its goal. In exchange for lending to a profligate and counterfeit borrower—the government has neither the means nor intent to repay.
No, you don’t? This sounds like a bad deal? Well, tough.
It sucks, but if you need to hold a cash balance, your other choices suck more. Instead of lending to the government, you could deposit the cash in a bank. There’s only one problem. The bank will lend to the government. After taking out the costs of compliance, this rate is 2% according to the St Louis Fed.
This is actually up from 0.13% over the last three years, in our current bout of rising interest rate-itis. Enjoy this high rate while you can.
In any case, the bank adds risk. On top of all of the risks you incur by lending to the government, you take the risk of bank insolvency too. The government does provide deposit insurance—but this is the same government whose risk you are trying to avoid by not buying its bonds.
Finally, you could hold paper cash, $20 bills. Ignoring the risk of theft, there is still a problem with this. You are lending to the Fed. The Fed issues dollars, which are its liability, to fund its purchase of Treasury bonds. The dollar is backed by government bonds.
To have a dollar is not to own a thing. It is a credit relationship. Someone else owes you. If you own the dollar bill, the Fed owes you.
Savers Have No Say
No matter which way you go, if you hold dollar cash, you are lending to the government. You can do this at low interest, lower interest, or zero interest. No matter which way you go, you are disenfranchised. You have no say over the interest rate.
In the gold standard, if you have a gold coin, you have something. It is not a credit relationship. It is a positive value, a piece of metal that is no one else’s debt. And to own this coin is a choice. You can lend, if you like the interest rate and the risk. Or withdraw from lending, if you don’t.