Tuesday, October 12, 2010

Portfolios of the Not-So-Poor

One of the more illuminating findings recounted in Portfolios of the Poor: How the World's Poor Live on $@ a Day is the fact that in many countries, poor people pay as much for the privilege of saving their money in a (relatively) safe manner as they do to service loans -- that is, the negative interest rate on savings can exceed the interest rate paid on loans.

Contemplating a large payment on my 1.4% cash-back Mastercard, it occurred to me that I'm in the same boat.   The card is offered in conjunction with an online savings account that is now yielding 1.1%. Wouldn't it be a creative bit of arbitrage to contrive was to borrow large sums of money monthly, paying each bill in full (as I always do) as it comes due? 

The extraordinarily low interest rates currently propping up the banks are a kind of tax on savers. Our incentives right now are to borrow as much as we can -- if we can put the money to productive purpose -- and find a lender.

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