Low Interest Rates Are Pinching Incomes Less Than It Seems

Some economists claim falling interest rates are a mixed blessing, because personal interest income, currently about $715 billion a year, far exceeds the $330 billion in interest payments made by consumers. But Stephen Roach of Morgan Stanley & Co. notes that 40% of interest income represents "imputed" interest--yields on investments in pension funds and insurance policies that aren't really available for spending.

In short, consumers are far less dependent on cash interest income than the gross numbers suggest. And since such income goes mainly to high-saving older households anyhow, the stimulative effect of falling rates on consumption could be a lot larger than many people think.

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