patrick.net

Sounds like the Fed. The wheels are coming off. Tax those savers!

saving is deferred consumption.

but if something is not consumed now, it is not created, and there is no need for the workers involved.

you can't buy a candy bar and save it for 20 years to enjoy in your retirement.

what savings really is buying a spot at the casino table we call the equities market -- or otherwise acquiring a piece of something that will produce income in the future.

thing is, we've got too much of this investment action, we're drowning in people trying to save money.

saving, is, in fact, stupid, on the macro level.

we'd all be much better off in a full-on keynesian/MMT economy where there wasn't recession-level slack in the system

where are the bounds of wealth creation now? Where are we running out of stuff?

Metals, maybe. Energy, not really. Rare earths, dunno.

At any rate, in a more virtualized, appified economy, we're going to need less stuff-stuff to satisfy our needs and wants.

Zuckerberg was pitching this not too long ago:

http://www.wired.com/2016/02/vr-moral-imperative-or-opiate-of-masses/

Of course housing is one thing we're not creating enough new wealth in. Those that own have a vested interest in keeping new supply out of their local market -- NIMBYism and last-one-in-itis.

We could stand to invest more in our transportation systems, as transportation is another way to multiply land wealth, allowing people to live further from major work and retail centers.

What this country needs is tons of investment in new capital wealth. Schools, hospitals, housing, streets, parking garages, computer-controlled traffic lights.

We'll get there, but slowly, since most people are too bamboozled now to be able to see they have the power to demand any new public -- government -- investment in the commons.

Bellingham Bill says

we're drowning in people trying to save money.

Given the very low net worth (NW=assets-debts) of most Americans, there is no way the theory of the "savings glut" can be true. What we do have is a debt glut. The central and local banksters are trying to fix the bubble bust (=asset deflation) problem by getting people to get more into debt to bring the asset prices up again.

Bankers want you to get into more debt to buy houses and stocks at nosebleed high prices. Hence they promote the theory that there is a "savings glut". There sure as hell is no such savings glut. The bubble was created not because banks lent out too little money, but because they lent out too much. The debt glut created the assflation which was the bubble.

justme says

Given the very low net worth (NW=assets-debts) of most Americans, there is no way the theory of the "savings glut" can be true

Of course it's true and I'll show you in a couple ways.

#1---Despite what Austrian "it's always the Fed" folks tell you, interest rates ARE set by supply and demand. When rates are very low, like now, it means that there is much more demand for the bond, bill, etc. than there is supply. And that demand comes from savings.

#2--In order to understand what is going on, you have to understand that wealth is extremely unequal right now. Here's a simple example to illustrate:

If 1 trillion is equally distributed and everyone saves 10%--then there is 100 million in savings.
If 1 trillion is distributed where 90% split 100 million and save 0% (because they are barely scraping by) and 10% split 900 million and save 50% because they simply cannot spend that much--there is 450 million in savings.

And, thus, you can see how--even when 90% of the population saves nothing--there is 4.5 times as much total savings in the economy.

justme says

there is no way the theory of the "savings glut" can be true. What we do have is a debt glut.

one man's savings can be another man's debt.

real per-capita consumer debt

If people won't save for retirement, and SS is cut. Boy we will have next generation laying dead on streets.

FortWayne says

If people won't save for retirement, and SS is cut. Boy we will have next generation laying dead on streets.

Or another housing bubble. Look at China.

Bellingham Bill says

one man's savings can be another man's debt.

Aha, so you *do* agree with me. The problem is the all the lending generated by allowing a much too low fractional reserve ratio for those savings/deposits, and thereby creating too much debt. But that is a debt glut and not a savings glut.

This is another way of saying "whoever dies with the most debt - wins".

FortWayne says

If people won't save for retirement, and SS is cut. Boy we will have next generation laying dead on streets.

KILL THE BOOMFUCKS! KILL THEM ALL! LOGAN'S RUN, A MODEL FOR THE FUTURE!

On the topic of reserves: Today's reserve requirement is 10% of deposits, for banks' deposits above $100M. So banks can lend out 90M for each 10M they keep on hand.

https://www.federalreserve.gov/monetarypolicy/reservereq.htm

These days, banks have lots of reserves, because the "currency" that QE (Quantitative Easing program) used to "buy" bad bonds from banks was to credit the banks' reserve accounts at the Federal Reserve. Of course, such a transaction amounts to little but smoke and mirrors. Anyway, all the banks now have tons of "reserves" at the Fed, so there is a *reserve glut*. But there is not a savings glut by any stretch of the imagination.

It should be clear to anyone that Fed buying bonds by crediting the purchase as reserves is just theater. It moves the bad bonds off the books of the banks, and onto the (hidden and unaudited) books (and balance sheet) of the Fed.

By the way, I think the reason the Fed is threatening "NIRP on reserves" is (1) that the Fed wants banks to increase lending and debt to a higher levels such that asset prices are forced up even more, or (2) to incentive the banks to withdraw some of their excess rserves and use the proceeds to buy back bad binds tha the Fed is holding.

That is some explanatory background information. What is quite clear is that there is no "savings glut". "Savings glut" is just a propaganda myth

justme says

What is quite clear is that there is no "savings glut". "Savings glut" is just a propaganda myth

It's clear that there IS a savings glut to me. And I showed why earlier--I notice you conveniently ignored that post.

The reserve requirement hasn't changed significantly over the last 50 years. It cannot be the cause of lower interest rates today vs. earlier time periods.

BTW, many people may not know what reserves are used for: They are at the heart of the Fed-run interbank payment system. Any non-cash transaction (check, ACH, wire, whatnot) that involves withdrawal from one bank and deposit into another is charged and credited to the reserves of the respective banks. The supposed purpose of the system is to keep banks honest (hah!), and reduce counterparty risk. To put it succinctly: Reserves is the currency of the interbank payment system. Allowing bad bond sales to be paid for by (credited as) bank reserves is just one of the ways that the Fed distorts the financial system. There is no there there!

Come on, tatupu. There was no substance in your post. Just a made up numerical example. And not only were the numbers completely made up, but there is no logic to your argument at all.

Suppose all the "savers" decided to "spend" all their savings on buying houses. What would happen to the proceeds of the purchases? Well, they would just end up in different bank accounts with a different name on it. Heck, maybe your name, even. But then the money is back to being "savings" again. Nothing changed, except the buyers got more heavily into debt, unless they had enough savings to buy the whole house rather than just funding a down payment and taking up a loan.

So what we got was same amount of savings, and a larger amount of debt. That does not solve anything, except for making more debt slaves and increasing the take for the banks and the homesellers. Who then have to find some other assets to inflate.

The problem, I think, is that your thinking is completely clouded by your self-interest as a real-estate investor and landlord. Home prices fell? Unwilling or unable buyers? Must be a savings glut! People unwilling to pay nosebleed rents? Well, those cheap bastard savers. Savings glut again!

NO, being unwilling to buy at a price deemed exorbitant is not a savings glut. It is an essential aspect of a functioning market. But the Fed is trying to instigate a buying panic and a debt spree, because that is PROFITABLE for the banks.

I'm not going to spend much time on discussing this with you. I advise all readers to read my analysis, and see if it makes sense, and whether what Tatapu says makes any sense. That is all I ask for,

Guess I'm dumb.

Maybe I should talk with a Realturd for some financial advice.

justme says

There was no substance in your post. Just a made up numerical example.

Do you agree that wealth inequality has increased significantly over the last 50 years?
Do you agree that obscenely rich people save at much, much, much higher rate than those in the middle or lower classes?

Assuming yes to both (those are facts), then it stands to reason that overall savings is higher.

Come on--it is entirely logical. And it explains why we're where we're at today very easily.

justme says

Suppose all the "savers" decided to "spend" all their savings on buying houses. What would happen to the proceeds of the purchases? Well, they would just end up in different bank accounts with a different name on it. Heck, maybe your name, even. But then money is back to being "savings" again. Nothing changed, except the buyers got more heavily into debt, unless they had enough savings to buy the whole house rather than just funding a down payment and taking up a loan.

Big picture--if debt increasing faster than savings, rates would be going up rather than down. Right now there is too much money looking for too few investment opportunities. That's why rates on all debt are low.

justme says

The problem, I think, is that your thinking is completely clouded by your self-interest as a real-estate investor and landlord. Home prices fell? Unwilling or unable buyers? Must be a savings glut! People unwilling to pay nosebleed rents? Well, those cheap bastard savers. Savings glut again!

I'm not a real estate investor nor a landlord so that theory is shot. What you describe above is a strawman. I'm saying that falling rates indicate a savings glut, not falling house prices or rents.

justme says

I'm not going to spend much time on discussing this with you. I advise all readers to read my analysis, and see if it makes sense, and whether what Tatapu says makes any sense,.. That is all I ask for,

I would do the same. I welcome anyone who doesn't think I make sense to please respond with why. Believe it or not, I've learned a great deal coming to pat.net and I had my mind changed several times. Maybe this another time.

tatupu70 says

Do you agree that wealth inequality has increased significantly over the last 50 years?

Do you agree that obscenely rich people save at much, much, much higher rate than those in the middle or lower classes?

I think I see at least part of the cause of your misperception now: Your understanding of the terminology is completely wrong. What you are describing above is not a "savings glut", it is an ownership (wealth) INEQUALITY GLUT. Outright ownership of land, houses, buildings, factories, company shares, and intellectual property is not "savings", it is CAPITAL. Yes, there is a massive inequality glut as pertains the ownership of capital. But that is something entirely different than a "savings glut". Can you agree on that? That would really help.

tatupu70 says

Big picture--if debt increasing faster than savings, rates would be going up rather than down. Right now there is too much money looking for too few investment opportunities. That's why rates on all debt are low.

PS: I apologize for branding you as a real-estate profiteer and landlord, assuming you are speaking the truth here. My impression was formed from watching you reply in lockstep, so many times, with the usual group of Fed-denier landlord types on this blog.

First of all, in a fractional reserve system (described earlier in this thread), debt ALWAYS is a large multiple of the reserves (deposits retained on hand by the bank, and not lent out), and therefore debt also increases (much) faster than savings. Without intervention from the Fed, increased demand for loans would indeed cause interest rates to rise. See next paragraph.

Second, you say that there is "too much money". That "too much money" is coming directly from the Federal Reserve, courtesy of their QE program in combination with ZIRP. Basically, QE turns the equivalent of sewage water (bad bonds) into good wine (reserves), and forces interest rates down. Yes, interest rates are indeed being forced down. But it is not the "savings" of wealthy people that is forcing the rates down. It is the expansion of lendable funds that is forcing the rates down. QE is doing it! ZIRP is doing it! It is not the "savings" of the wealthy that is doing it. It is what amounts to "printing" of bank reserves.

Does this help?

One more thing. If the rich does not want to "spend" their savings (I'm talking about actual savings on deposit now), as you are calling for, the bank will "spend" it for them, by lending it out OR speculating with it for their own account (they can, to some extent, thanks to the repeal of the Glass-Steagall act).. Right now there is a massive bubble going on both in the stock market and the housing market and the bond market, all at the same time.

tatupu70 says

I agree that some of the wealth of the super rich is in the form of capital, yes. But they also have immense amounts of savings. So, I don't think I agree.

Documentation? Savings deposit balances as function of total wealth?

tatupu70 says

I don't belong to the Fed cult so we will disagree on this one too.

You are a charter member of the fed-denial cult

tatupu70 says

look at a chart of 10 year treasury over time overlaid with Fed QE programs you'll see that they have basically zero effect.

Facepalm. The plot proves nothing. Also, QE does not primarily buy 10 year treasuries. It buys some, but mostly it buys crummy bonds that others will not buy.

I've had it with you. I don't believe anything you say from now on. My goodwill is exhausted.,

justme says

Documentation? Savings deposit balances as function of total wealth?

Savings is more than savings account balances.

Typically, any income not spent on consumption is considered "savings"

justme says

Facepalm. The plot proves nothing. Also, QE does not primarily buy 10 year treasuries. It buys some, but mostly it buys crummy bonds that others will not buy.

I've had it with you. I don't believe anything you say from now on. My goodwill is exhausted.,

The recent bad mortgage buying is an anomaly. QE is usually buying and selling government securities on the open market

"Quantitative easing is an unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity. Quantitative easing is considered when short-term interest rates are at or approaching zero, and does not involve the printing of new banknotes."

http://www.investopedia.com/terms/q/quantitative-easing.asp

But, in any event, you are free to your beliefs however misguided they are.

Submitted without comment

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www.youtube.com/embed/bC4LoSm5ZhE

justme says

QE does not primarily buy 10 year treasuries. It buys some, but mostly it buys crummy bonds that others will not buy.

https://research.stlouisfed.org/fred2/series/TREAST

justme says

QE does not primarily buy 10 year treasuries. It buys some, but mostly it buys crummy bonds that others will not buy.

https://research.stlouisfed.org/fred2/series/TREASTtatupu70 says

justme says

Documentation? Savings deposit balances as function of total wealth?

Savings is more than savings account balances.

Here's some "documentation"

Top 10% own 94% of the financial securities.

Bottom 90% owe 72.5% of the debt.

tatupu70 says

I don't belong to the Fed cult so we will disagree on this one too. The Fed controls exactly 1 rate which is almost never used.

What the Fed also did was stick-save asset prices and corporate profits 5-6 years ago.

Without that we'd be in 1936 now and asset value would be 10% of what they are now, everyone would be BK'd and overall the rich would own less in some areas (their debt and corporate equities) and more in others (real estate and other hard assets).

tatupu70 says

but anyone who thinks we have 3 simultaneous massive bubbles

I don't see much of a bubble in stocks, unless you think corporate profits are going to zero again.

Rents support housing costs, so no bubble there.

Not even sure what a bubble looks like in the bond market . . .

Prices high so yields low? Well, welcome to teh deflation, courtesy of the Fed injecting trillions into the top of the economy to fend away cross-default collapse.

justme says

ZIRP is doing it! It is not the "savings" of the wealthy that is doing it. It is what amounts to "printing" of bank reserves.

The money the Fed printed ended up in the 1%'s hands soon enough. The Fed bought the trillions of bonds, and government ran colossal deficits courtesy of the Fed being the extra buyer, and all these trillions were spent into the private economy and eventually hoovered up by the "savers" aka rich, people who have the generational money of interest earning interest earning interest for them.

Interest never sleeps.

The Feds borrowed $2T/yr during the crash! Inconceivable!