patrick.net

With the fractional reserve banking system set up by the Fed, the banksters are able to loan out 95%+ of your money at much higher rates, while they pay you a paltry 1% and charge you fees for the privilege of depositing your money with them. With creative accounting along with derivatives, the amount of digital money the banking system “loans” is multiplied even further. It's a pyramid - Ponzi scheme where the average American actually believes "their money" is available to them whenever they want it. It is, as long as no more than about 5% of the depositors show up to demand their money and cause a bank run.

It's been that way most of my life. I suppose it was considered desirable to convince people to put their money in CD, where banks would then use it for fairly conservative investments. Then Greenspan, Rubin, etc decided it was best for the world if all money was "liberated" from savings so it could be circulated through the hands of middlemen. You know central bankers speak with a scornful tone about "savings gluts". Fed decided to drop interest rates to encourage money flow into speculative bubble. So you had that era of ridiculously low returns, where you were considered a FOOL if you didn't pull close out your CD and invest in a condo somewhere. Now the Fed has decided to continue to drain that pool in order to pay prop up Bankster Balance Sheets (& bonuses).

Me I consider it sufficient to have some money in bonds, or something similarly low-interest but SAFE. In a deflationary environment staying even or getting a few nickels is still coming out ahead. I'll admit I have a chunk of money in AAPL and GLD right now, but I can quit gambling any time I want to....

It's pretty simple, if people actually do not open excess checking/savings account and settle for low interest rates on deposits, the banks will have to raise their rates to attract the needed working capital.

But that is easier said than done. We are so dependent on the banks settling our bills that most people need at least a 5K float on these accounts. The float to you is free working capital to the bank. Don't 99% of people deposit their check to the banks anyway instead of TD Ameritrade? That is why the rates are so much lower than the alternative, because they know people need a certain amount of checking/savings anyway. Why offer more unless you have to.

RayAmerica says

With the fractional reserve banking system set up by the Fed, the banksters are able to loan out 95%+ of your money at much higher rates, while they pay you a paltry 1% and charge you fees for the privilege of depositing your money with them. With creative accounting along with derivatives, the amount of digital money the banking system “loans” is multiplied even further. It’s a pyramid - Ponzi scheme where the average American actually believes “their money” is available to them whenever they want it. It is, as long as no more than about 5% of the depositors show up to demand their money and cause a bank run.

It's neither a pyramid or a ponzi scheme. You should really look up the actual definitions of those terms.

I don't mind savings accounts so much. The interest rates are garbage, but what else am I going to do with the money I need for an emergency fund?

With a savings account, my money is insured against theft, loss, or damage, so it's better than keeping it under my mattress.

Want a better return? Buy bonds and have your assets be tied up for fixed periods of time. Want even better? Try the stock market, though the short term risk can be enormous. Want even better? Try starting a business. The risk is even greater.

Because I want to retire early and live off of earned interest! It's harder to do that when savings account interest rates are below 2%. Seriously though, economics is an esoteric discipline that is highly unpredictable. I'll just take whatever interest they offer me while I grumble about some abstractions formulated by experts.

(erased, post got mangled because I put a LESS THAN sign in it)

What really gets my goat is that savers end up paying off the banks cyclical losses, bubble losses and generic recession losses because the Fed forces the short term interest rate down to less than 1%.

I hope y'all understand that the motivation for forcing short term interest rates low is all about increasing the profit margin for banks at your expense, and very little about "stimulating the economy".

The latter rationale is just Fed-speak, or lies as regular people would call it.

justme says

I hope y’all understand that the motivation for forcing short term interest rates low is all about increasing the profit margin for banks at your expense, and very little about “stimulating the economy”.

That's just complete horseshit. Yes, I'm sure the FED wants the banks to earn their way back to solvency and low rates help that happen. But it's not like this is the first time rates were lowered during a recessionary period. It happens EVERY time. It's always the first tool out of their bag.

Lower rates stimulate investment.

They're not.

Nomograph made a good point if you look at history.

Also, with economic growth at sub 2% (maybe sub 1%)...where's the extra 'wealth' to help pay for the interest going to come from? Theoretically, interest paid on deposits would be a function of inflation + growth. Right now, there's little to no growth (inflation...well, depends who you ask though the bank's explanation may be that is zero too).

True, in a deflationary environment, even 0% is an excellent return, because what you can buy with the cash is increasing as house prices decrease. Assuming you want to buy a house.

Health insurance, food, and energy are another matter altogether.

True, in a deflationary environment, even 0% is an excellent return, because what you can buy with the cash is increasing as house prices decrease. Assuming you want to buy a house.

Health insurance, food, and energy are another matter altogether.

If you think about it, this is the hallmarks of slowly becoming a lesser developed country.

If you visit Costa Rica or some random developing country, you can buy a house for cheap or get most services for cheap, whether it's taxi, local lawyer, or prostitute.

However, fuel and electronics still costs the same as in the US. This is because they're goods that can be imported/exported.

Health insurance is a whole different animal. That and education have ballooned in cost in recent years due to a variety of reasons (mainly being overly subsidized imo..except the subsidy isn't universally given so some groups get whacked worse than others ).

More money spent on the same quality education/health care is actually deflationary since it's less money that can be spent on other stuff.

IF we're growing slowly or actually seeing negative GDP growth, then I don't see why anyone would get better than 0% unless there's massive nominal inflation in wages. If health care/education/fuel, etc. just cost more but wages stay the same, that just reflects becoming a less well-off society without massive deflation in wages and other income.

I could have sworn there was a very creepy poster on here. Problem? Good to know problem solved.

Savers should be entitled to what the market will give them, no more, no less. The fact of the matter is, the 1% savers are being offered are a direct result of markets being manipulated by central banks. Absent a central bank, interest rates would have been significantly higher the entire decade.

As Vincent eluded to, "Cash" its self is the reward.
Cash is king, it buys more, and has more power to speak the loudest with direct authority.
Cash offers much more than Credit, 1% interest is just the start of what your Saved dollars earn. Where the real earning comes from, is the Value in the procurement that your capitol eventually achieves.
This is where SMART Money comes into play. You save up 100K only at 1% Rate over a decade. Then out of the blue an Investment (Property, Business, Drop ship investment you name it) drops in your lap. You'd only have 10,563.25 in earned interest in ten years. But you may have an opportunity to turn that 100K into 300K, just because you had cash on hand to risk. That 10K was just extra gravy, one might use to acquire a 1954 Stratacaster, to celebrate their 200K earnings.

Modern ecconomics is "Why conserve water when you're swimming in it?" With out considering Lakes and Riverbeds dry up eventually.

Cash and easy access to it, needs no further introduction. That's for sure.

Interest in a bank account is never negative.

Interest in a bank account is never negative.
Not yet... How much would you pay for a service that safeguards your money (versus the mattress which is susceptible to theft, fire, etc.)? Don't think we haven't seen everything yet in Deflation Nation.

Tenouncetrout says

As Vincent eluded to, “Cash” its self is the reward.

Cash is king, it buys more, and has more power to speak the loudest with direct authority.

Cash offers much more than Credit, 1% interest is just the start of what your Saved dollars earn. Where the real earning comes from, is the Value in the procurement that your capitol eventually achieves.

This is where SMART Money comes into play. You save up 100K only at 1% Rate over a decade. Then out of the blue an Investment (Property, Business, Drop ship investment you name it) drops in your lap. You’d only have 10,563.25 in earned interest in ten years. But you may have an opportunity to turn that 100K into 300K, just because you had cash on hand to risk. That 10K was just extra gravy, one might use to acquire a 1954 Stratacaster, to celebrate their 200K earnings.
Modern ecconomics is “Why conserve water when you’re swimming in it?” With out considering Lakes and Riverbeds dry up eventually.
Cash and easy access to it, needs no further introduction. That’s for sure.
Interest in a bank account is never negative.

Exactly. Sometime ago I tried to buy shoelaces for $2.19 using credit card. But the credit card machine was broken. So I paid $2.00 cash instead.

tatupu70 says

That’s just complete horseshit.

This thread just woke up from the dead, and I saw some horseshit.

tatupu70 says

Yes, I’m sure the FED wants the banks to earn their way back to solvency and low rates help that happen.

Ok, so we agree on that one.

tatupu70 says

But it’s not like this is the first time rates were lowered during a recessionary period. It happens EVERY time. It’s always the first tool out of their bag.

I agree, it happens EVERY time. That's what I said, too (every time there is a cyclical loss banks are allowed to earn themself out of the hole more quickly at the expense of savers, by means of the Fed lowering the depositor interest rate).

tatupu70 says

Lower rates stimulate investment.

How is that working for you? From what I can see, banks are currently afraid to lend out money and people are afraid to borrow. There is a credit contraction.

For the most part, reducing the deposit interest rate has not stimulated anything. All it has done is to increase the profit margin for banks, and not just on those sparse new loans, either.

Nearly all the real stimulus has come from public spending coupled with QE1 and QE2. The later is where the Fed takes the steps that individual banks dare not do, and for good reasons.

So, yeah, I stand by my claim the forcing down depositor interest rates is done for the benefit of the banks more than the benefit of the people and the economy. You don't have to agree, but keep in mind that as in so many aspects of political life, the stated reason is not the same as the REAL reason something is done.

Oh, yeah. "The Free market". Quite a choice the savers have there, is it not.

tatupu70 says

Lower rates stimulate investment.

Artificially lower rates stimulate bad investment. They encourage people to take risks they wouldn't normally take. If low rates were such a good thing, we would have lowered them to zero in 1933 and kept them there forever.

justme says

How is that working for you? From what I can see, banks are currently afraid to lend out money and people are afraid to borrow

Investment isn't mortgages... The goal is to make borrowing cheaper for companies so they can increase capital budgets, etc.

justme says

So, yeah, I stand by my claim the forcing down depositor interest rates is done for the benefit of the banks more than the benefit of the people and the economy. You don’t have to agree, but keep in mind that as in so many aspects of political life, the stated reason is not the same as the REAL reason something is done.

Fair enough. I tend not to believe conspiracy theories and still don't see how banks really gain from low rates. Theoretically they make the same spread whether the rate is 1% or 10%. Does anyone have data showing that banks make more when rates are low?

theoakman says

Artificially lower rates stimulate bad investment. They encourage people to take risks they wouldn’t normally take. If low rates were such a good thing, we would have lowered them to zero in 1933 and kept them there forever.

Wrong. Lower interest rates stimulate more investment. Some will be good, some will be bad. The bar is lowered so some riskier projects will be started, no doubt.

The FED has a goal of low inflation (2-3%/year I believe). If rates were always low, then we'd have inflation at levels higher than the FED wants.

tatupu70 says

theoakman says

Artificially lower rates stimulate bad investment. They encourage people to take risks they wouldn’t normally take. If low rates were such a good thing, we would have lowered them to zero in 1933 and kept them there forever.

Wrong. Lower interest rates stimulate more investment. Some will be good, some will be bad. The bar is lowered so some riskier projects will be started, no doubt.
The FED has a goal of low inflation (2-3%/year I believe). If rates were always low, then we’d have inflation at levels higher than the FED wants.

The Fed has a goal of low inflation? That's a good one. The Fed's goal is to keep housing prices at values 100% above fair market value. Just because they say it, doesn't mean they are telling the truth.

theoakman says

tatupu70 says

theoakman says

Artificially lower rates stimulate bad investment. They encourage people to take risks they wouldn’t normally take. If low rates were such a good thing, we would have lowered them to zero in 1933 and kept them there forever.

Wrong. Lower interest rates stimulate more investment. Some will be good, some will be bad. The bar is lowered so some riskier projects will be started, no doubt.
The FED has a goal of low inflation (2-3%/year I believe). If rates were always low, then we’d have inflation at levels higher than the FED wants.

The Fed has a goal of low inflation? That’s a good one. The Fed’s goal is to keep housing prices at values 100% above fair market value. Just because they say it, doesn’t mean they are telling the truth.

Ah, another vast conspiracy theory. Maybe Mulder and Scully should audit the Fed.

tatupu,

Calling something a conspiracy theory because you want to discredit it is a cheap rhetorical trick.

The Fed exists for the benefit of the banking system, not for the benefit of the people. The sooner you realize this, the better off you will be.

justme says

tatupu,
Calling something a conspiracy theory because you want to discredit it is a cheap rhetorical trick.
The Fed exists for the benefit of the banking system, not for the benefit of the people. The sooner you realize this, the better off you will be.

OK--I don't think you're going to change my mind and I don't think I'm going to change yours. Can we agree to disagree on this one?

Nomograph says

Yep. Stocks, bonds, real estate, precious metals, etc. Those are free-market saving vehicles

I have to say that considering these investment objects to be "free market" is pure balderdash.
I'm surprised someone would even think of making such a claim.

Have you not noticed that Alan Greenspan and Ben Bernanke have spent the better part of the last 30 years manipulating the prices first in the stock market, then real-estate, then Bonds and bank stocks, and more recently commodities such as oil, metals and grains? By manipulating the interest rate in such a way that the asset prices go up, until the bubble becomes so big that it cannot be sustained?

I'm dumbfounded that anyone has any faith that there is a free market in ANYTHING, after having observed the last several years of Fed machinations.

tatupu70 says

Ah, another vast conspiracy theory. Maybe Mulder and Scully should audit the Fed.

Vast? It's pretty simple and straight forward. And it's not a conspiracy theory. Bernanke and Obama are on record dozens of times saying their goal is to stop housing prices from falling at all costs.

theoakman says

tatupu70 says

Ah, another vast conspiracy theory. Maybe Mulder and Scully should audit the Fed.

Vast? It’s pretty simple and straight forward. And it’s not a conspiracy theory. Bernanke and Obama are on record dozens of times saying their goal is to stop housing prices from falling at all costs.

First off, that's a lot different than saying their goal is to keep housing prices 100% above fair market value. Second, do you have a source for all those dozens of quotes?

tatupu70 says

theoakman says

tatupu70 says

Ah, another vast conspiracy theory. Maybe Mulder and Scully should audit the Fed.

Vast? It’s pretty simple and straight forward. And it’s not a conspiracy theory. Bernanke and Obama are on record dozens of times saying their goal is to stop housing prices from falling at all costs.

First off, that’s a lot different than saying their goal is to keep housing prices 100% above fair market value. Second, do you have a source for all those dozens of quotes?

No, it's really not any different. Second, don't be so lazy. Google it yourself.

theoakman says

No, it’s really not any different. Second, don’t be so lazy. Google it yourself

So, in other words, you don't have any sources and you were talking out of your ass. Glad we cleared that up.

tatupu70 says

theoakman says

No, it’s really not any different. Second, don’t be so lazy. Google it yourself

So, in other words, you don’t have any sources and you were talking out of your ass. Glad we cleared that up.

no, in other words you're just really lazy. Here's a hint. Go look up Obama's speech for the "2009 Homeowner Affordability and Stability Plan"

Nomograph says

theoakman says

Bernanke and Obama are on record dozens of times saying their goal is to stop housing prices from falling at all costs.

Incorrect.
They have stated that they want to stabilize the housing market, which is a *hugely* important goal for economic recovery.
They have *never* stated that they want to “stop prices from falling at all costs”, or “keep prices 100% above market value”, or other such nonsense.
Theo is just making crap up as usual. It gives him something to be angry about and someone to blame for his own shortfalls. He even blamed Jon Corzine for “destroying the pharmaceutical industry” when he wasn’t able to get a job. Grow up.

My own shortfalls? Do we need to bring up how I turned 40k into a home in 2 years again? I can pay off my mortgage in cash tomorrow if I want to. When this crisis started, circa 2007, I was a poor graduate student living below the poverty level. Now I'm 30, married, and already have my housing situation settled for good. I believe I've done pretty well for myself.

And, FYI, you seem to be the one making things up. I blamed Corzine for the budgetary and economic woes of the state of New Jersey, not my employment status. Furthermore, I have job and I love it to death. Judging from your post, you're the angry one. Not me. Grow up.

Btw, do you recommend I take profit on gold at $1400 now or should I wait for it to go to $2000?

Nomograph says

theoakman says

My own shortfalls?

Yep.
You couldn’t handle grad school, couldn’t handle a post-doc, couldn’t get a pharma job, and now teach high school (which is an honorable profession, but only requires a B.S. degree).
Now you foster conspiracy theories to explain your situation rather than face some unpleasant truths about yourself. Grow up, Theo.

Haha, I could handle a post-doc just fine. I saw an opportunity to make 3 times as much money and I took it. It paid off. You really are grasping at straws to try to make me somehow feel bad about myself. I have no difficulties in life. Life is pretty easy when you dump all your money into mining stocks and watch them soar 700%. And FYI, I'm working out a post-doc position for the summer of 2011. I'd really hate to be your child. You seem overly abusive.

OK Oak--

Since you are too lazy to back up your own words, here is the text of the speech to which you refer. Please show me the quotes you mean...

http://www.nytimes.com/2009/02/18/us/politics/18text-obama.html?_r=1&pagewanted=2

justme says

I have to say that considering these investment objects to be “free market” is pure balderdash.
I’m surprised someone would even think of making such a claim.

Have you not noticed that Alan Greenspan and Ben Bernanke have spent the better part of the last 30 years manipulating the prices first in the stock market, then real-estate, then Bonds and bank stocks, and more recently commodities such as oil, metals and grains? By manipulating the interest rate in such a way that the asset prices go up, until the bubble becomes so big that it cannot be sustained?

I’m dumbfounded that anyone has any faith that there is a free market in ANYTHING, after having observed the last several years of Fed machinations.

Sniff, Our Baby is all grown up. :(

I've been trying to explain this over the Holiday to different groups of people at various functions. They all just woosh their hand over their head, and look confused. I just say "How about that GM stock?" and walk away.

tatupu70 says

OK Oak–
Since you are too lazy to back up your own words, here is the text of the speech to which you refer. Please show me the quotes you mean…
http://www.nytimes.com/2009/02/18/us/politics/18text-obama.html?_r=1&pagewanted=2

Rofl, did you read it? If you don't draw the conclusion that his goal was to stop home prices from falling, there's no helping you.

theoakman says

Rofl, did you read it? If you don’t draw the conclusion that his goal was to stop home prices from falling, there’s no helping you.

OK--get up off the floor and follow with me. Here's what you said:

theoakman says

The Fed’s goal is to keep housing prices at values 100% above fair market value

Then you backpedaled to say:

theoakman says

Bernanke and Obama are on record dozens of times saying their goal is to stop housing prices from falling at all costs.

When asked to provide a source, you say that you are too lazy to find it but instruct me to look up a speech Obama made. When I do the work for you and post it, you still refuse to find ONE quote. Come on. You said there are DOZENS out there. You can't be troubled to fine a single ONE???

I don't understand you conspiracy theorists. Have you ever considered that maybe the right course of action to heal the US economy might coincidentally help the US banking industry?? That someone who hated the banksters might have had to swallow hard and help them because it was the only way to fix the economy?? Of course Obama wants to try to stop housing prices from falling. Does that surprise you?

I know it's much easier to sit back in your recliner and talk about a vast conspiracy, but try to think it through...

Savings is essentially investing into a bank. If banks make lots of money with it, shouldn't they return some of it?

ChrisLosAngeles says

Savings is essentially investing into a bank. If banks make lots of money with it, shouldn’t they return some of it?

Exactly. They should return at least half of it, if you ask me. The problem is that banks do not compete properly.
Or rather, there are no properly insured alternatives to banks.

ChrisLosAngeles says

Savings is essentially investing into a bank. If banks make lots of money with it, shouldn’t they return some of it?

They do--the investors are the shareholders not the depositors. And it's called a dividend