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?