If every family in America gave you $50,000 for free, could you make money?
Not if you're Citibank, Bank of America, RBS, Barclay's, Morgan Stanley, UBS, JPMorgan Chase, Deutsche Bank, Wells Fargo, or Dexia (?). Or most other banks.
These banks need an extra $1,139 billion in free government loans over the last three years to make up for what they lost on their debt obligations.
Which leads to the point of this commentary: I'm not an economist, but how can you theorize that you're stimulating an economy when certificates of deposit are returning zero per cent? In fact, I received a marketing piece in the mail for a savings account at Citi that is paying 20 basis points and has fees of 25 basis points! That's a negative return. Guys. I'm not being crazy when I say that you'd do better sticking your cash under the mattress.
Yet, the zombies who set fiscal policy have determined that the only way to keep our economy moving is a world where savings pay nothing, and commercial debt collects 4% or so--400 basis points of arbitrage and the banks above are still so stupid they needed more free money from the Fed.
Low consumer savings interest used to be a byproduct of economic policy that only has one lever: when the economy slows down, reduce rates. Whether this ever worked or not is still a subject for debate--but it's been five years now and it certainly isn't working now. Olivier Blanchard, who holds some economist position at the IMF, is quoted as saying economists no longer know "what financial stability means." A proposition: giving Mr. and Ms. Main Street negative five basis points on their cash just doesn't seem like it helps any one except the bankers. So, if all you economists don't know why your one lever isn't working any more, why don't you try something else for a change.
So what happens? As I understand it, investors who are smart enough to notice that cash savings are penalized (most of us, but not all of us--think of all your senior citizen friends who are living on fixed incomes) are left with one paltry option: equities. The average amount per household that's currently stranded, without a lover, in no-interest savings is somewhere just north of $50,000.
For the rest of our personal wealth: We've all dutifully been led in this equities direction, which I believe explains most of the 20%+ run up in the Dow and other exchanges in the last year. We're in a cattle yard here, folks--walking along chutes towards our inevitable doom because we have nowhere else to go.
The minute the Fed takes steps so that CD's pay more than 50 basis point a year--still theft--you're going to give back that 20% on your equities in a heartbeat. Then, we'll all share the amazing continued experience of having our pockets picked on every side of the investment spectrum--essentially the pattern that's been in play since 2000, with the current exception of the last 15 months.
But why should the Fed ever do that when they can get each household in America to give Bank of America and Wells Fargo $50,000--and pay for the privilege?
These banks need an extra $1,139 billion in free government loans over the last three years to make up for what they lost on their debt obligations.
Which leads to the point of this commentary: I'm not an economist, but how can you theorize that you're stimulating an economy when certificates of deposit are returning zero per cent? In fact, I received a marketing piece in the mail for a savings account at Citi that is paying 20 basis points and has fees of 25 basis points! That's a negative return. Guys. I'm not being crazy when I say that you'd do better sticking your cash under the mattress.
Yet, the zombies who set fiscal policy have determined that the only way to keep our economy moving is a world where savings pay nothing, and commercial debt collects 4% or so--400 basis points of arbitrage and the banks above are still so stupid they needed more free money from the Fed.
Low consumer savings interest used to be a byproduct of economic policy that only has one lever: when the economy slows down, reduce rates. Whether this ever worked or not is still a subject for debate--but it's been five years now and it certainly isn't working now. Olivier Blanchard, who holds some economist position at the IMF, is quoted as saying economists no longer know "what financial stability means." A proposition: giving Mr. and Ms. Main Street negative five basis points on their cash just doesn't seem like it helps any one except the bankers. So, if all you economists don't know why your one lever isn't working any more, why don't you try something else for a change.
So what happens? As I understand it, investors who are smart enough to notice that cash savings are penalized (most of us, but not all of us--think of all your senior citizen friends who are living on fixed incomes) are left with one paltry option: equities. The average amount per household that's currently stranded, without a lover, in no-interest savings is somewhere just north of $50,000.
For the rest of our personal wealth: We've all dutifully been led in this equities direction, which I believe explains most of the 20%+ run up in the Dow and other exchanges in the last year. We're in a cattle yard here, folks--walking along chutes towards our inevitable doom because we have nowhere else to go.
The minute the Fed takes steps so that CD's pay more than 50 basis point a year--still theft--you're going to give back that 20% on your equities in a heartbeat. Then, we'll all share the amazing continued experience of having our pockets picked on every side of the investment spectrum--essentially the pattern that's been in play since 2000, with the current exception of the last 15 months.
But why should the Fed ever do that when they can get each household in America to give Bank of America and Wells Fargo $50,000--and pay for the privilege?
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