“A Negative Deposit Rate” is coming to a US bank near you. One bank I do business with (a bank with a 5 Star rating), sent me a letter last year stating that any deposit money over $5 million will be hit with a negative rate. Banks can borrow from the Fed at .25%, so it’s not hard to see why they don’t want to pay us .5% on our savings. Meanwhile, the big banks lend that money out at 15% to 29%, in the form of credit cards and used car loans. Here’s a dose of reality from a TIME Magazine article:
“You might understandably assume that banks always take a more-the-merrier approach to customer deposits, and that therefore, they’d be happy that money held in commercial bank checking, savings, and money market accounts increased 10% over the past three months. But you’d be wrong, reports the Los Angeles Times.
Banks don’t exist simply to hold their customers’ money. Their purpose is to make money, and right now, as odd as it may seem, banks are implicitly sending the message that they’d prefer it if many customers would take their money elsewhere:
“Banks and credit unions are doing everything they can to get rid of the cash except make loans,” said Mike Moebs, a Lake Bluff, Ill., banking consultant.
He said banks are driving away deposits by refusing to renew CDs at higher rates and by imposing fees on checking accounts for depositors who don’t use other, profitable financial services as well.”
Read more: Why Many Banks Don’t Want Your Money | TIME.com http://business.time.com/2011/09/20/why-many-banks-dont-want-your-money/#ixzz2lCaJ8qC4
This should have some interesting unintended consequences
Euro Plunging On A Report That The ECB Is Considering A Negative Deposit Rate
Bloomberg News is reporting that the European Central Bank may take the deposit rate into negative territory (from its current 0.0% level) if more monetary easing is needed in the eurozone, and the euro is plunging.
Right now, the euro is trading around 1.3480 against the dollar versus levels around 1.3540 prior to the report crossing the wires (down 0.4% on the day).
Bloomberg News correspondents Jana Randow and Jeff Black have the scoop:
The European Central Bank is considering a smaller-than-normal cut in the deposit rate if officials decide to take it negative for the first time, according to two people with knowledge of the debate.
Policy makers would reduce the rate for commercial lenders who park excess cash at the ECB to minus 0.1 percent from zero, said the people who declined to be identified because the talks aren’t public. It would be the first time the central bank has adjusted interest rates by less than a quarter of a percentage point. The concept, which has been discussed by Governing Council members, doesn’t yet have a consensus, the people said.
Read more: http://www.businessinsider.com/ecb-may-consider-negative-deposit-rate-2013-11#ixzz2lDkGllhA
Deflation, Stock Market Crash, Then Christmas
I particularly liked the concept of a Ponzi debt scheme, as opposed to a Ponzi growth scheme:
Ponzi austerity is the inverse of Ponzi growth. Whereas in standard Ponzi (growth) schemes the lure is the promise of a growing fund, in the case of Ponzi austerity the attraction to bankrupted participants is the promise of reducing their debt, so as to liberate them from insolvency, through a combination of ‘belt tightening’, austerity measures and new loans that provide the bankrupt with necessary funds for repaying maturing debts (e.g. bonds).
As it is impossible to escape insolvency in this manner, Ponzi austerity schemes, just like Ponzi growth schemes, necessitate a constant influx of new capital to support the illusion that bankruptcy has been averted. But to attract this capital, the Ponzi austerity’s operators must do their utmost to maintain the façade of genuine debt reduction.
Inflation Just Tumbled To Its Lowest Level In Almost 50 Years, Excluding The Crash
For The First Time In Four Years Caterpillar Posts Negative Retail Sales Across The Board
Home Sales Plunge At Fastest Rate In 16 Months