Report: CD rates to go negative
If you would have told me five years ago we'd have a real possibility of seeing negative deposit rates in this country, I would have called you crazy, but the economics don't lie. If you have a ton of people putting money into deposit accounts and nowhere for the banks to achieve adequate returns on those deposits sufficient to pay interest to investors, then the result is negative interest rates. It happened in Japan when it was in a liquidity trap, and it very well could happen here.
This isn't the Matrix. I was not forced to choose between the blue quote and the red quote, lol. Sigh.
Most might argue that the 0.38% interest rate on the typical 12 month CD was pretty darned low. As seen in the following chart, that didn't stop it from getting cut in half during our "recovery" though.
Click to enlarge.
One can only imagine what might happen if the "recovery" begins to fizzle.
See Also:
Banks Don't Believe the Rising Interest Rate Story
Source Data:
St. Louis Fed: Custom Chart
There are way too many banks. For now they get all the free money they want from Auntie Janet but the stream is drying up. When they have to fight for it watch out. Sadly they could and barely notice the narrower margin. They don't take a deposit paying 1% and lend it at 4%. They lend it out twelve times at 4%. Paying LNG erm depositors 10% only takes them from 47% to 39% gross. Bastards.
ReplyDeleteRob Dawg,
ReplyDeleteThere are way too many banks.
I agree wholeheartedly. We also have too many shopping malls for what's coming. I suppose I could post a shopping mall to bank ratio that would make things look okay though, lol.
When they have to fight for it watch out.
That's just it though. There is so much money being deposited compared to what is being loaned out. I don't see the odds of them fighting for it as being all that high over the foreseeable future. Fighting with each other over who can lend to the few high quality borrowers left who actually wish to borrow more though? Now that might be a serious fight at some point (again).
They don't take a deposit paying 1% and lend it at 4%.
Yeah, it's two separate issues though.
1. They always pay depositors the least they need to pay.
2. They always charge borrowers as much as they can.
They attempt to maximize both individually, not as a group. That's always been true.
They don't take a deposit paying 1% and lend it at 4%. They lend it out twelve times at 4%.
Behold the wonders of fractional reserve banking. And people wonder why the Great Recession nearly imploded our entire financial system? To use a term you've used before, it's an exercise in unstable economic tank slapping! Perfect analogy.
Bastards.
How did we ever get to the point where credit became our economy's lifeblood? What a depressing state of affairs that is. As a saver, I cringe every time I think about someone financing a short-term want (or someone living paycheck to paycheck who finances a brand new car with 0% down and 60+ "easy" monthly payments).
I applaud every time I contemplate those Social Heroes who buy brand new cars so that the rest of us can buy second-hand. Bless 'em all.
ReplyDeletedearieme,
ReplyDeleteI applaud every time I contemplate those Social Heroes who buy brand new cars...
I bought my car brand new in 1996. I am bracing for the applause! Let me have it!
...so that the rest of us can buy second-hand.
Oh oh. I was supposed to sell it at some point? I suddenly feel like Romney at an NAACP convention. ;)