Thursday, November 27, 2014

Banks Continue to Disbelieve the Rising Interest Rate Story

It is time for an update to a chart I did earlier this year.

March 21, 2014
Banks Don't Believe the Rising Interest Rate Story

Click to enlarge.

The data in black shows the interest rate spread between the typical 5-year CD and the 3-month CD on non-jumbo deposits. This series does not pay much attention to every little detail spoken by a Fed Chairman apparently. Just look how smooth and orderly the data moves.

The data in blue shows the interest rate spread between the 5-year treasury and the 3-month treasury. This series apparently loves to pay attention to every little detail spoken by a Fed Chairman. Just look how chaotically the data moves.

Based on the chart, banks sure aren't buying the rising interest rate story. Perhaps it might have something to do with the growing deposit glut. No matter how much lip service the rising interest rate story gets, banks still look at their deposits and no doubt wonder where the rising interest rates will ultimately come from. It's not like they are going to suddenly offer 5% CDs on a whim, now are they?

It's been 8 months. Let's see where we are now.

Click to enlarge.

Nothing has changed. Complete disbelief continues. Big shocker.

While we are here, we might just as well take a peek at the growing deposit glut. The following chart shows real deposits at all commercial banks per capita (October 2014 dollars).

Click to enlarge.

We're right on track.

Commercial banks now have more than $32,000 in deposits for every man, woman, and child in this country. Why would they need to raise interest rates when so much money is being deposited at low interest rates? Does anyone really believe banks are running a charity service? Can't you just picture Jamie Dimon saying, "I'd really like to give something back to the depositors today. I don't need to do it. I just think it would be a nice gesture. Let's raise CD interest rates by 1% across-the-board. So what if it cuts into our profit margins?" Yeah, right!

Perhaps I'm missing something, but rising interest rate environment my @$$. It would be one thing if all this money was finding its way to the poorest among us, but the growing deposit glut doesn't actually cause price inflation (at least not any time soon). Many things can cause the price of canned soup to rise, but hoarded money is not one of them. The money would need to be spent in order to make an impact. And from what I can tell, the richest among us can't eat any more soup than the poorest. No, I'll take that back. The richest probably don't even eat canned soup at all. Let them eat Kobe Beef!

This is not investment advice.

This update inspired by this post at Credit Bubble Stocks.

See Also:
The Growing Deposit Glut

Source Data:
St. Louis Fed: Custom Chart #1
St. Louis Fed: Custom Chart #2


Rob Dawg said...

Damned FDIC deposit insurance limits.

Stagflationary Mark said...

Rob Dawg,

Let's just raise the FDIC limit to one million times the median price of a can of soup and be done with it!

"Risk free" banking! An end to all financial crises! Woohoo!

Anonymous said...

Somebody said parabolic trends can't hold. What's gonna happen when this trend breaks? Where's all that loot going to go?

Stagflationary Mark said...


I'll throw a theory out there and see if it sticks.

Perhaps the loot will simply stop growing.

1. Low interest rates certainly aren't generating much loot.

2. If the next recession brings wages down again, that won't generate much loot.

3. If the next recession tanks dividends, that won't generate much loot.

That said, it's growing exponentially (not parabolically). That could be sustainable for a long time (but certainly not forever).

Just thoughts.