The following chart shows the natural log of MZM Own Rate (the interest rate the liquid money supply is earning). By using natural logs, exponential growth (or in this case decay) can be seen as a straight line.
Click to enlarge.
There is now $12.4 trillion of liquid money supply attempting to earn interest (up $716.2 billion from just a year ago).
Is it any wonder that short-term interest rates are so low? As of March 2014, MZM is now earning a new record low of just 0.081% (81 cents per thousand dollars per year).
Perhaps I need to do an analogy here.
If I had 12.4 trillion rolls of toilet paper and I started loaning it out to my neighbors, then how much "sheet" interest could I realistically expect to earn per roll? How much negotiation power would I have if they noticed that my hoard had grown by 716.2 billion rolls just over the last year? (Keep in mind that they would notice, as it would clearly not all fit within my house. Some of it would no doubt spill out onto my yard, lol. Sigh.)
This is a feeble analogy by the way. Toilet paper is continually being both created and destroyed. There's always a need for more. What's destroying the money supply though? It would seem that we generally make more whether we need it or not.
If we can't be prosperous with $2.91 trillion earning 2.659% (annual averages in 1995) then perhaps we can be prosperous with $12.4 trillion earning just 0.081% in 2014? Is that the long-term plan more or less?
1995: $2.91 trillion x 2.659% = $77 billion
2014: $12.4 trillion x 0.081% = $10 billion
Note that the total interest paid on the total liquid money supply was nearly 8x more in 1995 than it is now.
Well, you know what they almost say. It takes trillions (money) to make billions (money)! And if we keep it up long-term, then someday they might even say that it takes quadrillions to make millions! Won't that be a hoot for the savers of the future!
Needless to say, I'm sticking with my long-standing theory (when I turned permabearish in 2004) that it is becoming harder and harder to make money off of money.
The short-term interest rate death spiral continues, not that many seem to notice. When will interest rates rise? That's what the financial "experts" keep asking. I have decidedly different questions. When will interest rates stop falling? What could cause them to stop falling? Seriously. It's like a bottomless pit of saving despair.
This is not investment advice.
St. Louis Fed: Custom Chart
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