[HN Gopher] Deposit Outflows Shine Light on Fed Program That Pay...
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Deposit Outflows Shine Light on Fed Program That Pays Money-Market
Funds
Author : lxm
Score : 22 points
Date : 2023-04-07 02:36 UTC (20 hours ago)
(HTM) web link (www.wsj.com)
(TXT) w3m dump (www.wsj.com)
| spullara wrote:
| I think it is a terrible that most retail bankers are getting
| basically no interest in their bank account while the banks are
| earning nearly 5%. If you are too big to fail you should also
| have a minimum interest rate for deposits that tracks the federal
| reserve rate. Specifically, this should be regulated more
| tightly: Bank of America Advantage Savings+
| Standard Pricing Account Balance Rate % APY %
| Less than $2,500 0.01% 0.01% $2,500 and over 0.01% 0.01%
| xnx wrote:
| It seems like that is the retail bankers' choice to take a low
| rate. Viobank money market has 4.77% interest currently.
| roenxi wrote:
| There is no reliable process for anyone to work out what a
| proper rate of interest should be. The best policy is to break
| banks that are "too big to fail" up until they aren't that big
| any more. And then stop giving them free money.
|
| Pooling huge amounts of resources under the control of people
| who don't know how to manage it is pure waste, for no good
| reason. Giving them money on autopilot is even worse. And the
| whole idea of the federal reserve setting interest rates is
| bizarre, why is this market of all markets is the one where
| people want to try central planning? It is the perfect time to
| try a free market based approach. The US has been fighting the
| market on the price of money for decades and it is just putting
| them in a worse and worse spot.
|
| Was the fall of the Soviet Union not enough to convince people
| that economic central planning is a mistake? What on earth will
| it take.
| all2 wrote:
| Wealth front cash accounts net up to 4.8%.
| gresrun wrote:
| Currently, cash accounts get 4.30%[0]
|
| [0] https://www.wealthfront.com/blog/why-is-wealthfront-cash-
| acc...
| quickthrowman wrote:
| If you can convince someone to sign up with a referral
| link, you earn an extra 50 bps for 3 months, and you can do
| this 4 times. I'm earning 4.8% on my Wealthfront balance
| right now.
| JumpCrisscross wrote:
| > _if you are too big to fail you should also have a minimum
| interest rate for deposits that tracks the federal reserve
| rate_
|
| There is more to banking than deposit rates. Most Americans
| care about those other factors. If you care about rates, there
| are a plethora of options available to you.
| jjoonathan wrote:
| Whenever we stimulate the economy, economists trip over each
| other to explain how giving money to poor people has high
| monetary velocity and causes maximum inflation, so instead we
| should give the stimulus to rich people.
|
| When we want to rein in inflation by paying people to save, I
| hear a thundering silence on the prospect of preferentially
| tackling the highest velocity money to obtain the most
| inflation control per dollar. Instead, we let banks get away
| with _this_ (see parent post) and focus on paying rich people
| to save, when by the previous logic we ought to be doing the
| exact opposite.
|
| Hmmmmmm. It almost feels like the driving force here isn't good
| stewardship but rather the self-interest of well-heeled
| economic forces.
| JumpCrisscross wrote:
| > _Whenever we stimulate the economy, economists trip over
| each other to explain how giving money to poor people has
| high monetary velocity and causes maximum inflation, so
| instead we should give the stimulus to rich people_
|
| This is the opposite of the mainstream economic consensus.
| The point of stimulus is to stimulate. Velocity makes fiscal
| stimulus more efficient. Even the Fed, in the depths of
| crises, pleads for fiscal stimulus because of its power and
| breadth relative to monetary methods.
| jjoonathan wrote:
| I'm responding to the subset of arguments I see in the
| media. Concerns about fiscal stimulus get mega-boosted
| while concerns about asset stimulus get buried. It makes
| sense that this happens in the media layer, not the
| academic layer. Apologies for poorly targeting my vitriol.
| JumpCrisscross wrote:
| No worries! Where this comes up, with a veneer of
| legitimacy, is when non-stimulus spending or taxation is
| contemplated. Hopefully the intragenerational contrast of
| 2008 and 2020 drives home the point that massive fiscal
| support _together with_ broad-based monetary support is
| the way to drive a V-shaped recovery.
| ptero wrote:
| It is hard to come up with a setup where paying poor people
| takes that money to savings (i.e., gets it out of the
| circulation). I am not saying paying poor folks is always a
| bad idea, I just fail to see a single practical approach
| where this will lead to a reduction in M2. My 2c.
| jjoonathan wrote:
| Encouraging banks to not stiff uninformed retail would be a
| good start (see: grandparent comment).
|
| Capped personal savings instruments would be the next step
| (see: I-Bonds).
| toast0 wrote:
| You missed the whole idea "paying poor people to save"
|
| If you, say, give people $100 in a year if they keep $1000
| on deposit for the whole year, you'd be paying them to
| save. Sure, the poorer people are going to go out and spend
| that $100 when it comes in. And if there's no new incentive
| to keep the $1000 in savings, they may likely spend that
| too. And you'd need to limit it to one offer per natural
| person, etc, or people with access to lots of money would
| endeavor to make many $1000 accounts to get the 2x market
| rate interest I made up.
|
| Maybe $1000 is too much to ask poor people for, but you
| could scale it down. If you do it right, you get both the
| policy goal of reducing velocity of money, because you're
| getting people to save rather than spend some money, and
| you also get the typical policy goal of distributing money
| to the poor because even if everyone can get this $100,
| it's more impactful to the poorer.
|
| Or you could do a savings account linked to a lottery.
| Every $1 in savings up to $X gets you a ticket, if the bank
| earns about the federal funds rate on the deposit, give
| half to the individual depositors, and pool the other half
| to share among the lottery winners. Might be more
| 'exciting' for some people and encourage more savings that
| way.
| JumpCrisscross wrote:
| > _you could do a savings account linked to a lottery.
| Every $1 in savings up to $X gets you a ticket, if the
| bank earns about the federal funds rate on the deposit,
| give half to the individual depositors, and pool the
| other half to share among the lottery winners_
|
| This is a good idea. Could it be implemented under
| current regulation as a neobank?
| atdrummond wrote:
| There's a governmental bank in the UK that runs a
| lottery: https://www.nsandi.com/products/premium-bonds
| JKCalhoun wrote:
| I have an eTrade savings account making 3.75% (I know there are
| better out there now).
|
| But they've emailed to actively solicit me to move money from
| other banks into my eTrade savings.
|
| Sounds like Bank of America (and Wells Fargo, etc.) are going
| to see cash moving out of their banks if they keep up the BS
| low-interest rates.
| ghaff wrote:
| We seem to have this bifurcation between banks and brokerages
| chasing people who want their "cash" to earn a reasonable
| return given current interest rates and banks that are fine
| with basically paying nothing to all the people just leaving
| in money by default at near-zero returns.
|
| I've kept my current bank for various reasons but I'm much
| more aware of sweeping excess cash into my brokerage account.
| nytesky wrote:
| I thought the intention was for Fed to slow economy, and the
| flows locked up in this program would be doing that rather than
| being lent out. What is issue?
| JumpCrisscross wrote:
| > _What is issue_
|
| Monetarily, nothing. Financial-stabilitywise, it's an
| inconvenient sucking sound at the banks. If you're a bank that
| went to the SVB School of Risk Management, that will be a
| problem.
| drexlspivey wrote:
| The issue is that people are moving their deposits out of banks
| and banks are facing liquidity issues.
| spaceman_2020 wrote:
| The Fed is losing money, for the first time ever, by paying out
| 4.8% on $2T of deposits.
|
| https://www.wsj.com/articles/for-the-first-time-the-fed-is-l...
| JumpCrisscross wrote:
| > _Fed is losing money, for the first time ever, by paying
| out 4.8% on $2T of deposits_
|
| That article has errors, _e.g._ "the Federal Reserve was
| designed to make money for the government from its monopoly
| on issuing currency." And that's not what they're saying.
|
| When rates rise bond prices go down. The Fed made rates rise
| while holding lots of bonds. Their value went down. This was
| expected, unavoidable and inconsequential; it is what the
| authors are complaining about. The interest the Fed pays on
| reserves is a policy choice to keep those reserves at the Fed
| and out of the economy. The Fed could turn it off at any
| time.
| spaceman_2020 wrote:
| Does anyone really think they can wrangle themselves out of this
| mess and get back to a "normal" deficit and balance sheet?
|
| Everything they do feels like duct tape.
| greenyoda wrote:
| Archive without paywall: https://archive.ph/V8zPV
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