Fed- Americans Hoarding Money

[vt]

http://www.cnbc.com/id/101963821

[touchring]

Re: Fed- Americans Hoarding Money

http://www.cnbc.com/id/101963821

households are sitting on $2.15 trillion in savings

$2T sounds like a huge amount, but only works out to $7K per American which in my opinion is a reasonable sum.

It will be interesting to know the total household savings after removing the top one percentile.

[santafe2]

Re: Fed- Americans Hoarding Money

The Fed assumes "people" have money, they don't. A very small percentage of "people" have a very large percentage of the money the Fed created. If Central Banks, commercial banks and investment banks are "people" and apparently they are in the US Supreme Court's eyes, then yes, people are hording money. The US Everyman is not hoarding one dime. The Fed cannot "normalize" interest rates to slow asset appreciation, US housing prices will fall and an already upset middle class may revolt. There is no one in power in any country that wants to see civil unrest in the US. Although it's shameful, there is a sane reason we jail more people in the US than anywhere else in the world. We need a perceived state of order so everyone else's version of order looks worse than ours. After all, we have almost a trillion dollars to pawn off on the world every year...and we need them to be happy to take it.

In one of my first posts on iTulip I was calling for US interest rates to move up. This was probably over six years ago and I was wrong. The idea is still wrong. US interest rates are not going up any time soon. There is apparently no glut of US dollars. In fact there appears to be a demand for the stuff. Imagine China not taking Treasuries for all of the crap and non-crap we buy from them. It makes perfect sense but they can't do it because their currency will move up in value and their products will cease to be competitive. Their sales will falter and their folks will revolt. No one wants a billion pissed off Chinese citizens so they take our crap for their crap. Simple and the world economy keeps moving forward.

I won't pretend to understand the end game. It would be like predicting the end of the Roman Empire in 37 AD. But no one at the Fed has a clue how this will play out.

[don]

Re: Fed- Americans Hoarding Money

According to a Federal Reserve report on American households’ “economic well-being” in 2013, fewer than half of all Americans said they’d be able to come up with four Benjamin's on short notice to deal with an unexpected expense.

The report, released last week by the Board of Governors of the Federal Reserve, indicates a disparity between how Americans view their financial situation and the reality of where their finances actually stand — a signal that the recession of the late 2000s fundamentally altered the concept of doing well for many, as well as an indication that the subsequent recovery may yet be more nominal than real.

Keep the cognitive dissonance rollin', rollin', rollin'

[LorenS]

Re: Fed- Americans Hoarding Money

How about a ratio of mortgage/CC debt to cash in the bank.

Speaking of hoarding are they really talking about bank deposits? You know, money that gets immediately loaned out into the community? Letting other people use your money for NO interest is hoarding? Give me a break. The English Language should file charges for abuse.

[santafe2]

Re: Fed- Americans Hoarding Money

How about a ratio of mortgage/CC debt to cash in the bank.

Speaking of hoarding are they really talking about bank deposits? You know, money that gets immediately loaned out into the community? Letting other people use your money for NO interest is hoarding? Give me a break. The English Language should file charges for abuse.

Mortgage debt is currently $8.1T, HELOC and credit card debt are ~$500B each and student loans debt stands at $1.12T. As you can see in the chart below, full recourse student loan debt is the king of delinquency, standing at about 11% or ~$122B over 90 days. If you want to track consumer debt by category, the linked report comes out every quarter. Once you've caught up with the numbers it's really only interesting about once a year unless there's a major trend change. For example you could have seen delinquent mortgages begin to take a big jump up in early 2006.
Here's the link:
http://www.newyorkfed.org/householdc...HDC_2014Q2.pdf

[santafe2]

Re: Fed- Americans Hoarding Money

And one last point. When I read about the Fed's confusion regarding "hoarding" I feel like I'm again listening to Alan Greenspan in 2008 telling us there was a "flaw" in his thinking. A flaw most thinking people had seen for years. Now the Fed sees hoarding and can't understand why the velocity of money has dropped from over 17X to 4.4X per year. It really makes you want to scream. You don't have to be very smart to understand that when most of the money is in the hands of those making millions a year, they don't need to spend it.

What would happen if they could get even 20% of that new liquidity into the hands of the bottom 3 quintiles? That is a pretty simple thought experiment with obvious outcomes. As Einstein said, "the difference between stupidity and genius is that genius has its limits".

[LorenS]

Re: Fed- Americans Hoarding Money

You don't have to be very smart to understand that when most of the money is in the hands of those making millions a year, they don't need to spend it.

Perhaps I am just not very smart, but where does it go then? Are you suggesting that the money of the very rich gets stuck in bags to mold in basements? If they don't spend it, where does it go such that it is out of the economy?

When I put money in the bank I am sure it does not sit in a bag in a vault. Someone is using it - who is this someone? Where does the money go?

[vinoveri]

Re: Fed- Americans Hoarding Money

Perhaps I am just not very smart, but where does it go then? Are you suggesting that the money of the very rich gets stuck in bags to mold in basements? If they don't spend it, where does it go such that it is out of the economy?

When I put money in the bank I am sure it does not sit in a bag in a vault. Someone is using it - who is this someone? Where does the money go?

real assets, homes, farmland, equities, fine art and wine, maseratis, yachts, etc. - just look at the asset markets.

car loans and student loans for the masses

[dcarrigg]

Re: Fed- Americans Hoarding Money

Perhaps I am just not very smart, but where does it go then? Are you suggesting that the money of the very rich gets stuck in bags to mold in basements? If they don't spend it, where does it go such that it is out of the economy?

When I put money in the bank I am sure it does not sit in a bag in a vault. Someone is using it - who is this someone? Where does the money go?

Blue Chip Blues

Johnny boy makes millions
Invests most of it in stock
He's a well-paid CEO
A real **** of the walk

And when he drove to work last year
He cooked up quite a plan
"I'll float some debt to buy back stock,"
Earnings per share would be grand.

Financial engineering
Kept that stock price high
And Johnny's buy-back plan
Got investors to roll the die

The flooded into JohnCo stock
And raised the price some more
So Johnny took a mountain of cash
And hid it in Ecuador

The price of repatriation
He claimed was too damn high
"I'll just leave billions overseas,"
Johnny felt pretty sly

But as the leaves' color changed
And quarter three rolled around
JohnCo saw less revenue
No demand could be found

"Ah ha!" he said, "I've got it."
"I'll put JohnCo on the mend!"
"I'll float some debt and buy back stock,"
"and pay a dividend."

Well, Johnny went and did it.
And his trick it worked at first.
The stock value went up again
Though revenue looked worse.

And though he had to borrow
At nearly four percent
His one A bonds weren't junk yet
So off old Johnny went.

And he made another pile of cash.
And he hid this pile too.
Maybe on the Caymans,
Or the Republic of Nauru.

But those old revenue targets
Still weren't being met
And the board was getting angry
"That Johnny, He's all wet!"

But old habits, they die hard,
So Johnny made a plan.
He called his boys at Goldman Sachs
And asked for debt again.

"My price per share hasn't dropped a dime,
Since I've been in this chair,
And I'll be damned if I'll let it,
Drop at all this year!"

So Johnny did what he knows best,
And floated lot of bonds,
Then ran off to buy back stock
Of this plan, Johnny's fond.

"I'll juice the dividend a bit,"
Johnny thought aloud,
"Their IRA's will love it,"
"People will come around."

But revenue still missed the mark
And Johnny shut down plants.
"Making stuff is so old hat,"
He said, throwing up his hands.

Workers lost their jobs,
And product lines shut down,
And poverty and joblessness
Swallowed up a town.

Business was always profitable
JohnCo's losing market share
And its offshore pile of money
Is growing every year.

But not quite as fast as
JohnCo's pesky corporate debt
That'll double in 12 years
But by then Johnny'll be set.

And his plan to hoard JohnCo's cash
Away and safe offshore
Works so long as he beats the spread
One time thirty-five against compound four.

Johnny knew one day, if someone screws up
The margin calls roll in
And all of Johnny's leverage
Will hit him on the chin.

He'd rush and call that cash back in,
But he couldn't beat the spread,
And no one's buying corporate bonds,
If the whole damn asset class is dead.

It'd be the type of thought
Keeping Johnny up at night
Except he had a fat account
Diversified alright.

"Maybe I'll just quite the job,"
He thought now with disgust,
"I make passive income,"
"JohnCo's all rot and rust."

"Or better yet, I'll game the stats"
"And sell or merge it off,"
"One last round of arbitrage,"
"Then the parachute goes off."

"So long as I pull the ripcord,"
"On this golden, pretty thing,"
"Before the Minsky moment,"
"I'll make out like a king."

And all the money all the while
Went to strange old spots
Lots in Vanuatu and Macau
The rest bundled up in stocks

That sit safely out in IRAs
To the tune of "buy and hold."
And most will never cash them
Until they've grown a bit too old.

[vinoveri]

Re: Fed- Americans Hoarding Money

Bravo++ Awesome!
The only nit I would pick is there is no reference to the ultimate source of liquidity and failure of regs that enables this game, i.e., the Fed and government

[LorenS]

Re: Fed- Americans Hoarding Money

real assets, homes, farmland, equities, fine art and wine, maseratis, yachts, etc. - just look at the asset markets.

car loans and student loans for the masses

Don't forget mortgages.

In other words, the money is NOT being hoarded it's being (mal?)invested. There is a big difference.

[charliebrown]

Re: Fed- Americans Hoarding Money

A lot of that money is being saved by banks at the fed. The fed pays them .25% to keep it there. Remember dollars do not disappear unless the fed recalls them.
They recall them by reducing their balance sheet, selling bonds and the money goes poof. If Joe buys stocks from Jane, Jane has the dollars. If Moe buys fine wine from Mary, Mary has the dollars. Bank reserves at the fed have swelled from 9B before the AFC to 2.6T today. Most potential borrowers are already debt saturated. A slow economy makes companies and individuals hesitant to borrow (create more money) to take on new projects.