Randolph Kinney
Elite Member
- Joined
- Apr 7, 2005
- Professional Status
- Retired Appraiser
- State
- North Carolina
FED Creates Huge-Gigantic Deposit Bubble
http://wallstreetexaminer.com/2013/...ying-banks-lending-least-deposits-in-5-years/
These deposits aren’t about people taking cash out of mattresses and depositing it in the banks. This story should not be about the banks not lending, because that’s not true. They are. They have been growing loans at a measured pace between 3.5% and 5% a year since 2011. That is absolutely consistent with the growth of the economy.
At the same time, total deposits also reached a five-year peak of $5.04 trillion, according to the data, leaving hundreds of billions of dollars of potential fuel unused.
That seemed to imply that the source of deposit growth is either the nation’s mattresses or maybe thin air, when the truth is that there’s only one major source for the rapid growth: the Fed. That’s the big story. The Fed is blowing a deposit bubble. If history is any guide, that will inevitably result in more–and more dangerous– capital misallocation, in other words, more and bigger bubbles. That’s always where too much, excessively easy, money leads.
The Fed has been buying $115-$120 billion of MBS and Treasuries from the Primary Dealers each month and will continue to do that until it ends or modifies this program. It buys those securities by crediting the dealers’ accounts at the Fed. That is the absolute genesis of central bank fiat money. That’s how the Fed creates deposits.
The Fed is growing deposits far faster than banks can deploy them. It is growing them far faster than the economy can use them. It is growing them far faster than anybody wants or needs. Therein lies the potential for big problems.
Since US population is only growing at less than 1% per year, why should the economy grow any faster than 2-3%? Why would the Fed want to push deposit growth up at the rate of 9-10%, which is what the growth rate has been since the Fed began settling its QE3 purchases. That forces and encourages banks and those with access to easy credit like the Primary Dealers, other broker-dealers, and especially their hedge fund clients, to “invest” (speculate) in things that aren’t needed or are counterproductive. That includes buying commodities, or bonds yielding next to nothing, or higher yielding junk with substantially greater credit risk. That spawns bubbles, and bubbles eventually beget crashes.
Consumer prices are another story. They’re another manifestation of inflation. The exact pain. Bubbles and CPI inflation can occur together, but are often independent of one another, as is the case now. Over the past couple of years, the biggest asset bubble has been in bonds.
Mortgage rates, while historically low, have actually risen since the Fed began its QE3 MBS purchases, both from when the purchases started in September, and when they began to settle in November. Bernanke has also historically been in denial that Fed money printing results in massive malinvestment and may drive commodity prices higher, which is what happened in the last round of QE.
There is a costs to financial repression (zero interest rates). Retirees have been driven to the poorhouse and can no longer spend. Conservatively managed pension funds can’t generate adequate returns. Pensioner incomes will be cut. Insurers are being squeezed, driving up insurance costs. The Fed acts likes ZIRP is a win win. But the fact is that it imposes real, painful, economic costs, that are at least equal to, if not greater than the benefits that accrue to the Fed’s commercial bank clients. Over the long run, the transfer of the wealth of middle class retirees by suppressing their rate of return on savings in order to liquefy and make the banks profitable cannot be considered a good thing. It’s bad for the economy, and it’s terrible for public morals and mores. Under the circumstances and in view of the fact that financial fraud is never punished, cheating becomes an excusable, even acceptable mode of behavior not just at the top, but at all levels of society. It’s called Getmineistan, and that’s where we’re headed, and maybe where we already are.
http://wallstreetexaminer.com/2013/...ying-banks-lending-least-deposits-in-5-years/
These deposits aren’t about people taking cash out of mattresses and depositing it in the banks. This story should not be about the banks not lending, because that’s not true. They are. They have been growing loans at a measured pace between 3.5% and 5% a year since 2011. That is absolutely consistent with the growth of the economy.
At the same time, total deposits also reached a five-year peak of $5.04 trillion, according to the data, leaving hundreds of billions of dollars of potential fuel unused.
That seemed to imply that the source of deposit growth is either the nation’s mattresses or maybe thin air, when the truth is that there’s only one major source for the rapid growth: the Fed. That’s the big story. The Fed is blowing a deposit bubble. If history is any guide, that will inevitably result in more–and more dangerous– capital misallocation, in other words, more and bigger bubbles. That’s always where too much, excessively easy, money leads.
The Fed has been buying $115-$120 billion of MBS and Treasuries from the Primary Dealers each month and will continue to do that until it ends or modifies this program. It buys those securities by crediting the dealers’ accounts at the Fed. That is the absolute genesis of central bank fiat money. That’s how the Fed creates deposits.
The Fed is growing deposits far faster than banks can deploy them. It is growing them far faster than the economy can use them. It is growing them far faster than anybody wants or needs. Therein lies the potential for big problems.
Since US population is only growing at less than 1% per year, why should the economy grow any faster than 2-3%? Why would the Fed want to push deposit growth up at the rate of 9-10%, which is what the growth rate has been since the Fed began settling its QE3 purchases. That forces and encourages banks and those with access to easy credit like the Primary Dealers, other broker-dealers, and especially their hedge fund clients, to “invest” (speculate) in things that aren’t needed or are counterproductive. That includes buying commodities, or bonds yielding next to nothing, or higher yielding junk with substantially greater credit risk. That spawns bubbles, and bubbles eventually beget crashes.
Consumer prices are another story. They’re another manifestation of inflation. The exact pain. Bubbles and CPI inflation can occur together, but are often independent of one another, as is the case now. Over the past couple of years, the biggest asset bubble has been in bonds.
Mortgage rates, while historically low, have actually risen since the Fed began its QE3 MBS purchases, both from when the purchases started in September, and when they began to settle in November. Bernanke has also historically been in denial that Fed money printing results in massive malinvestment and may drive commodity prices higher, which is what happened in the last round of QE.
There is a costs to financial repression (zero interest rates). Retirees have been driven to the poorhouse and can no longer spend. Conservatively managed pension funds can’t generate adequate returns. Pensioner incomes will be cut. Insurers are being squeezed, driving up insurance costs. The Fed acts likes ZIRP is a win win. But the fact is that it imposes real, painful, economic costs, that are at least equal to, if not greater than the benefits that accrue to the Fed’s commercial bank clients. Over the long run, the transfer of the wealth of middle class retirees by suppressing their rate of return on savings in order to liquefy and make the banks profitable cannot be considered a good thing. It’s bad for the economy, and it’s terrible for public morals and mores. Under the circumstances and in view of the fact that financial fraud is never punished, cheating becomes an excusable, even acceptable mode of behavior not just at the top, but at all levels of society. It’s called Getmineistan, and that’s where we’re headed, and maybe where we already are.
