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Tuesday, November 26, 2013

Depositors Paying Banks to hold Onto Their Money

Yesterday we talked about how utterly foolish it is to keep your excess money (after bills and contingencies) in a bank where you get barely any interest, the bank profits from your holdings, and makes your life super difficult to take real money out...

We're sure most of you nodded or shrugged and left your cash where it is..

To each his/her own..

But let us ask you..  Would you be willing to not only get no interest for a bank holding your money but to pay the bank for the privilege?
From Financial Times:

"Leading US banks have warned that they could start charging companies and consumers for deposits if the US Federal Reserve cuts the interest it pays on bank reserves.

Depositors already have to cope with near-zero interest rates, but paying just to leave money in the bank would be highly unusual and unwelcome for companies and households."

Unusual is putting it mildly..
"Executives at two of the top five US banks said a cut in the 0.25 per cent rate of interest on the $2.4tn in reserves they hold at the Fed would lead them to pass on the cost to depositors."

You see what happens is this..  The banks get money from the Fed but they don't circulate it into the populace via loans.  Instead they get paid $$ by the Fed to park that money..  .25%

One quarter of one percent of $2.4 Trillion = $6 billion

To restate:  The Evil Federal Reserve creates money out of thin air which becomes public debt, lends their banking buddies that money at near zero interest then pays them collectively $6 billion annually to hold onto that loan

Let it sink in..
And of course if this scenario ever came about, where depositors were charged a fee we can see the vast majority of the populace allowing this

What can we say..  To put it blunt, we live in a cowardly nation in a state of constant fear of the unknown and even worse, we don't trust ourselves.

We fear the notion of terrorism to such an irrational degree, we willingly give up our Constitutional freedoms such as those stripped via the Patriot Act and the experience of being frisked n' fondled and our bags ransacked every time we visit an airport TSA station...
Just to feel a teensy-weensy bit safer...  Then drive 90mph on the local interstate highway among texters, tweeters, drinkers and the self medicated..

We fear each other as people so deeply and irrationally, we'd rather text or "sext" another person thousands of miles away then god-forbid give someone in a supermarket or store a friendly or flirty smile that's standing 2 feet away..

Then again put that same person in a bar or nightclub, watch them swig down a few drinks and suddenly he or she possesses miraculous confidence to socially interact face to face.
We also fear the imaginary home burglar so much and the notion he will just magically know the money is kept inside a pair of black socks in the top drawer, we willingly entrust our life savings to the filthiest filth slime to ever exist short of professional Investors.. bankers

We fear the law.. we fear each other..  And no one really questions much of anything anymore..

We know this would never happen but in theory, if every adult man and woman in the USA (the US total pop. is 315 million but 250 million are adults) took out a mere $100 from their checking account at the same time on the same day...

250m people x $100 x 10 (fractional reserve lending) equals $250 billion dollars banks would not have at their disposal to lend or make profit from...
The banks would be crippled.. deservedly so..  

They'd have to run back to their mama Fed's teat for some suckling and fresh capital..

As we said.. it will never happen unless there's a bank run, and government will do all it can via institution of capital controls to ensure the banks are protected at all costs even if you as an individual perish..

We know Thanksgiving is rapidly approaching and the focus this week for most is on turkey, family and shopping..  Not 'heavy' stuff..
But we'd like to think or hope the human mind can digest multiple concepts at a given time without picking the either/or of 'holiday' vs' reality.

Then again..

So tomorrow's post will be Thanksgiving themed and that will carry A&G until the following Monday..

And when your sitting at the dinner table with plate full of gobblety-good deliciousness this Thursday and you give Thanks...

Be appreciative that you still have time to protect your financial interests and for blogs like ours that want to educate on the reality of things while asking/seeking nothing in return.