Author Topic: No point in trying to save money  (Read 8382 times)

sieben

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No point in trying to save money
« on: February 01, 2015, 04:39:24 PM »
I found this gem on HuffPost: Is There Any Point in Saving Money Anymore With These New Bank Fees? - http://huff.to/164iLKc

To sum up, banks charge NSF fees for bouncing cheques and charge interest when you miss your credit card payments. So, pretty much we might as well all just give up...

:(

sheepstache

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Re: No point in trying to save money
« Reply #1 on: February 01, 2015, 06:53:22 PM »
That seems to me like it would be more motivation to save money, not less, but what do I know.

RexualChocolate

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Re: No point in trying to save money
« Reply #2 on: February 02, 2015, 12:53:11 PM »
Cathy,

Long time lurker, literally just created an account to make this comment.

What you're surmising here is that banks can participate in one sided clearinghouse transactions. This is incorrect- only the Federal Reserve can do this. For example, when the Federal Reserve buys US Treasuries, it credits the Treasury the nominal amount, but does not debit any account. This is what is commonly referred to as 'printing money' and is directly responsible for how low interest rates are.

Banks have to fund all operations, including loans. They also mix in short term and long term debt, so they are not lending just your deposits out, but deposits are what make traditional banking operations profitable since they are an ultra cheap source of funding.

Chester Allen Arthur

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Re: No point in trying to save money
« Reply #3 on: February 02, 2015, 01:03:56 PM »
Chiming in here to say that Cathy is incorrect.  As Rex said, banks are required to fund their operations.  In the US, at least, there are legal requirements on how much money banks need to keep on hand and how much they can lend out.  The overall effect is that, as is commonly stated, banks pay you interest to lend out your deposits.  The more money a bank takes in as deposits, the more it can lend out.

hernandz

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Re: No point in trying to save money
« Reply #4 on: February 02, 2015, 03:33:23 PM »
Oh wait. What? That's why I shouldn't bounce a check or carry a balance on a credit card? To stick it to the bank? I thought it was, you know, so I didn't get hit with NSF fees and interest charges, which have been around since the dawn of time.

I kinda like the 'stick it to the bank' approach to motivation.  So what if it's not the so-called right reason.  YMMV.

sleepyguy

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Re: No point in trying to save money
« Reply #5 on: February 02, 2015, 04:16:37 PM »
And I quote,

"Except now, thanks to the government of Canada (and most other governments around the world) pushing interest rates to very low levels, there appears to be no point in saving money. Banks pay zero interest on a typical savings account, and GICs aren't much better. What's the point of saving?"

WTF, this guy a complete fool or what?   Let's see... there are other options besides a savings account and GICs?  Like TSFA with index/etf holdings maybe?  I don't think the author has ever read a basic investment article in his life or something.

sheepstache

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Re: No point in trying to save money
« Reply #6 on: February 02, 2015, 04:28:17 PM »
And I quote,

"Except now, thanks to the government of Canada (and most other governments around the world) pushing interest rates to very low levels, there appears to be no point in saving money. Banks pay zero interest on a typical savings account, and GICs aren't much better. What's the point of saving?"

WTF, this guy a complete fool or what?   Let's see... there are other options besides a savings account and GICs?  Like TSFA with index/etf holdings maybe?  I don't think the author has ever read a basic investment article in his life or something.

Seriously I love how in the comments too everybody's worried about losing money to inflation. Like, everyone's read one article that was about the dangers of holding in cash and they missed the whole point.

RexualChocolate

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Re: No point in trying to save money
« Reply #7 on: February 03, 2015, 07:10:26 AM »
You are incorrect- you're confusing money creation and central banks with commercial banks.

The point they're trying to make is about the entire monetary system, not one particular bank. Banks absolutely compete for deposit share on a bank by bank basis and absolutely lend those out.

Every single asset has to be funded. Deposits are the source of this funding. Without deposits, there would be no funding for loans. Look at any bank balance sheet and which side of it deposits are on.

The takeaway is that loans 100% come from deposits (and any other source of funding), this is simply how banks work. Money comes from central bank policy and the fractional reserve system. You're conflating central banks/monetary policy(money supply) and commercial(actual) banks/NII/funding. Put another way, you're talking about macro level money creation vs individual firm behavior.

Topic officially derailed, but I feel like this forum benefits from additional information about the monetary system and misinformation should be corrected.



The Money Monk

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Re: No point in trying to save money
« Reply #8 on: February 05, 2015, 09:39:47 PM »
You are incorrect- you're confusing money creation and central banks with commercial banks.

The point they're trying to make is about the entire monetary system, not one particular bank. Banks absolutely compete for deposit share on a bank by bank basis and absolutely lend those out.

Every single asset has to be funded. Deposits are the source of this funding. Without deposits, there would be no funding for loans. Look at any bank balance sheet and which side of it deposits are on.

The takeaway is that loans 100% come from deposits (and any other source of funding), this is simply how banks work. Money comes from central bank policy and the fractional reserve system. You're conflating central banks/monetary policy(money supply) and commercial(actual) banks/NII/funding. Put another way, you're talking about macro level money creation vs individual firm behavior.

Topic officially derailed, but I feel like this forum benefits from additional information about the monetary system and misinformation should be corrected.

Banks don't lend out depositors money. The loan is new money that didn't exist before.

http://www.forbes.com/sites/francescoppola/2014/01/21/banks-dont-lend-out-reserves/


When i got my mortgage that money didn't come from some dude's account. The bank created it.

In fact, 92 to 96% of all currency is created in the 'retail' level banking system, and not by the government. That Wells Fargo on the corner? they are creating money.

It's crazy that people still think banks just lend out your money, but it is actually taught that way as a "simplified' version of fractional reserve banking, when it is in fact just false. Don't worry, you aren't the only who who has been fooled:

The standard not-actually-true method for teaching students about the workings of our monetary system is an explanation called the “money multiplier model” in which banks appear to lend out money that has been deposited with them. When some economists finish their degrees and subsequently go on to specialise in the monetary system and finally learn the full details of the process, they occasionally have some choice words to say about the undergraduate textbook model:

“The way monetary economics and banking is taught in many, maybe most, universities is very misleading”. Professor David Miles, Monetary Policy Committee, Bank of England.
“The old pedagogical analytical approach that centred around the money multiplier was misleading, atheoretical and has recently been shown to be without predictive value. It should be discarded immediately.” Professor Charles Goodhart CBE, FBA, ex Monetary Policy Committee, Bank of England.
“The textbook treatment of money in the transmission mechanism can be rejected”. Michael Kumhof, Deputy Division Chief, Modelling Unit, Research Department, International Monetary Fund.
“Textbooks assume that money is exogenous.” … “In the United Kingdom, money is endogenous” Mervyn King, Governor of the Bank of England.

 

An interview with Peter Stella, former head of the Central Banking & Monetary & Foreign Exchange Operations Divisions at the IMF:
"there is absolutely no correlation between bank reserves and lending. And, more fundamentally, that banks do not lend “reserves”."
"In banking today deposits at the central bank are totally unnecessary for lending."
http://goo.gl/4WZRK

Michael Kumhof, International Monetary Fund:
"...banks do not have to wait for depositors to appear and make funds available before they can on-lend, or intermediate, those funds. Rather, they create their own funds, deposits, in the act of lending. This fact can be verified in the description of the money creation system in many central bank statements, and it is obvious to anybody who has ever lent money and created the resulting book entries."
-p.9 http://goo.gl/z274S

Adair Turner, Chairman of the FSA in the UK:
"But in fact they don’t just allocate pre-existing savings, collectively they create both credit and the deposit money which appears to finance that credit."
-http://goo.gl/8078D

Merryn Somerset Webb, editor-in-chief of Money Week, The Financial Times:
"Every time they expand their lending they increase the supply of money in the economy. And every time they contract lending they reduce it"
-http://goo.gl/zwIxq

Alan Holmes, then Senior VP of Federal Reserve Bank of NY, 1969:
“In the real world, banks extend credit, creating deposits in the process , and look for the reserves later.”
-http://goo.gl/E43K1
« Last Edit: February 06, 2015, 12:24:51 AM by The Money Monk »

slugline

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Re: No point in trying to save money
« Reply #9 on: February 06, 2015, 09:19:24 AM »
In fact, 92 to 96% of all currency is created in the 'retail' level banking system, and not by the government. That Wells Fargo on the corner? they are creating money.

Very interesting. What is happening when a bank goes bankrupt then? Is it just a matter of debtors defaulting on their loans faster than the bank can create new ones, creating a death spiral on the balance sheet?

The Money Monk

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Re: No point in trying to save money
« Reply #10 on: February 06, 2015, 09:52:54 AM »
In fact, 92 to 96% of all currency is created in the 'retail' level banking system, and not by the government. That Wells Fargo on the corner? they are creating money.

Very interesting. What is happening when a bank goes bankrupt then? Is it just a matter of debtors defaulting on their loans faster than the bank can create new ones, creating a death spiral on the balance sheet?

basically, yeah. 

Because currency is created as loans, there is always more money owed than exists to pay it back. So there must be a continuous expansion of the money supply for the system to function. Otherwise there can be giant "death spiral" debt contractions as you put it.

It really is a shocking system.

Ftao93

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Re: No point in trying to save money
« Reply #11 on: February 06, 2015, 09:59:00 AM »
Yep!  Might as well just give up, and spend every dime.  Crank those credit card balances to the Moon and bounce some checks!

What a ridiculous article.

irishbear99

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Re: No point in trying to save money
« Reply #12 on: February 06, 2015, 12:12:18 PM »
And I quote,

"Except now, thanks to the government of Canada (and most other governments around the world) pushing interest rates to very low levels, there appears to be no point in saving money. Banks pay zero interest on a typical savings account, and GICs aren't much better. What's the point of saving?"

WTF, this guy a complete fool or what?   Let's see... there are other options besides a savings account and GICs?  Like TSFA with index/etf holdings maybe?  I don't think the author has ever read a basic investment article in his life or something.

When did "to have money" become an insufficient answer to that question? Seriously, what did I miss?
« Last Edit: February 06, 2015, 12:14:26 PM by irishbear99 »

willow

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Re: No point in trying to save money
« Reply #13 on: February 07, 2015, 12:51:55 PM »
Once had a guy tell me "why would I save money to buy stuff later when I can just buy stuff now?"

RexualChocolate

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Re: No point in trying to save money
« Reply #14 on: February 09, 2015, 08:52:36 AM »
Why would banks ever compete or advertise for deposits if there was no funding aspects to banks balance sheets, especially since basically all revenue has been stripped from them?
Why would they advertise higher rates than their competitors if they didn't need deposits?
Where do you think a loan goes when its paid out?

The problem you guys are having is that you think the bank makes the money and that's it. If you look at the micro loan issuance level, that's techinically happening. But since money is fungible, it's literally lending out the deposits it takes in. However, that doesn't make the shocking headlines or click bait. Below is an excerpt from an article erroneously supporting this idea, but it does make a good point about funding costs and why small banks are getting crushed.

http://ellenbrown.com/2014/10/26/why-do-banks-want-our-deposits-hint-its-not-to-make-loans/
>>>
Ever since the Federal Reserve Act was passed in 1913, banks have been required to clear their outgoing checks through the Fed or another clearinghouse. Banks keep reserves in reserve accounts at the Fed for this purpose, and they usually hold the minimum required reserve. When the loan of Bank A becomes a check that goes into Bank B, the Federal Reserve debits Bank A’s reserve account and credits Bank B’s. If Bank A’s account goes in the red at the end of the day, the Fed automatically treats this as an overdraft and lends the bank the money. Bank A then must clear the overdraft.

Attracting customer deposits, called “retail deposits,” is a cheap way to do it. But if the bank lacks retail deposits, it can borrow in the money markets, typically the Fed funds market where banks sell their “excess reserves” to other banks. These purchased deposits are called “wholesale deposits.”

Note that excess reserves will always be available somewhere, since the reserves that just left Bank A will have gone into some other bank. The exception is when customers withdraw cash, but that happens only rarely as compared to all the electronic money flying back and forth every day in the banking system.
<<<

The Money Monk

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Re: No point in trying to save money
« Reply #15 on: February 14, 2015, 09:13:05 PM »
Why would banks ever compete or advertise for deposits if there was no funding aspects to banks balance sheets, especially since basically all revenue has been stripped from them?


There IS still a funding aspect. The fractional reserve requirements still control the amount they are allowed to create, so it still matters.


The problem you guys are having is that you think the bank makes the money and that's it. If you look at the micro loan issuance level, that's techinically happening.

Right, they are technically creating money. So you are retracting what you said earlier about confusing commercial banks with central banks, and that loans come 100% from deposits? If you admit that the bank IS technically creating money, then you have to admit that there is MORE money after the loan then right before it. So how does it make sense to say the borrower ended up with 'your' money when the total money pool is now significantly more than your deposit was?

But since money is fungible, it's literally lending out the deposits it takes in.


No, the fungibility of money is exactly WHY it's not correct to say the banks are loaning out deposits. It's like you pouring a cup of water into an Artesian spring, and somebody else scooping out a cup, and you saying they now have your water.

If you deposit $1000 into a bank and you are the only depositor, and I go to that bank and get a loan for $900 and they deposit it into my account in another bank, you can go back 5 minutes later and get all your money because they never put "your money" into my account. You could pay bills online totaling $1000 and they all would clear because the (digital) money is all still "there'.  They created 900 new dollars at the moment of the loans inception.

Now the local branches don't have anywhere near enough PHYSICAL currency to cash out all deposits at once, but don't get that confused as it is a separate issue, as there is not anywhere near as much printed money in existence as there is digital money, and the amount of physical cash banks hold varies based on seasonal "demand"  and not on fractional reserve requirements (as the cash is just a physical medium for trading the 'real' digital money.