Title is technically accurate, but kind of weird. Investors are pulling money out of some (smaller) banks and transferring them to other banks. Or are pulling money out of savings/checking accounts and adding them to money market accounts with different risk profiles. The title implies the banking sector is at risk, but that's not what's happening - the big banks are getting bigger.
Basically what everyone expected to happen when the Fed bailed out [0] the depositors of SVB while also continuing to be cagey about FDIC coverage limits. The right answer is to expand the scope of FDIC coverage to all accounts and assess/regulate accordingly, but of course the big banks are happy to continue the lower-regulation fiction so they can privatize higher gains and then socialize the losses when they're "too big to fail".
[0] Without seeing how the balance sheet actually works out, it's hard to say how much money the FDIC gave to SVB depositors (if any). But there is certainly a massive difference between a few weeks of ambiguity and the FDIC quickly asserting that all depositors will be made whole.
Money markets also invest in highly liquid instruments so their prices are marked to market daily and traded faster than HTM portfolios. Therefore they get to adjust faster to macro conditions to ensure that the dollar amount of the asset is maintained.
Definitions are hard. They are pulling them out of banks and investing them in mutual funds which hold T-Bills or maybe commercial paper. Money Market Mutual Funds MMMF and Bank Mutual Funds (a savings account with checks) are different things.
I've never understood why people did not use money market funds more often. While the worst stuff that can happen is Not Great (e.g. taking a 3% haircut in the worst failings in the past, with underlying bonds of up to a couple years of duration), the modern ones that use treasury and agency debt with underlying maturities of 90 days or less ought to have a pretty blunt downside, even if they must liquidate or gate redemption.
You could also consider a super-short treasury ETF, like BIL.
The systemic problem with Money Market Funds in the economy at large is they are too simple a lending device (which is why overheads are so low), as the safest bank-like ones invest in safe, very short-dated, super liquid federal securities, and the whole point of having a bank is to create debts that are riskier and weirder than that (for example, financing an office building).
If (uninsured) risk is supposed to be correlated to return, then it would also suggest banks really ought to be offering higher yields than money markets for uninsured deposits. Like, significantly. This has not been the case, so I've never relied on deposits for anything more than a payment clearing utility.
This problem exists because the short term risk free rate is too high (which is turn is because government debt is too high).
If short dated treasuries and near treasuries were paying the near nothing they should be, then entities would have to figure how much they *really* need to keep in instantly available, no risk accounts.
Is it too high? These rates tend to track inflation pretty closely, to the extent the former has a definition. The short-dated government stuff (and the floating price of repurchase agreements) is probably roughly maintaining consumptive power, perhaps even a little less since everyone wants to buy it. The time value of nominal money at the risk free rate is set both at auction and moment to moment via these mechanisms, so I'm not sure what "too high" means here.
Too high in this context means not socially optimal.
To the extent there’s hard, inelastic demand for an absolutely safe place to park cash perhaps it is more efficient to have the government offer such instruments than any other entity.
However, to the extent the terms are more attractive than they “should” be, and satisfying soft, elastic demand, that’s money that’s being pulled away from productive investments.
While very few arrangements are optimal, I personally don't see how this is a good example. It seems like your assessment, as so far elaborated, is equivalent to "the government should not issue bonds."
My opinion on equilibrium: government should always be providing the most secure credit, at some level of issuance, that wouldn't be true, best not to get there.
"the whole point of having a bank is to create debts that are riskier and weirder than that"
I actually think the average person (or business) would disagree with this statement. The reason most businesses and individuals deposit money in a bank is first, to keep it safe and second, to make your funds available to send and receive payments without managing large piles of cash. This can be done without lending at all (see narrow banks) and in that case the bank can simply let everyone withdraw their money in the event of a run. Financing an office building could be done by a separate institution that sells bonds and then loans those funds to businesses at higher interest rates. This institution would be able to make the duration of its bonds match the loans it makes to customers.
While I agree there are some issues with how banks comingle a pretty complex stack of claimants and assets, that's how things have been for a few hundred years, so...the average person/business person...(if you are right about them)...is wrong, and will be wrong for the foreseeable future.
While I generally would support a direct Fed facility to handle the "utility" portions of banking, I think there are some dubious aspects and limitations of non-lending accounts. Namely, almost hydraulically, lending on something like treasuries tends to gracefully track inflation, i.e. consumptive power is maintained over time. This is another meaning for a bank to "keep your money safe" if you account for the money illusion. They aren't called "money markets" for nothing.
Interest rates have been low since 2008. Money markets were popular before then but we’re paying tony amounts for years. Same goes for bank cds. This is one reason for such a bill market run in stocks with money chasing yield going into stocks. A money market at near zero vs Verizon paying 4% was seen as a better deal. Only in the last year has cds and money markets come back into favor and there is a large move into them.
It's exactly the same amount of paperwork you always need to file for a backdoor Roth. It just means you end up with a $1 on a specific line of 8606 that would otherwise be a zero. You'd still need to fill out 8606 either way.
In some ways, money market funds are safer than banks because they're not playing the borrow short lend long game. The risk of getting wiped out is also lower, though the risk of getting 95 cents on the dollar is higher.
Which is what businesses should have used instead of putting hundred of millions in a bank. Banks can't magically change economics. Money markets were created exactly for this purpose. This should have been taught to every founder by every VC.
(Being serious) should banks as we know them even exist, then? Maybe having them fill a role as an intermediary makes sense, but now that we can securitize loans, why does opaquely connecting short-term lenders directly with long-term borrowers make sense?
I am going to assume that you are OK with fractional reserve banking so I won't talk about why that is necessary as a function in an economy.
If I understand you correctly, you're basically saying why use a bank versus something else? My answer would be because for vast majority of retail bankers it doesn't matter. Same reason many would use Gmail vs self-host. They want to put their money somewhere and ensure that it will be there when they need it. As a society we have a framework around that and we provide deposit insurance and we call the orgs who take your deposit, give you an IOU (in the form of an account balance) then lend a fraction of it to others a bank.
For significantly larger sums no I don't think it makes sense to use a bank and most large corps have a treasury that specifically deals with that.
Isn't the fundamental issue here about banks not having raised their the interest rate that's paid to depositors as the Fed has raised those rates? E.g. Bloomberg Feb 23 20324:
> "The Federal Reserve has been raising benchmark borrowing rates at the fastest pace in decades, but the interest rate paid out to millions of people with bank accounts is still stuck at almost zero. According to data from Bankrate, the average interest rate on savings accounts is just 0.23%. So what's going on?"
It's investment capitalism continuing to transition towards a monopoly model, what else?
> "Dougherty said a lack of competition within the financial industry is what allows banks to take more money from their customers without customers getting fed up and moving their money to a competitor or out of the banking system altogether."
This was the main reason I moved my money out of a bank account early during the rate hikes.
I was waiting around for a better rate, but even when T-bills were being offered at >2% annually, banks were offering less than a percent. Even competitive savings accounts seemed sluggish. Money market funds were an easy way to get similar rates to T-bills without actually buying them myself or waiting for banks to get the message.
Money Market Deposit Accounts are insured by the FDIC and have the same $250K insurance limit as savings accounts. To the extent that money market accounts may pay a slightly higher interest rate than savings accounts, it's because they typically require a higher initial deposit and a higher minimum balance. Moving funds from a savings account to a money market account because you're worried about deposit insurance makes no sense. Now, if they're talking about Money Market Mutual Funds as opposed to Money Market Deposit Accounts, those are NOT FDIC insured and typically have more restrictions on how quickly and how frequently you can withdraw money, and in exchange pay a slightly higher interest rate still.
Doesn't that suffer from some of the same risks as what brought SVB down? I'm not super educated when it comes to the US financial system, so probably high chance I'm wrong. But as far as I understand it, T-bills suffer from the "interest risk" in that if interest rates rise, newer T-bills are more valuable so it'll be harder to sell the ones you have if you want to sell them before they mature. They might also not keep up with inflation, so the inflation could be higher than the yield, meaning you'd lose purchasing power effectively.
But again, I might completely misunderstand things, but I don't think there is any investment that is absolutely risk free, which I guess is why you put it in quotation marks in the end.
You're correct, but even underwater T-bills are better than holding the money. Its essentially both insurance and additional interest. the only risk is having to sell them at the wrong time.
As an individual investor, you don’t have redemptions pressure from customers asking for their money back. If you fee that you don’t need the money before X years, you can get treasuries for those years and not sell them before maturity.
> if interest rates rise, newer T-bills are more valuable so it'll be harder to sell the ones you have if you want to sell them before they mature.
As others pointed out, T-Bill indicates a shorter term than T-Note which is shorter than T-Bond... but either way, it's not that the instruments are hard to sell, it's a very liquid market, but the prices rapidly adjust so that yield to maturity for a given maturity date is broadly similar regardless of the initial yield and coupon.
It may be emotionally hard to sell and realize a loss if interest rates rise after your purchase, but it's not transactionally hard. If you are subject to a mark to maturity reporting regime, it may also look bad on your balance sheet, but I don't believe individuals would be subject to that.
People like Wealthfront offer $3M in FDIC insured deposits and 4.3% interest (from their recent email). Others have similar offers or you can just spread your money around to different banks. That should cover most stuff.
For the rest of your money you can estimate when you'll need it and buy the appropriate T-bill, down to 4 weeks. Everything you say is correct, but only on that timescale.
The only risk is the US government collapsing, but in that eventuality you are very likely to be completely fucked no matter what you do.
I see this type of thinking a lot online, and while it makes sense to a certain extent to not overly prepare for unlikely doomsday scenarios where "you'd have bigger problems", it still makes sense to not-overly prepare, if that makes sense.
For example, failed states (even after complete destruction due to war), have a way of honoring primary residence property rights even after the rebuild of the country, many times including secondary properties that are not your primary residence (ie germany, poland after wwii, more examples exist). So if you know this history, you'd do well to make sure you own some property, not just "paper".
This is only one aspect of investing, but I've seen many people claim from the same source argument things like "holding REITs is better than a home because it's way more liquid and flexible", which... yes, but.
There are autohotkey-style scripts for every OS that emulate a keyboard for paste, which can be mapped to a variation of the keyboard shortcut for paste. Very fast to install and you never have to edit html again for this purpose.
The issue with keeping money in the bank isn’t that the money is uninsured. The issue is that the money is uninsured and the bank is insolvent. Money market funds aren’t insolvent.
Another issue is that the FDIC insurance fund currently holds $148 Billion to protect over $17 Trillion in deposits. Where does the money come from if 0.8% insurance coverage ratio is insufficient in the event of a crisis? More money printing? More inflation?
So does SVB. Holding Treasuries is no guarantee of solvency when their maturities are out in the future and suddenly half your depositors want to withdraw their funds today.
If you click on the link for VMFXX, it says that the average maturity of the US treasury debt that it holds is 13 days. The average maturity for SVB's treasury holdings, on the other hand, was more than 6 years.
If you have $500K in savings, and move half to a money market account elsewhere, you go from 50% to 100% FDIC insured.
Also, there are sweep accounts that automate this. You can use that technique to easily get $3M of FDIC insurance from a single account. They typically yield high amounts of interest, so I assume they are backed by money market accounts.
Sweep accounts do generally tell you at which institution the deposits are being held, because it's critically important to know if you have an account there directly, as they'd both under the same FDIC coverage.
There aren't that many FDIC coverage categories. I'd guess that individual sweep accounts would end up in the revocable trust category, the same as most "regular" accounts? Or maybe sweep accounts would end up in the individual ownership category while regular accounts (with beneficiary) would be in revocable trust? This seems like the kind of question that by the time you'd benefit from knowing exactly (rather than just being overly conservative), you're paying professionals to manage all this for you. There's no need to make an amateur determination that you won't know is wrong until it's too late.
This is a reminder that the economy needs a reliable store of value. A CBDC (i.e. everybody gets an account at the central bank) would make sense for this. Ironically, when introduced it might cause bank runs or other stresses for banks though.
Cbdc is the last thing we need. Trust of these central governments and banks is clearly lost yet making a new system for them, that no one voted for (cbdc) or was asked about, that gives them complete control over our money is better? No thanks. This is why Bitcoin was created. There is already a solution and the central banks see it as a threat to their power. They are no longer needed.
That wouldn't be a store of value in the sense of actual purchasing power because you're tied to the inflationary effect of that currency.
If you mean an account that holds its absolute dollar value, you are right, although T-bills would do the same thing if traded at sufficient frequency. You are also correct about it causing bank issues. The fed reverse-repo facility, which is essentially what you're describing here but for banks to use partially contributed to this mess.
Overall there is no getting away from the fact that "value" of assets is related to the interest rate of the currency and if the interest rate rises some of those will be worth less which means a slice of people in the economy will have less than they did before. The Fed can't do anything to magic it away.
In a similar vein you can't put all your data on a server somewhere, call it the cloud, and cry foul if you lose your most important source code and IP when the server goes down. Banks can't change underlying economics. It was incumbant on the businesses working w/ SVB to not use them as their treasury anymore than they would put all their code on one AWS server and call it a day.
Value is a social relation, not an object. It is impossible to design a foolproof "store of value." Money under the mattress is depreciating paper, gold is just a little mineral pebble, fiat money and shares are just contracts, the less said of crypto the better.
The closest you can get to this ideal "store of value" is to take the general idea behind ETFs and take it way further to find ways to "invest" in society itself, but in a much more multi-modal way. If done properly, unless society started to somehow fall apart, you would always be guaranteed returns. The key thing is that because you would be investing extremely broadly, the notion that you're privately owning this or that company or bank account would begin to vanish.
This is, of course, just a financial way to describe socialism.
I cannot tell why I'm seeing this all over Hacker News.
A Central Bank Digital Currency solves nothing. It only emboldens and tightens the grip of people in power.
By definition it is centralized and forces anyone who needs to work in an economy to be accountable to an entity that can and will remove access controls to their financial streams. It does not change anything in the context of the current financial environment. It does not make things safer for investments.
The only thing this solves is having money be digitized and managed by parties who are not trust worthy.
Get out of here with these comments. You feel like astro-turfing.
> forces anyone who needs to work in an economy to be accountable to an entity that can and will remove access
Federal IRS and county child support enforcement have ridiculous powers wrote in to State law. They can seize accounts with a letter. Good luck fighting their mistakes when they just seized all your accounts. Child support enforcement in counties are staffed with GED holders, and 'qualified immunity' typically prevents suing for damages.
Having one centralized account for seizure makes their jobs easy, and will suck for their victims.
> Aren't tight capitol controls seen as a good thing? Surprised to see that as a con.
it depends on which side you are.
I myself prefer that the state cannot easily regulate and control capital, but not impossible for them to in dire cases.
E.g., they can control capital flow of criminals, but would need proof or courts involved. They cannot defacto control capital at will for an ordinary citizen.
And the central bank does the KYC? And it also decides who should get money and who not on every loan? Doesn‘t scale very well this model, no matter if DLT is used or not.
Currently, things are set up so that the ultra rich have to use their capital to back things that provide actual economic value. (There aren’t enough dollars in circulation to store their wealth.)
This forcing function seems like a good thing to me.
Currently things are set up so that the working class have no viable options for storing the purchasing power of their labor for future expenditures. This makes it virtually impossible for average folks to save for retirement without speculating on the stock market and hoping that they made the right bets 30-40 years into the future. A reliable store of value is essential to enabling a path towards less inequality.
To guarantee the value for the odd people retiring you have to enslave the younger people working to guarantee that promise. Then you take a (large) cut of that generational transfer as a reward for guaranteeing a reliable store of value. Wait! I think I just invented the way the modern world works
I wasn't referring to old people. I was referring to working age people who attempt to save for their own retirement.
But to your point, why do you advocate for preventing a retiree, the proverbial widows and grandmas, from having access to a reliable store of value that doesn't require they risk their retirement savings in speculation?
Forcing everyone into stock or real estate speculation necessarily results the vast majority of the wealth gains going to the most financially sophisticated (Wall Street), the rich with the best financial advisors, or the lucky few who happened to allocate their savings in optimal bets 30-40 years in the future.
A reasonable long term store of value would help address inequality. By not having one we force the working class to trust their financial future to a predatory casino run by a den of wolves.
> I was referring to working age people who attempt to save for their own retirement.
Which they will use when they've grown old.
What I'm getting at is that there is no such thing as a secure long term store of value and such a thing has never existed. Not even gold can be that. We can all wish for it, but it cannot exist.
So how they do it today is by using violence to forcefully exploit the surplus production from younger generations to support the elder generation. All political "systems" and ideologies today serve that goal. Any young person in the Western world who is working gets exploited in at least the following:
- Receiving less in salary than she produces, so that the company can turn a profit. This profit in general goes to stock owners who are pension funds or elderly individuals. This is how capitalism exploits the worker and it could be fine if it was only this.
- Paying taxes on their salary and hidden taxes before receiving a salary. A young worker has almost no benefit of government spending, while a huge amount of the government expenses goes to supporting the elderly. This is how socialism exploits the worker and it could be fine if it was only this.
- Paying pension fees / forced retirement investing. All this money goes to the elderly, with the promise that the young worker will receive when she is old - even though it is a fact that all pension funds are rapidly going broke and retirement ages are constantly being increased. This is how liberal democracy exploits the worker and it could be fine if it was only this.
- Paying rent/mortgage. This varies a bit, but lately it has become the rule that workers in Western countries are massively siphoned of their income in paying huge rents or having to go into debt for life to buy a home. This money goes to the elderly, who had the good sense of being born early. This is how feudalism exploits the worker and it could be fine if it was only this.
Since workers are exploited by at least four different political systems being imposed on them, there are also several classes of exploiters and an opportunity for the rulers to divert all fighting for freedom and change. But in the end, all of them work to benefit the elderly while taking their own cut - and that cut is huge since the amount of wealth being transfered is gigantic. So they can tell the exploited workers to blame "the 1%", the corrupt government, the greedy landlords etc - but they are simply working on behalf of the elderly generation, who refuses to acknowledge any responsibility for what they have done and what they continue doing, while reaping the benefits. Comfortable.
Younger generations sacrificed greatly in order to please the elderly - mainly by not having children of their own since they were trying to fight to establish themselves in a society where all odds are against them. Now they are rapidly diminishing their quality of life in order to continue to serve and if we continue on this trajectory, young people in the Western world will be reduced even further.
The only long term store of value that works in the long run is "values" instilled from parents to their children, so that when the parents are old their children will actually want and take pleasure in caring for their elderly relatives and the elderly in their communities. The current generation of elderly have chosen to band together to deceive and exploit the younger generations - their children and grand children - for their own benefit. That circle has to be broken for traditional and sensible values to return. We break that circle by treating our children and young in a completely different way than what has been.
> a reliable store of value is one that preserves its purchasing power over time.
let's break this down.
Over a long time, technological improvements happen, which makes "things" cheaper, all else equal. So presumably, maintaining purchasing power over time means you get to partake in these technological improvements for zero risk - ala, your $1000 dollar can be used to buy an iphone in 10yrs time that is hundreds of times better.
But the implicaation that you didn't take any risk - the losses on development & research, investment and the dead ends - are all paid for by somebody else. If the investors demand a high return based on this risk, they will absorb all of the profit from taking the risk. This absorption includes a return on the price of said goods being sold, so it _cannot_ cost the same in 10 yrs time as today and only account for inflation (if this were the case, it means they made no profit).
So both scenarios cannot coexist - you either lose purchasing power by not investing, ala you lose to inflation (same thing). Or the technological improvements don't come.
Agree with your assessment of technological innovation lowering cost over time.
Disagree that all goods and services behave the same way. As counter-examples look at the HHH of higher than inflation industries: healthcare, higher education and housing all of which experienced growth in cost at double digit rates in recent times.
Also, I am not arguing that a widower who buys a certificate of deposit deserves the same rate of return as someone investing in a risky tech stock - they don’t.
I do think there should be a safe option for savers to store their savings for a modest return net of inflation - say 2-3% for the time value of the money.
Savings != Investment
They are separate use cases and there should be room for both.
CBDCs are dead in the water. A decade of fear-mongering - some potentially real, some not - has ensured that a very large % of the population will simply never adopt it.
Heck, even China has struggled to push adoption of its Digital Yuan.
I am concerned that a CBDC is actually the end goal of the government and the FED and the WEF. What if these crisis were designed to move us towards a CBDC all along? "You will own nothing and you will be happy" - the Word Economic Forum
CBDC offers governments ultimate control over citizens. When/where/how we’re allowed to spend our money. Add in social credit scores and your CBDC money can be deactivated for any reason that runs counter to the approved narrative. Protest becomes impossible. Everyone is fully dependent on the state for the basic necessities of life. You can't live if you can't buy food/shelter/heat.
Here is Christine Lagarde, making it clear that the real reason Central Banks are pushing for CBDCs is that if they don't, they risk losing control.[0]
The ability to transact is a fundamental human right. There can be no liberty without the freedom to transact.
I thank God that I've had the foresight to have decoupled all my finances from any specific nation or currency so that I will not be exposed to the tyranny you support. I feel only sorrow for those who are not as fortunate and have to live your nightmare.
Socialism is when the public owns the means of production. Sounds super democratic and fun! Except how are decisions made in such a system? The answer is always bureaucrats.
Slightly off-topic question: which information sources do you recommend for someone who wants to have a good conceptual understanding of economics, finance and investing? Here's what I liked so far:
People (their blogs or Twitter): Paul Krugman, Cullen Roche, Lyn Alden, Joseph Wang, Aswath Damodaran, Matthew C. Klein.
Books: Macroeconomics by Mankiw, Pragmatic Capitalism, Central Banking 101.
My outlook is pretty different from some of the sources you cite, but I like:
- Eurodollar University / Jeff Snider
- Robert Prechter, mostly for the understanding of money/credit and the fact that asset price movements are an endogenous process which drives headlines, not the other way around. Be careful of the permabear outlook and excessive Elliott Wave woo though.
- Financial histories (essential reading IMO): Galbraith's history of the 1929 crash, Jim Grant's stuff, Manias, Panics, and Crashes, Extraordinary Popular Delusions and the Madness of Crowds, etc
- Naked Capitalism blog
- Karl Marx and Henryk Grossman (the TRPF explains a lot of financial/investing phenomena like stock market cap as % of GDP rising over time)
- Podcasts: Market Huddle, Top Traders Unplugged
- Minyanville used to be a great source, any of the writers who used to be there are worth checking out.
Well, most of the other sources would hate that I think there's something to get out of Marx too! Jim Grant is about as hardcore libertarian as you can get. The longer I watch and trade markets the more I see the value of ideological flexibility and being able to synthesize many different and even contradictory perspectives.
101 comments
[ 5.2 ms ] story [ 156 ms ] thread[0] Without seeing how the balance sheet actually works out, it's hard to say how much money the FDIC gave to SVB depositors (if any). But there is certainly a massive difference between a few weeks of ambiguity and the FDIC quickly asserting that all depositors will be made whole.
You could also consider a super-short treasury ETF, like BIL.
The systemic problem with Money Market Funds in the economy at large is they are too simple a lending device (which is why overheads are so low), as the safest bank-like ones invest in safe, very short-dated, super liquid federal securities, and the whole point of having a bank is to create debts that are riskier and weirder than that (for example, financing an office building).
https://clsbluesky.law.columbia.edu/2023/03/20/financial-ins... ponders some options to allow banks to do this while mitigating bank runs and having a more legible sharing of risk with the depositor/investor.
If (uninsured) risk is supposed to be correlated to return, then it would also suggest banks really ought to be offering higher yields than money markets for uninsured deposits. Like, significantly. This has not been the case, so I've never relied on deposits for anything more than a payment clearing utility.
If short dated treasuries and near treasuries were paying the near nothing they should be, then entities would have to figure how much they *really* need to keep in instantly available, no risk accounts.
To the extent there’s hard, inelastic demand for an absolutely safe place to park cash perhaps it is more efficient to have the government offer such instruments than any other entity.
However, to the extent the terms are more attractive than they “should” be, and satisfying soft, elastic demand, that’s money that’s being pulled away from productive investments.
My opinion on equilibrium: government should always be providing the most secure credit, at some level of issuance, that wouldn't be true, best not to get there.
This doesn't make sense. If government debt is too high, they should want the interest rates to be low, not high.
The government just felt like paying more?
I actually think the average person (or business) would disagree with this statement. The reason most businesses and individuals deposit money in a bank is first, to keep it safe and second, to make your funds available to send and receive payments without managing large piles of cash. This can be done without lending at all (see narrow banks) and in that case the bank can simply let everyone withdraw their money in the event of a run. Financing an office building could be done by a separate institution that sells bonds and then loans those funds to businesses at higher interest rates. This institution would be able to make the duration of its bonds match the loans it makes to customers.
While I generally would support a direct Fed facility to handle the "utility" portions of banking, I think there are some dubious aspects and limitations of non-lending accounts. Namely, almost hydraulically, lending on something like treasuries tends to gracefully track inflation, i.e. consumptive power is maintained over time. This is another meaning for a bank to "keep your money safe" if you account for the money illusion. They aren't called "money markets" for nothing.
If I understand you correctly, you're basically saying why use a bank versus something else? My answer would be because for vast majority of retail bankers it doesn't matter. Same reason many would use Gmail vs self-host. They want to put their money somewhere and ensure that it will be there when they need it. As a society we have a framework around that and we provide deposit insurance and we call the orgs who take your deposit, give you an IOU (in the form of an account balance) then lend a fraction of it to others a bank.
For significantly larger sums no I don't think it makes sense to use a bank and most large corps have a treasury that specifically deals with that.
> "The Federal Reserve has been raising benchmark borrowing rates at the fastest pace in decades, but the interest rate paid out to millions of people with bank accounts is still stuck at almost zero. According to data from Bankrate, the average interest rate on savings accounts is just 0.23%. So what's going on?"
It's investment capitalism continuing to transition towards a monopoly model, what else?
> "Dougherty said a lack of competition within the financial industry is what allows banks to take more money from their customers without customers getting fed up and moving their money to a competitor or out of the banking system altogether."
https://thehill.com/policy/3656474-lawmakers-slam-big-bank-c...
Solution: have the Fed offer the public personal savings accounts at the listed Fed rate, perhaps with some limited restrictions on withdrawals.
I was waiting around for a better rate, but even when T-bills were being offered at >2% annually, banks were offering less than a percent. Even competitive savings accounts seemed sluggish. Money market funds were an easy way to get similar rates to T-bills without actually buying them myself or waiting for banks to get the message.
They're "risk free".
But again, I might completely misunderstand things, but I don't think there is any investment that is absolutely risk free, which I guess is why you put it in quotation marks in the end.
Think of the duration as a lever, the longer the lever the larger the move in value that interest rate change make.
So they suffer from the same type of interest rate risk, but at order of magnitude lower impact.
https://www.treasurydirect.gov/marketable-securities/tips/
You could buy TIPS or I-bonds.
As others pointed out, T-Bill indicates a shorter term than T-Note which is shorter than T-Bond... but either way, it's not that the instruments are hard to sell, it's a very liquid market, but the prices rapidly adjust so that yield to maturity for a given maturity date is broadly similar regardless of the initial yield and coupon.
It may be emotionally hard to sell and realize a loss if interest rates rise after your purchase, but it's not transactionally hard. If you are subject to a mark to maturity reporting regime, it may also look bad on your balance sheet, but I don't believe individuals would be subject to that.
For the rest of your money you can estimate when you'll need it and buy the appropriate T-bill, down to 4 weeks. Everything you say is correct, but only on that timescale.
The only risk is the US government collapsing, but in that eventuality you are very likely to be completely fucked no matter what you do.
For example, failed states (even after complete destruction due to war), have a way of honoring primary residence property rights even after the rebuild of the country, many times including secondary properties that are not your primary residence (ie germany, poland after wwii, more examples exist). So if you know this history, you'd do well to make sure you own some property, not just "paper".
This is only one aspect of investing, but I've seen many people claim from the same source argument things like "holding REITs is better than a home because it's way more liquid and flexible", which... yes, but.
Also, there are sweep accounts that automate this. You can use that technique to easily get $3M of FDIC insurance from a single account. They typically yield high amounts of interest, so I assume they are backed by money market accounts.
Interest comes from lending money to some entity that want to borrow money. Central banks don’t.
Conflating an investment (lending at interest) and a store of value is how we got to the mess we are in.
https://www.federalreserve.gov/monetarypolicy/reserve-balanc...
the same concept in economics is called "there is no free lunch"
If you mean an account that holds its absolute dollar value, you are right, although T-bills would do the same thing if traded at sufficient frequency. You are also correct about it causing bank issues. The fed reverse-repo facility, which is essentially what you're describing here but for banks to use partially contributed to this mess.
Overall there is no getting away from the fact that "value" of assets is related to the interest rate of the currency and if the interest rate rises some of those will be worth less which means a slice of people in the economy will have less than they did before. The Fed can't do anything to magic it away.
In a similar vein you can't put all your data on a server somewhere, call it the cloud, and cry foul if you lose your most important source code and IP when the server goes down. Banks can't change underlying economics. It was incumbant on the businesses working w/ SVB to not use them as their treasury anymore than they would put all their code on one AWS server and call it a day.
The closest you can get to this ideal "store of value" is to take the general idea behind ETFs and take it way further to find ways to "invest" in society itself, but in a much more multi-modal way. If done properly, unless society started to somehow fall apart, you would always be guaranteed returns. The key thing is that because you would be investing extremely broadly, the notion that you're privately owning this or that company or bank account would begin to vanish.
This is, of course, just a financial way to describe socialism.
I cannot tell why I'm seeing this all over Hacker News.
A Central Bank Digital Currency solves nothing. It only emboldens and tightens the grip of people in power.
By definition it is centralized and forces anyone who needs to work in an economy to be accountable to an entity that can and will remove access controls to their financial streams. It does not change anything in the context of the current financial environment. It does not make things safer for investments.
The only thing this solves is having money be digitized and managed by parties who are not trust worthy.
Get out of here with these comments. You feel like astro-turfing.
I think we can certainly speculate.
Federal IRS and county child support enforcement have ridiculous powers wrote in to State law. They can seize accounts with a letter. Good luck fighting their mistakes when they just seized all your accounts. Child support enforcement in counties are staffed with GED holders, and 'qualified immunity' typically prevents suing for damages. Having one centralized account for seizure makes their jobs easy, and will suck for their victims.
Aren't tight capitol controls seen as a good thing? Surprised to see that as a con.
> managed by parties who are not trust worthy
I thought the idea behind CBDC was it would be a scriptable. Not trying to get heated here but are you saying the Fed isn't trustworthy?
I see the primary use case of banks to be 1) store and transfer funds 2) earn interest on savings.
Use case 1 could be handled by CBDC. Use case 2 could be better handled by literally anyone else
Personally don't have any strong feelings regarding any of this. Interesting to see people get so passionate about banking.
it depends on which side you are.
I myself prefer that the state cannot easily regulate and control capital, but not impossible for them to in dire cases.
E.g., they can control capital flow of criminals, but would need proof or courts involved. They cannot defacto control capital at will for an ordinary citizen.
I wasn't aware that others had made the same comment.
But afterwards I noticed that there was an episode on the Odd Lots podcast (23rd of March) where they interview professor Saule Omarova on this topic.
So it's definitely an idea which has gained some momentum. If you don't see the point of it, I recommend listening to the podcast episode.
> Get out of here with these comments. You feel like astro-turfing.
I am not astro-turfing. Not every idea different from your own is a conspiracy.
https://www.forbes.com/sites/norbertmichel/2018/11/05/newly-...
Currently, things are set up so that the ultra rich have to use their capital to back things that provide actual economic value. (There aren’t enough dollars in circulation to store their wealth.)
This forcing function seems like a good thing to me.
But to your point, why do you advocate for preventing a retiree, the proverbial widows and grandmas, from having access to a reliable store of value that doesn't require they risk their retirement savings in speculation?
Forcing everyone into stock or real estate speculation necessarily results the vast majority of the wealth gains going to the most financially sophisticated (Wall Street), the rich with the best financial advisors, or the lucky few who happened to allocate their savings in optimal bets 30-40 years in the future.
A reasonable long term store of value would help address inequality. By not having one we force the working class to trust their financial future to a predatory casino run by a den of wolves.
Which they will use when they've grown old.
What I'm getting at is that there is no such thing as a secure long term store of value and such a thing has never existed. Not even gold can be that. We can all wish for it, but it cannot exist.
So how they do it today is by using violence to forcefully exploit the surplus production from younger generations to support the elder generation. All political "systems" and ideologies today serve that goal. Any young person in the Western world who is working gets exploited in at least the following:
- Receiving less in salary than she produces, so that the company can turn a profit. This profit in general goes to stock owners who are pension funds or elderly individuals. This is how capitalism exploits the worker and it could be fine if it was only this.
- Paying taxes on their salary and hidden taxes before receiving a salary. A young worker has almost no benefit of government spending, while a huge amount of the government expenses goes to supporting the elderly. This is how socialism exploits the worker and it could be fine if it was only this.
- Paying pension fees / forced retirement investing. All this money goes to the elderly, with the promise that the young worker will receive when she is old - even though it is a fact that all pension funds are rapidly going broke and retirement ages are constantly being increased. This is how liberal democracy exploits the worker and it could be fine if it was only this.
- Paying rent/mortgage. This varies a bit, but lately it has become the rule that workers in Western countries are massively siphoned of their income in paying huge rents or having to go into debt for life to buy a home. This money goes to the elderly, who had the good sense of being born early. This is how feudalism exploits the worker and it could be fine if it was only this.
Since workers are exploited by at least four different political systems being imposed on them, there are also several classes of exploiters and an opportunity for the rulers to divert all fighting for freedom and change. But in the end, all of them work to benefit the elderly while taking their own cut - and that cut is huge since the amount of wealth being transfered is gigantic. So they can tell the exploited workers to blame "the 1%", the corrupt government, the greedy landlords etc - but they are simply working on behalf of the elderly generation, who refuses to acknowledge any responsibility for what they have done and what they continue doing, while reaping the benefits. Comfortable.
Younger generations sacrificed greatly in order to please the elderly - mainly by not having children of their own since they were trying to fight to establish themselves in a society where all odds are against them. Now they are rapidly diminishing their quality of life in order to continue to serve and if we continue on this trajectory, young people in the Western world will be reduced even further.
The only long term store of value that works in the long run is "values" instilled from parents to their children, so that when the parents are old their children will actually want and take pleasure in caring for their elderly relatives and the elderly in their communities. The current generation of elderly have chosen to band together to deceive and exploit the younger generations - their children and grand children - for their own benefit. That circle has to be broken for traditional and sensible values to return. We break that circle by treating our children and young in a completely different way than what has been.
let's break this down.
Over a long time, technological improvements happen, which makes "things" cheaper, all else equal. So presumably, maintaining purchasing power over time means you get to partake in these technological improvements for zero risk - ala, your $1000 dollar can be used to buy an iphone in 10yrs time that is hundreds of times better.
But the implicaation that you didn't take any risk - the losses on development & research, investment and the dead ends - are all paid for by somebody else. If the investors demand a high return based on this risk, they will absorb all of the profit from taking the risk. This absorption includes a return on the price of said goods being sold, so it _cannot_ cost the same in 10 yrs time as today and only account for inflation (if this were the case, it means they made no profit).
So both scenarios cannot coexist - you either lose purchasing power by not investing, ala you lose to inflation (same thing). Or the technological improvements don't come.
Disagree that all goods and services behave the same way. As counter-examples look at the HHH of higher than inflation industries: healthcare, higher education and housing all of which experienced growth in cost at double digit rates in recent times.
Also, I am not arguing that a widower who buys a certificate of deposit deserves the same rate of return as someone investing in a risky tech stock - they don’t.
I do think there should be a safe option for savers to store their savings for a modest return net of inflation - say 2-3% for the time value of the money.
Savings != Investment
They are separate use cases and there should be room for both.
Heck, even China has struggled to push adoption of its Digital Yuan.
CBDC offers governments ultimate control over citizens. When/where/how we’re allowed to spend our money. Add in social credit scores and your CBDC money can be deactivated for any reason that runs counter to the approved narrative. Protest becomes impossible. Everyone is fully dependent on the state for the basic necessities of life. You can't live if you can't buy food/shelter/heat.
Here is Christine Lagarde, making it clear that the real reason Central Banks are pushing for CBDCs is that if they don't, they risk losing control.[0]
The ability to transact is a fundamental human right. There can be no liberty without the freedom to transact.
[0] https://twitter.com/DVATW/status/1638133299468959749
hmm yes, perhaps gold, or even bitcoin for online things
>A CBDC
That seems bad.
Yes, money is good. No, more centralized control over money is not good. Stop it with the socialist nonsense.
People (their blogs or Twitter): Paul Krugman, Cullen Roche, Lyn Alden, Joseph Wang, Aswath Damodaran, Matthew C. Klein.
Books: Macroeconomics by Mankiw, Pragmatic Capitalism, Central Banking 101.
Podcast, news websites: I don't follow any.
- Eurodollar University / Jeff Snider
- Robert Prechter, mostly for the understanding of money/credit and the fact that asset price movements are an endogenous process which drives headlines, not the other way around. Be careful of the permabear outlook and excessive Elliott Wave woo though.
- Financial histories (essential reading IMO): Galbraith's history of the 1929 crash, Jim Grant's stuff, Manias, Panics, and Crashes, Extraordinary Popular Delusions and the Madness of Crowds, etc
- Naked Capitalism blog
- Karl Marx and Henryk Grossman (the TRPF explains a lot of financial/investing phenomena like stock market cap as % of GDP rising over time)
- Podcasts: Market Huddle, Top Traders Unplugged
- Minyanville used to be a great source, any of the writers who used to be there are worth checking out.
The Karl Marx makes me kind of skeptical of the other suggestions...
What I'm basically looking for are people who are most insightful, correct, thought-provoking, knowledgeable and not very ideological.