The credit union sent my wife a certificate renewal notice as her three month CD was maturing. Their current interest rate for a three month CD is .40% APR. After deducting mileage, time, and federal and state income tax expenses, her profit would be less than $5. An unforeseen early withdrawal would result in a loss. Imagine that. Give someone the use of $10,000 of your money for three months and you make less than $5 if all goes well. What's the reason for this? My grade school answer is the $10,000 must not be valuable-- no bank will pay much for it. The banks must have all the money they need. Money floating around everywhere.
There are many different measures of money supply. M0, M1, M2, TMS1, TMS2, etc. Most of these measurements of money supply are falling, not rising. There is one notable exception-- TMS2. The "T" stands for true, as in Austrian economics. Michael Pollaro explains all in this article. Still, I'm frustrated by the lack of agreement by learned economists regarding the most useful definition of money supply . You know what, forget money supply. What if no one wants to rent my $10,000 because there's no demand. OK, let's look at credit demand.
According to Gordon T. Long in Minyanville, we in fact have a credit demand problem, not a credit supply problem. To paraphrase the Federal Reserve's July Senior Loan Officer Opinion Survey, demand for loans remains weak despite a slight easing of terms and standards. Wow, it's getting easier to get a loan, but few new takers. I'm not sure I accept this completely based on a little local knowledge, but let's go with it for the sake of argument. America's population is aging and geezers like me don't like spending money. People in general are paying down debt and saving more. Unfortunately, this is the good news. The other reason Long cites for lack of credit demand is more ominous.
He says we have a structural problem. A lack of innovation and manufacturing, trade imbalances, and the inability to create as many new jobs as those being lost by technology advances. It seems to me that when the number of available blue collar jobs began to shrink, so did prospects for a stable middle class.
Government bailouts and Federal Reserve quantitative easings haven't improved credit demand or generated many good, permanent jobs because they're targeting money supply, not the real problems. The risk that current policies may make economic conditions worse is a concern being expressed more frequently by other governments, the media, and economists.
Well, we've gotten way off track here. Back to what to do about that CD and its .40% APR. I think I'll talk my wife into letting me roll it over into something with a decent return. Maybe that Estonian licorice company I read about? Didn't someone blog about a Ugandan sheep herding operation? Gee, I miss the good old days.
2 comments:
enid, at least your wife is getting 0.4% for her $10K. My wife has about $30K in a money market which is drawing 0.1% and she will not move it to get a better return. The reason is, I suspect, the same problem your wife has, which is risk aversion. Yes, I (and you, I suspect) have lost money in the past and will lose more in the future on certain holdings, but I am confident that yours and my nets will significantly outperform our wives' "safe" holdings. So, how do we convince them that cash is not always the best holding? Thanks for your thoughts.
J, if I recommend my wife put the money somewhere other than a CD she'll do so. Her interest in finances is -10 on a scale of 1 to 10. It's me that has all the fear-- I don't want mess up. Losing our money is bad. Losing her money is way bad. Of course, I have no money of my own.
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