Best of the Week
Most Popular
1. Five Charts That Show We Are on the Brink of an Unthinkable Financial Crisis- John_Mauldin
2.Bitcoin Parabolic Mania - Zeal_LLC
3.Bitcoin Doesn’t Exist – 2 - Raul_I_Meijer
4.Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - Nadeem_Walayat
5.Labour Sheffield City Council Election Panic Could Prompt Suspension of Tree Felling's Private Security - N_Walayat
6.War on Gold Intensifies: It Betrays the Elitists’ Panic and Augurs Their Coming Defeat Part2 - Stewart_Dougherty
7.How High Will Gold Go? - Harry_Dent
8.Bitcoin Doesn’t Exist – Forks and Mad Max - Raul_I_Meijer
9.UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - GoldCore
10.New EU Rules For Cross-Border Cash, Gold Bullion Movements - GoldCore
Last 7 days
Jim Rickards: Next Financial Panic Will Be the Biggest of All, with Only One Place to Turn… - 20th Jan 18
Macro Trend Changes for Gold in 2018 and Beyond - Empire Club of Canada - 20th Jan 18
Top 5 Trader Information Sources for Timely, Successful Investing - 20th Jan 18
Bond Market Bear Creating Gold Bull Market - 19th Jan 18
Gold Stocks GDX $25 Breakout on Earnings - 19th Jan 18
SPX is Higher But No Breakout - 19th Jan 18
Game Changer for Bitcoin - 19th Jan 18
Upside Risk for Gold in 2018 - 19th Jan 18
Money Minute - A 60-second snapshot of the UK Economy - 19th Jan 18
Discovery Sport Real MPG Fuel Economy Vs Land Rover 53.3 MPG Sales Pitch - 19th Jan 18
For Americans Buying Gold and Silver: Still a Big U.S. Pricing Advantage - 19th Jan 18
5 Maps And Charts That Predict Geopolitical Trends In 2018 - 19th Jan 18
North Korean Quagmire: Part 2. Bombing, Nuclear Threats, and Resolution - 19th Jan 18
Complete Guide On Forex Trading Market - 19th Jan 18
Bitcoin Crash Sees Flight To Physical Gold Coins and Bars - 18th Jan 18
The Interest Rates Are What Matter In This Market - 18th Jan 18
Crude Oil Sweat, Blood and Tears - 18th Jan 18
Land Rover Discovery Sport - Week 3 HSE Black Test Review - 18th Jan 18
The North Korea Quagmire: Part 1, A Contest of Colonialism and Communism - 18th Jan 18
Understand Currency Trade and Make Plenty of Money - 18th Jan 18
Bitcoin Price Crash Below $10,000. What's Next? We have answers… - 18th Jan 18
How to Trade Gold During Second Half of January, Daily Cycle Prediction - 18th Jan 18
More U.S. States Are Knocking Down Gold & Silver Barriers - 18th Jan 18
5 Economic Predictions for 2018 - 18th Jan 18
Land Rover Discovery Sport - What You Need to Know Before Buying - Owning Week 2 - 17th Jan 18
Bitcoin and Stock Prices, Both Symptoms of Speculative Extremes! - 17th Jan 18
So That’s What Stock Market Volatility Looks Like - 17th Jan 18
Tips On Choosing the Right Forex Dealer - 17th Jan 18
Crude Oil is Starting 2018 Strong but there's Undeniable Risk to the Downside - 16th Jan 18
SPX, NDX, INDU and RUT Stock Indices all at Resistance Levels - 16th Jan 18
Silver Prices To Surge – JP Morgan Has Acquired A “Massive Quantity of Physical Silver” - 16th Jan 18
Carillion Bankruptcy and the PFI Sector Spiraling Costs Crisis, Amey, G4S, Balfour Beatty, Serco.... - 16th Jan 18
Artificial Intelligence - Extermination of Humanity - 16th Jan 18
Carillion Goes Bust, as Government Refuses to Bailout PFI Contractors Debt and Pensions Liabilities - 15th Jan 18
What Really Happens in Iran?  - 15th Jan 18
Stock Market Near an Intermediate Top? - 15th Jan 18
The Key Economic Indicator You Should Watch in 2018 - 15th Jan 18
London Property Market Crash Looms As Prices Drop To 2 1/2 Year Low - 15th Jan 18
Some Fascinating Stock Market Fibonacci Relationships... - 15th Jan 18
How to Know If This Stock Market Rally Will Continue for Two More Months? - 14th Jan 18
Everything SMIGGLE from Pencil Cases to Water Bottles, Pens and Springs! - 14th Jan 18
Land Rover Discovery Sport Very Bad MPG Fuel Economy! Real Owner's Review - 14th Jan 18
Gold Miners’ Status Updated - 13th Jan 18
Gold And Silver – Review of Annual, Qrtly, Monthly, Weekly Charts. Reality v Sentiment - 13th Jan 18
Gold GLD ETF Update.. Bear Market Reversal Watch - 13th Jan 18
Stock Market Leadership In 2018 To Come From Oil & Gas - 13th Jan 18
Stock Market Primed for a Reversal - 13th Jan 18
Live Trading Webinar: Discover 3 High-Confidence Trade Set-Ups - 13th Jan 18
Optimum Entry Point for Gold and Silver Stocks - 12th Jan 18
Stock Selloffs Great for Gold - 12th Jan 18
These 3 Facts Show Gold Is Set to Surge in 2018 - 12th Jan 18
How China is Locking Up Critical Resources in the US’s Own Backyard - 12th Jan 18
Stock futures are struggling. May reverse Today - 12th Jan 18
Three Surprising Places You See Cryptocurrency - 12th Jan 18
Semi Seconductor Stocks Canary Still Chirping, But He’s Gonna Croak in 2018 - 12th Jan 18
Land Rover Discovery Sport Panoramic Sunroof Questions Answered - 12th Jan 18
Information About Trading With Alpari And Its Advantages - 12th Jan 18

Market Oracle FREE Newsletter

6 Critical Money Making Rules

Central Banks Won’t See Our Sympathy

Interest-Rates / Central Banks Dec 05, 2017 - 03:35 PM GMT

By: Rodney_Johnson

Interest-Rates It’s official. Lending institutions are having a tough time making loans.

Don’t get me wrong, they still make money the old fashioned way: by borrowing from us through deposits on which they pay almost no interest, and then lending it long term to anyone that qualifies. But they’ve had to jack up their other fees because the traditional business plan just isn’t cutting it.


You and I are still keeping tidy sums at the bank, even though they pay us about half the rate of inflation, guaranteeing a loss of purchasing power. But few people, and even fewer businesses, want to take out loans.

Compounding the issue, the Federal Reserve keeps bumping up short-term interest rates, forcing banks to begrudgingly increase the pennies they throw at depositors, while long-term interest rates remain steady or even drop a bit.

As short rates rise and long rates fall, there’s not much in the middle left for lenders.

Excuse me, I think I’m getting choked up. I might even cry crocodile tears.

After the financial crisis, the Federal Reserve guaranteed bank profits by first lending them enough of our money to ensure their survival, and then pushing short-term rates to zero. Depositors were lucky to earn 0.10% on their money, while loans still cost 3.5% to 4.0%.

To make matters worse, the Fed printed gobs of money and paid the banks interest to hold the extra funds on their books in the form of Interest on Excess Reserves, or IOER. This allowed banks to earn extra cash without doing business with other banks that might make questionable loans.

Essentially, banks made something for nothing, while you and I got nothing (no interest) for something (our deposits).

This went on for years as banks in the U.S. cleaned up their balance sheets. Eventually, the Fed started raising rates ever so slightly. Over three years, rates have inched up to a mere 1.50%. You won’t get that on your deposit account, of course, but you might eek out 1% or so.

On the flip side, long-term rates remain stuck, with the 10-year bond paying 2.34% and the 30-year bond hovering around 2.77%.

The shrinking difference between short-term and long-term rates leaves little net interest margin, or profit, for banks. That’s not ideal, of course, but hey, if they can make it up on volume, things will still be all right. Only, there is no volume. Or at least, not as much as bankers expected, and that’s a problem.

Bank lending to businesses recently registered its lowest growth since the first quarter of 2011. Overall, the annual growth rate for U.S. bank loans just touched the lowest level since the end of 2013, as the growth rate fell for the sixth consecutive quarter.

Bank loans are still expanding, but at an ever-slower pace. This wasn’t supposed to happen.

With the economy growing, however slowly, and a pro-business administration in the White House, bankers expected strong loan growth. For the life of them, they can’t figure out why people and businesses don’t want bank loans.

I have a possible answer. Because we hate them.

As business owners, Harry and I ran millions of dollars’ worth of credit card transactions through a bank in the 2000s. That bank took bailout money to survive.

In 2010, my banker called me and said he had to verify my financials so the bank would keep doing business with me. I pointed out this was quite ironic since I remained in business and profitable when he and his firm needed my tax dollars to stay afloat.

That phone call sticks with me, as does the zero interest I earned for years on my deposits, and the lower-than-inflation rate of interest I earn today. I’m in no hurry to give banks more money.

On the business side, companies have options. With interest rates so low, it makes more sense to sell bonds where possible and essentially become your own bank. And many other institutions, such as hedge funds and insurance companies, are lending directly to firms, cutting into bank business.

It’s hard to feel sorry for companies that helped bring the country to its financial knees, needed bailout bucks, were guaranteed profits through the use of taxpayer funds and on the backs of depositors, and now wonder where all the business has gone.

Maybe they’ll get a break in the months ahead as the Fed shrinks its balance sheet. Perhaps, as the Fed buys fewer bonds, long rates will tick up a bit, giving bankers a break. But if it doesn’t happen, I don’t think any of us will shed any real tears.

In the meantime, I’m avoiding the financial sector, unless I’m going to use the Treasury Profits Accelerator service run by Lance Gaitan. He does a great job exploiting small interest rate changes to generate significant returns, and I have no problem giving him a shameless plug. Click here to learn more. As for the banks, they’re business is stagnating, and they can’t figure out why nobody likes them. If they’d only ask, I’m sure we could all give them several good reasons.

Rodney

Follow me on Twitter ;@RJHSDent

By Rodney Johnson, Senior Editor of Economy & Markets

http://economyandmarkets.com

Copyright © 2017 Rodney Johnson - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Rodney Johnson Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules