I’ve commented on the failure of Obamanomics, with special focus on how both banks and corporations are sitting on money because the investment climate is so grim. Not exactly flattering to the White House.
Using Minneapolis Federal Reserve data, I’ve compared the current recovery with the expansion of the early 1980s. Once again, not good news for the Obama Administration.
And I’ve shared a couple of cartoons – here and here – that use humor to show the impact of bad public policy.
But here’s a Bloomberg story that provides what may be the most damning evidence that the President’s big government agenda is a failure.
U.S. regulators have asked some banks to take more deposits from large investors even if it’s unprofitable, and lenders in return are seeking relief on insurance premiums and leverage ratios, according to six people with knowledge of the talks. Deposits are flooding into the biggest U.S. banks as customers seek shelter from Europe’s debt crisis and falling stock prices. That forces lenders to raise capital for a growing balance sheet and saddles them with the higher deposit insurance payments. With short-term interest rates so low, it’s hard for financial firms to reinvest the new money profitably. …At least one firm, Bank of New York Mellon Corp., tried to recoup some of the costs by charging depositors 13 basis points, or 0.13 percent, for holding unusually high balances.
Let’s think about what this article is really saying. Banks normally make money by attracting deposits and then lending that money to people and businesses that have productive uses for the funds.
Yet the economy is so weak that banks are leery of taking more money. The story is complicated by other factors, including flight capital from Europe, taxes (or premiums) imposed by the Federal Deposit Insurance Corporation, and various regulatory issues.
But even with these caveats, it’s still remarkable that banks want to turn down money – or charge people for making deposits.
Sort of like McDonald’s turning away customers because they lose money by selling Big Macs and french fries. Or, better yet, like McDonald’s turning away free goods from suppliers because not enough people want to buy the final product.
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Welcome Instapundit readers. Some of you are asking what should be done instead of Obamanomics.
The honest answer is that there’s no silver bullet. Lower tax rates would help, as would a reduction in the burden of government spending. Free trade agreements also would be good, and let’s not forget the importance of reducing red tape and counterproductive regulations.
There are lots of such reforms that would boost economic performance and help make the economy more efficient. Any one of them might not make a big difference right away, but the cumulative impact would restore normal growth. And the most damning indictment of Obamanomics is not that we suffered a downturn, but that we haven’t bounced back.
This video, based on data from the Economic Freedom of the World Index, was released more than two years ago to show that there was an alternative to Obama’s failed stimulus. It’s still 100-percent relevant today.
to RKAE.
I dont beleive Reagan ever said trickle down. That is the way the dems characterized his plan. That we now accept this false characterization is a measure of how many MSM lies we have accepted.
I’m a Reagan fan, but “trickle down” was a dumb thing for him to say. It’s been used as a weapon against sane policies for decades now.
When a millionaire buys a yacht, it provides work for the craftsmen who make every item onboard. That’s not called “trickle down”; it’s called “an economy.”
[…] An Amazing Indictment of Obamanomics – Banks that Don’t Want Deposits […]
My uneducated guess is the problem is that interest rates are too low. Or that market forces haven’t been able to set rates for loans and deposits appropriately due to the Fed.
I mean, this is essentially negative interest rates right? The financial sector’s balance sheets are so bloated with cash (rightfully so, with the government shoveling it in return for cheap credit), and it has to come out at some point. This is just the start. I’m sure treasury couldn’t be happier – keeping those interest rates low and cash worthless so only the ol’ faith n’ credit can get any liquidity.
“Better to decide what to do with that ridiculous pile of huge money via a democratic process…”
Theft and enslavement by popular vote is still evil.
“With short-term interest rates so low, it’s hard for financial firms to reinvest the new money profitably”
No it isn’t. If your bank pays it’s depositors approximately zero, take the money and buy Treasury bonds that pay about 2.5% intersest.Easy as fallling off a log.
The Fed’s easy zero interest rate policy is not stimulating the economy, but it funds the balooning federal debt while improving the solvency of the big banks at the expense of savers. That’s what’s going on today.
Note, Obama plays no role in all this. His adminsistration is choking productive activity with costly rules, regulations, new entitlements and so on. That’s a whole other issue. if the past is any guide, replacing Obama with a red team pol, will merely slow the bleeding in that regard.
Ain’t no silver bullet. It’s a big turd sandwhich and we’ll all have to take a bite.
Related question: Why don’t the Europeans just buy 1-month T-bills? Yes they would only get about 2 bps, but the banks aren’t about to give them more. Is 28 days too long to tie up their cash?
The key seems to be that if the banks accept the money seeking safety from Europe, they have to increase their capital, which basically means sell more common stock. But in this economy and with the banks still saddled by unknown but huge liabilities from their 2002-2007 binge, an economy that is not producing attractive lending oppoprtunities, and the Fed forcing short-term interest rates to zero, the banks get negative value from accepting all this hot European money that will just flow back to Europe as soon as it looks safe to do so.
I would respectfully suggest that the issue of accepting the European deposits is best viewed as a political, not economic or financial question. Yes, the backstory that US banks have neither the wherewithal nor interest in accepting those deposits because of the sick Obama economy (and the Fed’s ZIRP), but the particulars of this story may relate more to why the USG and Fed spent so many of our dollars in TARP and QE1 QE-Lite and QE2 to the ultimate benefit of European banks, not even US banks… to no apparent long-term benefit. THAT is the real scandal and I would be interested to hear your thoughts on THAT.
As for Dan Ancona–please, people, don’t feed the troll.
To Dan Anaconda:
Legislators and unelected bureaucrats *always* know how to spend my hard-earned money better than I do myself. /sarc
I will point out that this is an actual delusion of many on the left, so-called progressives, and all flavors of Marxists/socialists.
Take this simple thought experiment: You and I are walking down the street. We come across a woman selling hand-woven potholders. I tell you that I need some of your money to buy a pot holder. You say no, that you earned your money fair-and-square working selling T-shirts. I pull out a gun, and demand you to give me money for potholders, or I will lock you in prison. You try to run away, but a confederate of mine tackles you. Then we both take your money, and put you in prison. Then we go and give a bill to your children and grandhildren to pay for more stuff that I decide needs to be paid for by others.
That, dear Dan, is the simplified story of how the government relates to her citizens right now. Government demands you pay for things you don’t want, using deadly force to achieve its goals. And they can do it under the guise of abuse of the “General Welfare” clause in the Constitution.
If you really believe as you do that we merely need to tax the rich (because they do not need the money), Dan, then you are indeed living in willful ignorance and lack simple critical thinking skills. It does not take much to learn some fundamentals of economics…but that takes initiative, something that someone who believes as you do apparently sorely lacks.
“Welcome Instapundit readers. Some of you are asking what should be done instead of Obamanomics.
The honest answer is that there’s no silver bullet….There are lots of such reforms that would boost economic performance and help make the economy more efficient. Any one of them might not make a big difference right away…”
As I scrolled through the comments to post my own initial response, I read that others have also made it, and a couple still don’t get it. The honest answer is that the silver bullet, if it is one, isn’t an economic solution, it’s cultural.
Time to pull up Dan’s cartoons of the two societal wagons, before and after.
Great post Deeg. It appears Dan believes, along with Michael Moore, that people’s money is not theirs, it’s a “national resource.” Karl Marx is alive and well in the good old USA.
Dan, when Keynesian and Marxist economic policy destroys the economy and plunges is into destitution, don’t believe the politicians and economists when they tell you it proves capitalism and the free market are failures. The free market has been under attack for about 100 years and we are seeing the result.
Slash government spending, lower taxes and deregulate. It’s our only way out of this mess.
In one week we are going to be beaten about the head with an emotion-laden pitch for Stimulus 2. You’re assignment, Mr. Mitchell, if you choose to accept it, is to provide a clear, compelling one paragraph (with little words) explanation of a non-leftist approach to fixing the economy. Besides firing Obama and taking the Senate.
“The honest answer is that there’s no silver bullet.”
Actually there is a silver bullet. The governmental should reduce it’s footprint, meaning stop interfering in free markets and stop spending so much money.
This would be over in about 18 months if the did that. No, they decided to take the Hoover/FDR route.
Dear Dan Ancona:
I qualify as one of the “rich” you hate. And I earned it all myself, starting poor but developing my brain and eventually starting up successful businesses. I am sitting on cash/gold/silver, certain stocks, and NOT investing in new businesses right now because of simple math.
Example 1: we owned a business a few years ago that was involved with metal polishing. To make the math easy for you, we were netting about 10-20c/piece, and workers could do 5-8 pieces/hour. So basically, I was making a dollar per hour per employee per day. For 20 workers, that was 40k a year. Not great, not bad, but because we were able to depreciate the equipment, etc. the tax bite wasn’t that awful. But the minimum wage was raised, so now we had to pay each worker an extra dollar per hour. So now zero profit. We shut the business down. (And yes, we offered to the employees that if they wanted to try to make a run at it themselves, and split the profits (and avoid the min wage laws by each being partners) we’d give them start up funds to run the business for themselves. No takers).
Example 2: we have been asked to invest in a variety of business startups, particularly because with people’s home equity being so low, they can’t get business loans (or, they can, but they are @ 12-15%). In one recent one, the highest possible rate of return on investment is maybe 20% per year. So assume I invest 100K, I might make 20k, pretax. But my income tax rate for those extra dollars is 45% (state and federal) on that 20k, producing a real-world rate of return of 11000. But, of course, there is a 50% chance that the business will fail, or maybe I’ll actually get even less back. So my “risk rate” for planning purposes becomes, do I want to invest 100K to get back what is more likely maybe 4 or 5k, after taxes. It would be silly for me to do that; there are safer investments I can make where I can preserve the gains until I retire, when I will presumably be taxed at a lower rate.
Example 3: I have several business ideas I’d like to pursue, but I’ve looked at the regulatory red tape necessary, and I have NO IDEA how to adequately price those costs to evaluate as against startup costs, etc. So I’m not bothering, even though there is a market need, because I can’t figure out if I can make the products profitably or not.
So if you want to see a booming economy, get rid of about every federal agency besides DOD, lower my tax rates, and I’ll have an incentive to jump back in the market vs capital preservation. Oh, and if you try to further “distribute” my wealth, I’d rather see it burn…
I’m no expert, but might the reason be that they can get money from the Fed discount window easier than dealing with actual customers?
the “I told you so” flaw in Keynesian economics, as practiced by governments, is the underlying assumption is that someone is always willing to buy debt. For instance, Tax $ 100, borrow $ 2, spend $ 102 dollars. The assumption is that someone will always have the $ 2. Countries that no longer have that $ 2 are: Greece, Ireland, Spain, Italy, Portugal, England, France, Japan, USA (or most western countries) the country that does have $ 2 is China, but if you read the news clippings China’s day is coming too, and probably withing the next 10 to 20 years – before any of these Western Countries will have balanced crawled out of their holes. The World will run out of $ 2 lenders. Greece already has, restructuring is its future. Keynsian will bring the world governments down, as only a FOOL spends $ 102 when they have $ 100, year after year, decade after decade….thanks for you time.
Unfortunately, they teach uber-Keynesianism in schools, and they don’t point out its epic failures or give equal time to better theories like Austrian economics.
Gazzer has it right. Ignorant comments claiming a parallel between ‘Obamanomics’ with ‘trickle-down is just plain stupid, and wrong. Clearly the commenter needs his mommy to tell him how to live and make his own decisions. That is not America…that climate has existed elsewhere in the world for years and last time I checked only 1 country can boast of the advancements and opportunity available.
Furthermore the ‘rich’ and the middle class could be taxed at a 100% rate and we wouldn’t even come close to bridging the gap that we have in terms of the deficit. That’s another rubrick of the truly ignorant people that have been sold a bill of goods by the class warfare crowd. ITS THE SPENDING< STUPID!!!
I think there’s a strong argument for making economics required studying in schools. I’m getting tired of reading comments from people that lack a basic understanding of the subject but are not constrained from telling you about it anyway
“Since Obamanomics is identical to trickle-down economics”
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[…] MITCHELL: An Amazing Indictment Of Obamanomics: Banks That Don’t Want Deposits. “Sort of like McDonald’s turning away customers because they lose money by selling Big Macs […]
@Dan Ancona – “This is another powerful argument in favour of raising taxes on the wealthy.” Surely economic growth is better for the poor than redistribution? These people are not hoarding money for the sake of it, they are doing it because the US financial system is in an absolute mess (thanks to the politics of redistribution – socialism) and it would be very unwise to invest in this climate.
This is the perfect argument for Keynesians and it goes like this: people are hoarding money, which causes a contraction of demand. In order to make-up that lack of demand, the central bank needs to print more money (QE). Simple!!
The problem is that people are not depositing money in banks due to lack of trust in the financial system, and QE further distorts the normal market forces, causing people to have even less faith in the system!!
Since Obamanomics is identical to trickle-down economics: yes, this is an indictment of the whole mess. And it this is another powerful argument in favor of raising taxes on the wealthy. Better to decide what to do with that ridiculous pile of huge money via a democratic process (even if there’s waste) then to just leave it in the hands of large investors that can’t even deposit it.