Should we be moving money from the banks into another value store? Gold? Investments?
That needed to be done in January to be on the upside of this
I don't mean as an investment per se, just as a more reliable store of money.
The Board reduced reserve requirement ratios to zero percent effective March 26
81–90 of 99 posts
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#82Anyone know the current percentage of total U.S. deposits that are "insured" by the fdic?
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#83For net transaction accounts, i.e. “demand deposits, automatic transfer service (ATS) accounts, NOW accounts, share draft accounts, telephone or preauthorized transfer accounts, ineligible bankers acceptances, and obligations issued by affiliates maturing in seven days or less”. This isn’t a wholesale elimination of reserve requirements.
Do you have an example of an account type that still has a non-zero reserve requirement? Because that list sounds quite a bit like the list of accounts where reserve requirements (used to) apply. IIRC there were no minimum reserves for time accounts like savings accounts or CDs.
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#84Earlier quoted context omitted.
Dropping reserve rates to zero massively increases FDIC's and NCUA's risk exposure, and simultaneously increases the size of craters that individual banks can make. FDIC and NCUA are not bottomless pits of money, and I expect that, with a key safeguard removed, banks and credit unions now have the power to discover their bottoms more quickly than anyone should care to contemplate. I should disclaim: I am not a banker…
> FDIC and NCUA are not bottomless pits of money "FDIC insurance is backed by the full faith and credit of the United States government." [1] Given that FDIC insurance is backed by the United States government, if the FDIC system is unable to cover its losses, wouldn't that represent the United States defaulting on its obligations? I'm not saying that's impossible, but it seems like FDIC could represent a...pretty la…
The FDIC can get as much currency as they need from the Treasury to cover their obligations, so in that very technical sense they aren't likely to default. However, in the event this were ever actually tested they might as well have defaulted since the resulting inflation would be so high that currency would be worthless. Going from "can't get your money out of the bank" to "your money can't buy anything" isn't exactly an improvement.
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#85Yikes, this is kind of scary. This could magnify the losses dramatically as lenders start to implode due to the cascade of defaults. If anything, they should increase the reserve requirements to prevent instability and encourage a flight from risky assets. Yes, this will make the stocks go down now, but it would probably result in fewer people getting laid off and going broke in the future. I'd rather see highly leve…
I think the general consensus is that it's fine for bad companies to go under. But we have a situation here where a lot of reasonably good companies could go under just because of the social distance on a global scale.
The 2008 crunch was almost purely financial. Let's get past this pandemic and then see where the businesses shake out financially.
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#86It would seem that the logical response to this announcement is go run the banks right now, before March 26, and before anyone on Fox and Friends thinks to mention to their viewers what this really means.
My wife found out about this move when she noted that quite a few people on her Facebook feed were talking about pulling their money out of the bank.
Strange times.
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#87ELI5?
Say you have a bank account with $100 in it. At 100% reserve requirements, the bank must have that $100 actually in its possession at all times. This is very safe, because you are guaranteed to be able to withdraw your money in the event of a bank run. However, an economist might believe this is suboptimal because the $100 is just sitting there doing nothing rather than "circulating in the economy". Thus the concept…
> However, an economist might believe this is suboptimal because the $100 is just sitting there doing nothing rather than "circulating in the economy".
A short-sighted economist, maybe. What needs to circulate is goods and services, not money. If you have $100 in the bank (or stuffed in your mattress), that means you produced stuff worth $100 more in total than what you consumed. Those extra goods are already being put to productive use. If your savings stay safely locked away and out of circulation that just means prices will be a bit lower due to the decrease in the money supply, which benefits everyone else. And when you take that saved money and spend it later your prices will be a bit lower, too, which is your reward (interest) for basically letting everyone else borrow the value of your money for the time you had it out of circulation.
If you can take your savings and invest them in some venture likely to provide a real return—after factoring in inflation and overhead—that would obviously be better than just stuffing the money in your mattress. However, taking money out of circulation is still better for the economy as a whole than "investing" it in something that can be expected to lose value, because that would divert goods and services away from better investments. If the money supply were held constant than you could treat price inflation or deflation as indications that we need more or less targeted investment, respectively. Unfortunately that isn't the case, so we're missing a key economic signal.
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#88Yikes, this is kind of scary. This could magnify the losses dramatically as lenders start to implode due to the cascade of defaults. If anything, they should increase the reserve requirements to prevent instability and encourage a flight from risky assets. Yes, this will make the stocks go down now, but it would probably result in fewer people getting laid off and going broke in the future. I'd rather see highly leve…
I think the general consensus is that it's fine for bad companies to go under. But we have a situation here where a lot of reasonably good companies could go under just because of the social distance on a global scale. The 2008 crunch was almost purely financial. Let's get past this pandemic and then see where the businesses shake out financially.
The CEOs will probably just take the money and use it for more stock buybacks and pay themselves bonuses. It's 2008 all over again.
They put themselves in this position by being fiscally irresponsible in order to pump and dump their stock. They should be held responsible by experiencing the joys of bankruptcy.
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#89Earlier quoted context omitted.
That needed to be done in January to be on the upside of this
I don't mean as an investment per se, just as a more reliable store of money.
Just like anything else, diversify to reduce variance. But global catastrophes are hard to 1) see in advance and 2) do anything about because you're still buy trying to live your normal life without day to day concerns about solvency.
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#90The Fed has been obsessed with liquidity since this crisis has hit. From a high level, I understand why but this coupled with the repo market issues we've been having on and off for the past six months or so, the mortgage markets gumming up (avg 30Y mortgage rate went _up_ after the Fed cut rates), potential strain on dollars in the currency markets (lots of demand from foreign countries, no supply? Unsure about this…
Everyone and their dog went to go refinance their mortgage after the first rate cut, might explain the rates going up.