September 19th, 2011
Econintersect: Interest rates paid by banks are extremely low but people have been pouring money into bank accounts at an unprecedented rate. According to an article in The LA Times, the total deposits in bank accounts are now approaching $10 trillion. That amount of money is approaching the same league as GDP (~$13 trillion) and the national debt (~ $14.7 trillion). Deposits in banks are approximately 64% larger than before The Great Recession and 165% larger than they were ten years ago.
From the Los Angeles Times:
Americans are pumping money into bank accounts at a blistering pace this year, sending deposits to record levels near $10 trillion on escalating fears that the U.S. economy is on the verge of another implosion.
There's no sign that the flood into checking, savings and money market accounts is slowing down. In the last three months, accounts at U.S. commercial banks have increased $429 billion, or 10%, almost double the increase for all of last year.
There's one big problem: Banks don't want your money.
"Banks and credit unions are doing everything they can to get rid of the cash except make loans," said Mike Moebs, a Lake Bluff, Ill., banking consultant.
He said banks are driving away deposits by refusing to renew CDs at higher rates and by imposing fees on checking accounts for depositors who don't use other, profitable financial services as well.
The rush to push money into banks to collect little interest has not been seen before, as shown in the following three graphs from The Federal Reserve Bank of St. Louis. Note that these three graphs only account for about 80% of the total reported by The LA Times.
This data is not surprising. As any money theorist will tell you, it is a simple accounting fact that when the U.S. government run deficits one of the results is increased private sector savings. See the very readable essay by Stepahnie Kelton at GEI Analysis. Since 2007 the national debt has risen by approximately $4.7 trillion and there are $3 trillion of increased bank deposits. Over ten years the debt has risen by about $8 trillion and nearly $5 trillion more is in bank deposits.