PhotoA huge problem in the United States is that we don't save enough money.  This is, of course, an enormous understatement as proven by the housing collapse of a few years ago, which was brought on by consumers taking on more debt than they could manage. 

These days no one is very sympathetic to the problems of those who have a few extra dollars to rub together and have taken to the streets in New York and elsewhere to vent about the unfairness of it all.

But the "rich" -- meaning, apparently, anyone with a few thousand in savings -- face an even worse problem than public ridicule and hatred.  They literally have no place to put their money.

You want to invest in the stock market?  Great, but be prepared for sickening ups and downs such as few have seen in this lifetime.  And be prepared to be fleeced of whatever earnings you may eke out if the Obama Administration's soak-the-middle-class tax plan somehow passes Congress.  Nothing like punishing thrift and frugality to get the economy moving.

Just put your money in the bank, then?  Fine but banks aren't paying any interest. Now and then you might make a whopping 1% or so on a CD but no one is going to fund their retirement on interest.  On the other hand, you can at least count on not losing your FDIC-insured deposit, something no one can say about savings invested in the stock market.

Too much money

Now, we need to be careful in how we say this, so as not to send maurading mobs into the streets but the banks are suffering from a problem that is both similar to yet different from the rest of us: they have too much money.  

You would think that having too much money would be a good thing but as banks see it, money is just something that takes up space and, over time, starts to smell bad unless you can find a way to put it to work and, thereby, earn more money.

Banks make money in two ways, basically:

  • They can lend money and charge interest.  That's not happening right now because businesses and consumers are afraid to borrow money or can't qualify under the rigid new standards that followed the popping of the housing bubble.
  • They can charge businesses and consumers for honoring checks, processing debit-card transactions and so forth -- for handling your money, in other words. That's not going so well these days, as Bank of America and others will tell you.

What's the answer?

Well, frankly, it's not our place to say what the answer to all this might be.  Which is a good thing, since we certainly don't know.

But here are some of the consequences:

  • Financial advisers are bracing for a very tough year. Investment News, an industry newsletter, warns that the job market is about to get even worse for advisers, as big firms cut back on salaries and bonsues and also curtail their spending on research and client recruitment. No investors, no advisors, to put it plainly.
  • The mutual fund industry, which manages money for people with the good sense not to do it themselves, is feeling puny these days. The combined assets of the nation’s mutual funds decreased by $398.0 billion, or 3.3 percent, to $11.621 trillion in August, which is a pretty big bite by anyone's standards. 
  • Banks are running in place.  New figures from the FDIC show nationwide bank deposits up 7 percent from a year ago, hitting $8.25 trillion. The squeeze on profits means that, although cash-rich, many banks are in what economists call a liquidity trap and could have to begin closing or selling off branches. Big banks, meanwhile, are unable to gain market share because of the squeeze on earnings from their consumer products.
  • Not many new jobs.  Jobs are created when businesses and entrepreneurially-minded individuals are willing to take a flyer, borrow some money and invest in a new plant, idea or product.  Good luck with that.

So?

So what's this story about?  Well, it started out being about the cash build-up at banks but wandered off into long-overdue ruminations about the state of things (poor, and getting worse).  Also, this is a semi-holiday and there is a paucity of output from the usual sources.
 
Don't know about you but we get pretty tired of listening to completely meaningless ramblings about religion, rocks at park entrances, sexual mores and all kinds of other marginalia that has nothing to do with government.  Maybe it's time for what we used to call the press and those who pass for politicians these days to actually try to talk intelligently about the economy for a little while? 

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