Is The Largest Weekly Inflow Into Bank Savings Accounts On Record, A Flashing Red Alarm?

Tyler Durden's picture

When one thinks of America, the word "savings" is likely the last thing to come into a person's head, for the simple reason that the vast majority of Americans don't save: recall that in September the personal savings rate dipped to 3.3%, the lowest since 2009 save for one month.

On the surface this makes sense: the average US consumer, tapped out, with more spending than income, has no choice but to max out their credit card, and eat into whatever savings they may have.

This is usually as far as most contemplations on savings go. And this is a mistake, because at least according to official Fed data reported weekly as part of the H.6, which lists the data on the various components of M1 and, more importantly, M2, the real story with US savings is something totally different.

As a reminder, the H.6 lists the bank sector "liability" equivalents of the components that make up M2, which as most know comprises of M1, or physical currency in circulation at just over $1 trillion as well as Checkable and Demand deposits, amounting to $1.4 trillion, and the various M2 components which comprises of Savings Deposits, the largest component of M2 at $6.6 trillion, a modest amount of Time Deposits, and an even more modest amount of Retail Money Funds.

It is the Savings Deposits component that is of most interest. Recall that the primary definition of a savings account is, naturally, an amount of cash parked with an institution for a longer period of time, in exchange for receiving interest (or no interest in the era of The Great Chairman), which also have a limitation on the number of withdrawals: six per month at last check. Savings accounts also encompass the broader Money Market account category, which has a higher floor requirement than an ordinary savings account. 

At first blush one would balk at the concept of a Savings Account in the New Normal: after all who in their right mind would face the counterparty risk associated with having money in a bank, especially money that has withdrawal limitations, if there is nothing to be gained in exchange, because under ZIRP nobody collects any interest, and won't until the system finally collapses.

Well prepare to be surprised.

The chart below shows the time progression of the largest Savings Component: total Savings Deposits at Commercial Banks, which at $5.6 trillion in the week ended November 5, 2012, is also the largest single component of M2, and thus broader money stock of the US (accessible source data via the St Louis Fed).

The chart above hardly shows any slowing down in cash entering Savings Accounts. In fact, quite the opposite. As we have conveniently highlighted, the historic rate of growth in this category of about $200 billion per year, aka the "pre-New Normal" regime, nearly quadrupled to just shy of $700 billion, with a distinct break when Lehman failed aka the "post-New Normal". That's $700 billion per year entering what the Fed defines as a "Savings Account." And all it took to get everyone to scramble to the uncompensated safety of savings accounts? A near collapse of the entire financial system!

This topic alone is worthy of a far greater discussion, because there is a distinct possibility that what the Fed discloses as a "savings account" book entry may simply be a book entry "plug" at the bank level to account for the surge in Excess Reserves into the banking system, after applying an appropriate reserve discounting factor: one way of thinking of M2 is the full lay out of the monetary system using base currency and Fed Excess Reserves and applying a Fractional Reserve banking multiplier. At last check the, multiplier from currency outstanding (1.08 trillion) to total M2 ($10.3 trillion) was 9.5x, in line with the historic ratio of ~10x.

A better representation of the very tight correlation between M1, which captures both currency and physical excess reserves, and M2 can be seen on the chart below.

As can be seen M1 is M2 just with a multiplier factor of ~4.5x.

What has been unsaid so far, is that to Ben Bernanke and the champions of the status quo, money in Savings Accounts would be far better used if it were to be dumped into stocks. After all, the primary reason for the urge by the Group of 30, Tim Geithner, Bernanke and the SEC to crush money markets and to make them even more uneconomical is to pull all the cash contained there and to have it invested into bonds, stocks, and other risky products.

In summary, the more money allocated to Savings Accounts, the more Bernanke's attempts to rekindle the "animal spirits" fail. And while this cash is at least on the surface what is known as "money on the sidelines", the flipside also is that should this money ever leave the "sidelines", modestly at first, then all at once, then the Fed's moment of reckoning will come, as that will be the moment when the Fed's ability to keep inflation grounded in "15 minutes" or less, will be thoroughly tested.

Paradoxically, Bernanke wants this money to re-enter the risk markets, and/or the economy, but not in a way that leads to hyperinflation. After all there is $10 trillion in electronic "money" in the US system, and only $1 trillion in cold, hard cash available for cash claims satisfaction.

All that brings us to the topic of today's post: weekly changes in the amount of cash held in Savings Deposits at Commercial Banks. As the chart below shows, rapid, dramatic shifts, characterized by massive inflows of cash into such savings accounts usually coincide with times of great monetary stress: the three biggest episodes in history to date have been the 2008 Lehman failure, the August 2011 Debt Ceiling Crisis and associated US downgrade, and the May 2009 First Greek failure and bailout. 

Those three episodes represent the biggest weekly Savings Deposits inflows number 2 through 4.

When was the largest ever inflow into Savings Deposits at Commercial banks, at $131.9 billion in one week? This past week.

Why?

We don't know, but the people who control $5.6 trillion in US commercial bank savings deposits - certainly not the vast majority of the US population who have virtually no money saved up, but the true 1% - just decided to park the most cash on a week over week basis into their savings accounts in history.

Perhaps ask them why they did it...

Source: H.6

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Mr Lennon Hendrix's picture

Why?  Because the Muppets are going to cash?

Lol, silly Muppets, cash is trash!

Gene Parmesan's picture

Fill in the blank.

"electronic cash" in a bank < paper cash in hand < ______________

knukles's picture

FDIC Insurance

Driven by FDIC insurance.
At a TBTF bank?
Priceless!

Mark Carney's picture

This is absolutely nuts!  I am going to have to read read this again, for I cannot get over how obsurd this is....what's up INDEED!

ndotken's picture

1. Sell Billons in AAPL @ $550/share
2. Deposit money in Savings Aacount
3. Wait one week for AAPL to fall to $507/share
4. Buy Billions in AAPL at $507 with money in Savings
5. Book gain of $53/share

It ain't rocket science.

fonzannoon's picture

do money markets inside brokerage accounts count as savings accounts? Because if they do not that theory goes out the window, no offense.

Urban Redneck's picture

"Money" in a Money Market Fund at a brokerage does one no good if the fund halts redemptions and they want to buy on the cheap while there is blood in the streets.

fonzannoon's picture

I agree with that. The comment above me was illustrating the idea that someone sold an equity, wants to park money in cash, with the intention of buying equities again soon. In that case a money market is where they would go.

nonclaim's picture

You can, most likely, opt-out of overnight sweeps but there may be low limits on the cash amount left sitting there and high risk of "commingling" in case the broker folds. (Not that there's any guarantee that the sweeps actually happens as advertised, but probably do.)

disabledvet's picture

Bearer bonds. Or "pre paid debit cards." not in dollars of course.

TruthInSunshine's picture

The Government is now beginning to lose the propaganda war badly. All of their headlines, memos, talking points & other bullshit, pumped out relentlessly through their official channels and the proxy main stream media (with every newspaper, cable station, network, magazine and radio station owned by 6 corporations), that allege that there's some sort of a "recovery, soft but sure," are now being dismissed even by the average sheeple (there's been a "whiff" or mild illusion of something remotely and temporarily resembling a stabilization only due to unsustainable, insane, batshit-crazy debt printing and federal reserve sponging/monetization of that debt, with the Fed now holding the illustrious title as one of the world's most toxic repositories/pustules).

The sheeple can no longer even passively ignore the massive spread between what they're seeing and experiencing in their personal lives and what is being parroted to them by the government and media.

The delay in taking the medicine this nation should have taken in the wake of the 2008 crisis will turn out to be an economic & social textbook historical lesson for the ages as to what NOT to do in the face of the massive structural economic crises the U.S. and global economy face today.

I only hope that the very painful chapter of American History about to unfold destroys any remaining confidence that holdout citizens, who still deposit trust & faith in the integrity & competency of benevolent government as their protectorate, may have in fractional reserve banking charlatanism  and in the wisdom of allowing a banking/financial-military/defense-Wall Street plutocracy to be allowed to suckle to maturity from the taxpayer subsidized teat of the state and deeply capture the respective branches of government, and its various politicians, regulators and other appendages.

old naughty's picture

Parmesan:"...fill in the blank."

Fxck the B_ANKS. There.

 

btw, why is it we muppets are always behind the curve.

In other words, they have tricks up their sleeves all the fxcking time?

 

 

Half_A_Billion_Hollow_Points's picture

7 days to bitcon block reward halving (from 50 btc/10 minutes to 25 btc/10 minutes).

 

Benefactor will be printing US$800,000 per each new bitcoin created.  In one week.

 

Hmmm....   Keep fiat, or buy btc...  Hard choice, right?

 

At any rate, change we can believe in.

SpeakerFTD's picture

Great comment, except for one rather important detail.   Historically, at times like this, the tendency of the mob is to snarl for more government, not less.    In their fear and confusion, your "holdout" citizens are likely to end up demanding a government that will prove to be even more unpalatable than our current travesty.

TruthInSunshine's picture

Only if the government can deliver moar bread & circus. And quickly! For the throngs are angry & restless!

ronaldawg's picture

Hey Mr. End the Fed:

You are getting in the way of the reinflation of the housing bubble. 

I heard on CNN at the airport that housing starts were up, home inventory was down, prices were up and new homeowners were entering the market.  What happened to the 2 million homes either waiting foreclosure or already foreclosed on I don't know. 

TruthInSunshine's picture

According to The Bernank (per his presser today), the shadow inventory of millions of empty/foreclosed homes will be rented out! Muhahahahaha!!!

knukles's picture

Depends on which money market.

There are money market mutual funds (non bank deposits, having $1 NAV's, etc.) which are picked up in the aggregate data but not under discussion, here....
Here is referring only to bank deposit savings accounts, some of which are termed "money market saving accounts", also picked up in the aggregate data.

They're two entirely separate deals, the commonality being that they both have "money market" in the name, hold other people's money and supposedly pay interest..

 

fonzannoon's picture

I realize I sound like the guy in something about mary pitching 7 minute abs but what you said is basically my point. Bank savings accounts is not where money leaving the market, with the intention of re entering the market, is going.

overmedicatedundersexed's picture

where ever your money is that is where they will come for it..after all it's not yours somebody else made it ..as spoke by a President of these here United States..they will tell you what is on the agenda if you listen..ala Bush and THE NEW WORLD ORDER. yes they are that blatant in your face..but America goes full eyes wide shut.

Dr. Richard Head's picture

So they will be bringing shovels to my midnight garden cousin Eddy style?

jeff montanye's picture

imo probably not. and the pit bulls, electric fences, assault rifles, semi automatic shotguns and pistols may well deter those who suspect the pit bulls, etc. are probably guarding something worth persuading you to share.

knukles's picture

Hi Fonz.
I wasn't thinking of any priority of choice or making suggestions between the two types of accounts, merely differentiating between them as many do not realize there are more than one.  
Might note that with most of the brokerage firms related to big banks (as in most) wind up giving the account holder an option between deposit type or traditional fund type... which most people ignore.  And generally wind up with the deposit as they didn't "opt out" for the traditional fund type...
Their choice will be impacted BTW, with the change in the FDIC limits reverting back to the older,, lower levels.

It is what it is...
And I read the fine print so's not my problem and if it turns to warm soft poop, I'll have made my choices and have earned it myself.

:)

fonzannoon's picture

I'm with ya, I just don't think some peope understand the difference. Thanks to you and Tyler for pointing it out. Here is some food for the brain for you. Some insurers that deal in annuities have eliminated money markets. They substitute them with bond funds. Some even go a step further and have "triggers" that push money out of equities into the bond funds automatically if the equity markets go down too far. Central planning knows no bounds.

disabledvet's picture

"insurance companies on auto pilot." that ain't Central Planning tough guy. That's SCARY. Interest rates have NEVER been this low. "it must be the lack of spending" of course. No wait "it's all that new debt" the Fed Chairman says we need. No wait! It must be "the positive rate of return for...".... I lost my TRAIN of thought again. What was the question again?

fonzannoon's picture

IMO Insurance companies are scrambling to reach TBTF status.

TwoShortPlanks's picture

3.3% savings rate....Gee-Whiz, I wonder how many people are actually buying assets in lieu of banking savings?

Example: 1. Pay Mortgage electronically, 2. Pay bills electronically, 3. Buy Gold/Silver electronically, 4. Draw remaining money out of the bank, 5. Put aside living exp in cash, 6. Put aside play money in cash.

I think the real problem out there is simple. I pay cash 95% of the time, so when I get home from shopping and see just how much I've spent, I feel guilty, and so I tend to go easy on spending for a while....conversely, when I paid everything on Credit (years ago), I didn't feel guilty at all as I rarely saw the cash in the first place, I only saw digits, and digits on bank statements each month aren't half as scary as discovering how little paper you have left in your wallet each and every day.

Complacency is a formidable opponent to saving and wealth accumulation.

PS. Yes, I'm aware what I do constitutes a 'Bank Run'....and fuck-em!

TwoShortPlanks's picture

If the average US income is $46,326pa with a labor force of 155.5M, that's only $237.7B in savings or ~ 1.5% GDP, or ~ 1.4% of Total US Debt.

Mary Wilbur's picture

I too am using cash much more than I used to, but for a different reason. I became concerned that I was using my debt card often enough that the odds of some criminal or desperate person compromising it were too high for my comfort. So I started useing cash for routine purchases except for gas. The side effect has been to make me a lot more aware of how much money I spend, which has been a plus for me, and I am in the process of getting completely out of debt.

roadhazard's picture

I can not believe anyone would use a debit card. You are just asking to have your bank account stolen. Stupid, stupid people. You are protected with a credit card. ATM's are just a bad as debit cards.

  

mccoyspace's picture

Same here. Trips to the grocery store and gas are on the debit card. Otherwise I take out my budgeted weekly cash allotment and use that for everything else. Whatever change/small bills are left over at the end of the week goes into a jar for supplemental small PM purchases.

Tyler Durden's picture

Retail Money Funds: $625.5 billion

Separate.

Also as a curious fact, Institutional Money Funds are outside of M2 for monetary aggregation purposes: they are aggregated in shadow banking, and we disclose them quarterly when we collapse the Z.1 shadow banking aggregation.

DaveyJones's picture

Curious Fact - They are getting more curious as the days go "buy"

Nice New Piece on William Black and the Government's decision to not prosecute Goldman.

The only ex- banking regulator acting like an Icelander:

http://www.deepcapture.com/professor-william-black-flunks-bethany-mclean-for-issuing-hall-passes-to-goldman-sachs-and-wall-street/ 

Think I've said this before. William Black is the most objective measuring device for how fast and far we've fallen in two decades

SafelyGraze's picture

interesting thread here.

like forensics.

school in session.

thanks tylerz and fonzes and knuckles and what not.

helpful discussion for those of us who sometimes stand and lurk.

stockscooter's picture

There is virtually no difference between savings accounts and money markets.  They are both demand deposits backed by FDIC. The Big boys know how to manipulate bankers.  In '06-'07 period, FDIC coverage went exponential, by them lifting the maximum that could be insured.  You can put billions in the bank today and have full FDIC coverage. That's why the money is there.The Big boys know something, which they are fearing. Follow that lead...

 

Magnix's picture

1. close your savings acct

2. buy all of your savings in gold

It ain't rocket science too!

Urban Redneck's picture

You do realize that $139B is in those savings accounts

Which at $1730/oz -

would equate to 75 million ozs or 2,400 TONS of additional gold demand.

I don't think Ben can print GLD that quickly, without sending actual gold to high five figures per oz. 

 

Mr Lennon Hendrix's picture

You do realize that if the price of gold is increasing then the value of fiat is decreasing and this means the amount of dollars in deposit in real terms has not increased at all.

Urban Redneck's picture

The fiat is just looking for a safe short term parking place, not a significant ROI.  The problem with your analogy (over the short term) is its inverse & its scalability.  There simply isn't enough real or even fake gold to absorb the volume of dollars in the marketplace, much less hiding on bank balance sheets.  Furthermore, if the price of gold is falling then does this mean that the amount of dollars on deposit in real terms is increasing?

Withdrawn Sanction's picture

There simply isn't enough real or even fake gold to absorb the volume of dollars in the marketplace, much less hiding on bank balance sheets

[at today's dollar price of gold].  In fact, there is exactly as much gold as we need, IF the price were allowed to adjust properly.

AllWorkedUp's picture

Eventually that money will find its' way into gold and silver but not until they are at much higher prices and GLD is finally exposed as a fraud.

 

The Count's picture

Sure, and you have the crytal ball than knows all, right? Please.....

derek_vineyard's picture

gain is only $43/ share  and why would you yake the money out of your brokerage (as if they would let you) and put it into a bank while waiting for trade to play out?  

disabledvet's picture

Are you trying to say "bankers don't take cash" now either? I bet dollars to donuts there are a few bank Presidents with loaded guns in the office "for when the Government guy comes too." of course the real good might just park their money in a rail car...or an oil tanker. Hell if the price of lumber goes sky high even a...

Kali's picture

True story:

Was at a Buf-fart WF branch the other day doing some biz (not my choice, my customer's).  Lady at teller window was paying her mortgage.  The woman gave the teller a check and a $100 bill.  Teller runs the check thru the "HOmeland Security we scan every check so we know how much $$ you have machine" and looks at the lady and says, "this  check is only for $1000 your payment is $1100. "  Lady picks up $100 bill laying in front of the teller and says, " $100 plus $1000 is $1100. Correct?"  No apology or "oops" from teller to lady.

Shit, banks don't even RECOGNIZE cash when it's sitting in front of them.

marketheretic's picture

The only problem is that the aggregate amount of cash doesn't change since when you sold there was a counterparty who bought, while you booked a gain someone somewhere booked a loss, and when you bought back AAPL your cash moved from one ledger entry for you to another for the seller.