Banks tell cash-stuffed companies to look elsewhere
This is a short compendium of weird stuff that is happening in our economy as 2014 draws to a close.
Weird thing No. 1. U.S. banks say they have too much money on hand and are whispering to their most favored customers to find somewhere else to stash the cash.
It's hard for ordinary mortals to know how to respond to such news, reported by The Wall Street Journal, the authority on all things financial with special expertise on Big Greed.
You would think banks would like to have money so they can lend it out at profitable rates. Apparently, that's so yesterday.
Banks are telling insurance companies, hedge funds and large corporations that if they don't remove their dollars, fees will be imposed on them. Naturally, some cash-stuffed companies are getting come hither looks from foreign banks. Or the corporations may put their money in more sophisticated kinds of instruments, which of course will lead innovative (conniving) people to come up with new ways to make money.
If you listen to Wall Street, the fault, as always, is with Washington and new regulations that are designed to keep banks from getting so much federally uninsured money, or else another 2008 kind of economic catastrophe could occur.
Up until now it has just been us, the little guys, paying ridiculous bank fees on our paltry savings deposits and checking accounts. Now the federal government wants the banks to hold reserves worth as much as 40 percent against corporate deposits and as much as 100 percent of some financial institutions such as hedge funds. Thus the banks are proposing fees on gigantic deposits that were free.
The real problem is that corporations are sitting on piles and piles of money because they don't want to hire new people. Thus jobs are not being created, and middle-class Americans don't have much money to spend so the economy isn't expanding as fast as it should. Meanwhile, corporations are amassing huge amounts of money they don't know what to do with. Aarrgghh.
Weird thing No. 2. The United States is putting great faith in expanding oil and natural gas production and fracking, giving lots of tax incentives and other goodies to spur energy development companies to ramp up production, just as the price of oil is falling. Republicans are gleefully counting on pushing the final stretch of the Keystone XL pipeline from Canada through Congress and getting rid of a lot of environmental regulations that have allegedly stymied research and development in the energy field.
But the fall in the price of oil may mean that the global economy will improve as manufacturers and consumers have more cash (the big guys looking for places to put it). Since big oil importers such as Europe, Japan and China all are struggling economically right now, this is good news. Right?
But big oil exporters, including the United States, oil companies and oil-rich states such as Texas and Louisiana will feel the pinch. Oil-exporters such as Russia are getting desperate and can't pay their debts.
Previous drops in the price of oil usually came with recessions or serious economic downturns. As the oil prices fell sharply this month, the stock market fell.
The problem with a complicated global economy is that nobody really knows if the oil price drop will continue well into 2015 or who the winners and losers will be. The Federal Reserve Bank and the Bank of England are preparing to raise interest rates, despite nervousness around the globe. As we learned in 2008, when the dismal scientists (economists) start predicting one way or another, be afraid. Be very, well, you know.
Weird thing No. 3. With the housing situation still trembly, the federal government is lowering down payment rates from 20 percent to as little as three percent. This sounds like a good thing, right? More people will buy houses.
But wait! Low down payments fueled the subprime mess that caused worldwide havoc just six years ago. We're still struggling to climb out of that slough of despond.
Don't worry, the feds assure us. That won't happen again. This time we will monitor to assure "safe and sound lending practices."
Because whether it's torturing prisoners or restructuring weak economic underpinnings or shutting down the government or reducing debt or protecting the environment, we learn from our mistakes, right?