tag:blogger.com,1999:blog-8764541874043694159.post1636936137218803899..comments2024-03-29T10:48:38.142+00:00Comments on Coppola Comment: Savings, investments and a dose of realismFrances Coppolahttp://www.blogger.com/profile/09399390283774592713noreply@blogger.comBlogger95125tag:blogger.com,1999:blog-8764541874043694159.post-37949740730995917402013-10-03T02:25:28.684+01:002013-10-03T02:25:28.684+01:00You can lobby the government till doomsday but the...You can lobby the government till doomsday but they refuse to face the fact that state pensions are inadequate or that having demanded we save for retirement that its now ok for them to fleece us <br />The Bank of England does indeed play every bit as major part in the destruction of savings rates just as fiscal policy does<br />We have a prime minister who has no clue about the cost of a loaf of bread or indeed that CPI in no way whatever represents the true increase in the most basic costs of living which is all pensioners buy...deborahnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-35109380641419793142013-10-01T17:08:20.738+01:002013-10-01T17:08:20.738+01:00Why do central banks believe they will get greater...Why do central banks believe they will get greater productive investment, having spent their time reducing prospective yields? Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-79912727602983806082013-09-17T20:25:17.979+01:002013-09-17T20:25:17.979+01:00Deborah,
60% of pensioners live on the basic stat...Deborah,<br /><br />60% of pensioners live on the basic state pension and associated benefits. The majority of pensioners with savings are in the other 40%, who are relatively well-off and many of whom have substantial assets. There may be a minority who are far more dependent on savings, but that is not actually a reason to protect the savings of the majority. Hard cases don't make good law.<br /><br />If there are pensioners who are reliant on savings to pay basic bills, that is a failure of fiscal policy. It is the responsibility of government to ensure that pensioners are able to meet basic living expenses. The Bank of England is not responsible for this and it is reprehensible of savers' representatives to attempt to influence the path of interest rates. The correct solution to the problem is to improve state pension provision, not meddle with monetary policy to suit one particular interest group. Therefore savers' representatives should be lobbying government, not the Bank of England.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-17537588801429438422013-09-17T17:51:03.456+01:002013-09-17T17:51:03.456+01:00Everyone is ignoring the very salient fact that it...Everyone is ignoring the very salient fact that its FLS that has decimated interest rates on cash deposits <br />They have also ignored the fact that millions of people simply do not have the ability to research stock markets or the investing Frances sees as so critical <br />Millions of 70/80/90 year olds need full access to their savings and need an income from them quite simply to pay the most basic bills <br />QE and FLS has robbed savers of 500Billion in spending power and they simply dare not or cannot touch the capitol<br /><br />Equally many millions have seen the loss of other shares in various companies and quite rightly neither want or need to face any more losses <br /><br />Keynsian Economics totally ignores these basic facts just as King, Carney and MPC plus their puppet master Osbourne see plying savers with crocodile tears of "immense sympathy"as the biggest insult of alldeborahnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-88770467115598339532013-09-08T23:11:11.550+01:002013-09-08T23:11:11.550+01:00Frances,
how does one explain the fact that whils...Frances,<br /><br />how does one explain the fact that whilst gross and net private saving (in the US) are apparently at all time highs, the personal saving rate is still relatively low compared to the past (say, thirty years ago)<br /><br />Personal saving rate:<br /><br />http://research.stlouisfed.org/fred2/series/PSAVERT <br /><br />Also, do you know where to find data on gross or net private saving as a percentage of GDP? FRED only has data which seems to include 'government saving', i.e.:<br /><br />http://research.stlouisfed.org/fred2/series/W206RC1Q156SBEA<br />http://research.stlouisfed.org/fred2/series/W207RC1Q156SBEA<br /><br />(These inevitably show a downward trend given US current account deficits.)<br /><br />Thanks!<br />Philippenoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-74378251200155869852013-09-07T23:37:16.073+01:002013-09-07T23:37:16.073+01:00Dan, buying their own shares IS returning cash to ...Dan, buying their own shares IS returning cash to shareholders. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-59620105440892924422013-09-07T23:33:25.527+01:002013-09-07T23:33:25.527+01:00Yes, of course it could. It is choosing not to. Yes, of course it could. It is choosing not to. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-80531394374422104072013-09-07T20:52:25.401+01:002013-09-07T20:52:25.401+01:00Don't you think that the reason companies buy ...Don't you think that the reason companies buy their own shares rather than return cash to shareholders is because it benefits board members by inflating the value of their share options? danmccurryhttps://www.blogger.com/profile/02857850826832830852noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-72019321447361625772013-09-07T20:23:23.058+01:002013-09-07T20:23:23.058+01:00Frances,
do you agree that the Fed could raise t...Frances, <br /><br />do you agree that the Fed could raise the fed funds rate tomorrow if it wanted to? <br /><br />i.e. the current low rate is ultimately a policy choice... the Fed could make the FF rate 20% tomorrow if it so wanted. This would probably crash the economy of course, but that doesn't mean it's not possible.Philippenoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-89764443972484018932013-09-05T09:41:00.843+01:002013-09-05T09:41:00.843+01:00Tim,
I never suggested saving in deposits was &qu...Tim,<br /><br />I never suggested saving in deposits was "less worthy". I said that savers do not understand the nature of bank deposits. <br /><br />I'm sorry if you don't like this, but the fact is that bank deposits ARE DIFFERENT from actively-managed funds. They are simply a source of funds for bank lending, no more and no less. I did not invent that situation and I do not necessarily support it. It is simply "how things are". <br /><br />I have explained this at some length in the hopes of helping savers understand why banks appear to be offering them a raw deal. I would appreciate it if you would please accept my remarks in the spirit in which they are intended and not attribute to me value judgements such as "less worthy" that I have not made. <br /><br />Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-2336623194199170222013-09-05T08:55:21.155+01:002013-09-05T08:55:21.155+01:00We can quibble about the detailed nature of invest...We can quibble about the detailed nature of investments for a long time, but the big picture point that I am trying to make here is that your idea that saving in deposits is clearly different from and somehow less worthy than in, say, a pension is dubious at best. Hopefully, the mere fact that our discussion can get so involved is sufficient to cause other readers to question your argument.<br /><br />However, for what it is worth, I do agree that the narrow point made by Phelan, that central bank money amounts to "fake savings", is wrong, and left a comment there too.<br /><br />Thanks for the discussion.Tim Youngnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-89190125087154587022013-09-05T00:24:48.562+01:002013-09-05T00:24:48.562+01:00Tim,
1) Yes, I know deposit insurance is (mostly)...Tim,<br /><br />1) Yes, I know deposit insurance is (mostly) paid for by banks. The tax incidence does not fall wholly on depositors - it also falls on borrowers, employees and shareholders. <br /><br />2) I said pension FUNDS, not all pensions. <br /><br />If you choose to manage your own portfolio of pension investments, that is up to you. Similarly, if you choose to put all your money into bank deposit accounts, management of your money is your responsibility: the bank(s) will not do that for you. But if you pay into a managed fund, you will pay fees for professional management of that fund's investments. Of course pension fund managers aim to meet their liabilities before generating customer returns - if they did not they would risk insolvency. That does not mean that they are not actively managing money and aiming to generate returns. <br /><br />Public sector pension schemes are a completely different matter. The majority are unfunded. They are not pension FUNDS. <br /><br />3) You know perfectly well that the vast majority of bank deposits are not fixed rate term deposits. They are variable rate call and notice deposits. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-32003224543415489252013-09-04T23:44:25.281+01:002013-09-04T23:44:25.281+01:00Deposit insurance may be organised and backed by g...Deposit insurance may be organised and backed by governments (although the Iceland EFTA case brings that into question), but the cost is supposed to be covered by the banks, and therefore effectively by a tax on depositors: http://www.bba.org.uk/media/article/uk-banks-pay-1-billion-to-compensate-icelandic-savers<br /><br />It was you that raised pensions, Frances. I am just making the case that deposits can be used as a pensions investment in the same way as stocks or bonds. You have some peculiar ideas about what a pension is. For those who do not manage their own pension fund, a pension is just a contract with an provider, and how that provider arranges to cover their outlay is a matter for them and the regulators. Pension fund managers generally aim to meet their liabilities rather than achieve the best returns for their clients, and many do not "actively manage" their fund. Some public sector pension schemes have no assets at all.<br /><br />I would be surprised if a bank that offered a fixed rate term deposit could vary the rate at its discretion.Tim Youngnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-70558040894794748692013-09-04T22:19:27.392+01:002013-09-04T22:19:27.392+01:00If it were entirely left to the market to set rate...If it were entirely left to the market to set rates, short rates at least would be negative. The Fed's positive IOER actively props up the Fed Funds rate to keep it from falling below zero, and this supports other short rates too - notably on government debt, both in the US and elsewhere, and on demand deposits (call accounts).<br /><br />No-one is stopping savers "sitting in cash" if that's what they want to do. But they aren't going to get a positive return from doing that at the moment. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-58556312066308651352013-09-04T21:55:33.187+01:002013-09-04T21:55:33.187+01:00"Inflation is a rise in the general price lev..."Inflation is a rise in the general price level across all goods and services, not just essential ones. You can't start changing the definition of inflation to suit your world view. "<br /><br />Name me anything thats going down in price, apart from electronic goods, which have always done so, for reasons that are entirely unrelated to our current economic situation. Everything I buy costs more this year than last, by some margin. That goes for goods and services. <br /><br />And as for the second part of your statement above, I think the State has done quite enough "changing the definition of inflation to suit your world view" for everyone involved, thanks very much. It has been shown that in the US inflation calculated by the methods of the US government from 30 years ago would currently be running at 10%, not the 2% the US government currently claims. I have no doubt the same statistical sleight of hand is being performed here in the UK. The evidence of millions of peoples wallets backs me up.Jimnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-28303672081737022362013-09-04T20:31:10.425+01:002013-09-04T20:31:10.425+01:00Tim,
How people use deposit accounts has nothing ...Tim,<br /><br />How people use deposit accounts has nothing whatsoever to do with their nature. Deposit accounts are unsecured loans to banks. There is no automatic right even to return of the money: in the event of insolvency, all depositors can claim is a share of the assets in accordance with their seniority (they rank pari passu with senior bondholders and below official creditors and secured bondholders). That's why there is a government-mandated deposit insurance scheme. Without it, depositors could lose their entire "investment". <br /><br />The difference between retail bank deposits and pension funds is that pension fund investments are ACTIVELY MANAGED, whereas retail deposits are not. Fund managers' job is to manage clients' money so as to give the best returns to those clients. Retail banks have no such responsibility, and they do not actively manage clients' money in the way that fund managers do. They invest deposits in the way that best suits them, not their depositors. I can best sum this up thus: to a pension fund manager, the pension saver is a customer. But to a bank, a depositors is a SUPPLIER, not a customer. Banks' customers are their borrowers, not their depositors. <br /><br />Deposit accounts may guarantee a particular rate, but that rate can be varied at the bank's discretion - it is not a guaranteed rate "in perpetuity". If the bank cuts the rate to below the depositor's expectations, the depositor has no recourse whatsoever other than their contractual right to terminate the account. People who plan their expenditure on the basis of expected returns on variable rate savings really need to take into account the fact that the returns can vary!<br /><br />I have explained all of this in more detail in this post:<br /><br />http://www.pieria.co.uk/articles/lender_bewareFrances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-50775829140992051252013-09-04T19:27:36.303+01:002013-09-04T19:27:36.303+01:00"Deposit accounts are....are not investments ..."Deposit accounts are....are not investments on behalf of depositors in the way that pension investments are." Some people use deposits effectively as their pension (I have probably mentioned my neighbour who used to own a pet shop before?). How does a deposit differ from, say, a defined benefit pension fund? I am lucky enough to have a defined benefit occupational pension. From that point of view, I could not care less if my former employer invests my money in blue chip stocks or the 16.30 at Kempton, as long as they stay solvent.<br /><br />"The bank has no responsibility whatsoever for "looking after" depositors' money..." Is the fact that the deposit is a liability of the bank not such a responsibility?<br /><br />"...or to generate any sort of decent return for them." They do if the contract specifies some particular return.Tim Youngnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-49979796511033750012013-09-04T19:19:40.915+01:002013-09-04T19:19:40.915+01:00Please tell me what deposit insurance is if not a ...Please tell me what deposit insurance is if not a government scheme to ensure that depositors don't lose their money when financial institutions go bust? And what about the tax breaks on various forms of saving? Really this idea that savers don't get any help from the state is nonsense. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-76719566118497463162013-09-04T19:10:04.106+01:002013-09-04T19:10:04.106+01:00And I mean years! When I was a student living in ...And I mean years! When I was a student living in a terraced house, I lived next door to a widow renting from the same landlord, in her eighties I would guess. I used to occasionally visit her, and like old people do, she would always tell me the same stories. After telling me how difficult it was to manage on the old age pension - "it costs the same to boil a kettle for one as two", she would tell me how she and her railwayman husband had always lived within their means, so that when he was called up in the war, they had no debts to get help with, whereas couples with mortgages got help with theirs. The injustice of her situation left a lasting impression on me.Tim Youngnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-38282334914383996722013-09-04T19:02:34.843+01:002013-09-04T19:02:34.843+01:00No Tim, I am not wrong. Deposit accounts are only ...No Tim, I am not wrong. Deposit accounts are only investments in the sense that any loan to any institution is an "investment". They are not investments on behalf of depositors in the way that pension investments are. The bank has no responsibility whatsoever for "looking after" depositors' money or to generate any sort of decent return for them. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-21587894479963358012013-09-04T18:58:06.517+01:002013-09-04T18:58:06.517+01:00"Bank deposit accounts.....are not in any sen..."Bank deposit accounts.....are not in any sense investment vehicles."<br /><br />This is where you are fundamentally wrong, Frances. A bank deposit is just a particular form of investment contract. Since the depositor's contract is with the bank, it is reasonable that it is the bank's business what they do with the funding - they of course expect, as specialist investors in, say, loans to local small business, to make more than they pay their depositors. That's just business. I totally agree with "anonymous". It is because of such misconceptions about depositors that British depositors have been persecuted for years, including such rules as the amount of money you can invest in an ISA and what assets you can hold and receive benefits. Result: British people have learned to borrow and punt, especially on housing, and the distortion is crippling our economy.Tim Youngnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-77998913169673511722013-09-04T18:48:13.774+01:002013-09-04T18:48:13.774+01:00Oh, and may I remind you of the rules of this site...Oh, and may I remind you of the rules of this site. I accept Anonymous posts only if they are signed. Please identify yourself. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-55437175265334030972013-09-04T18:47:37.925+01:002013-09-04T18:47:37.925+01:00Deposit accounts in fractional reserve banks have ...Deposit accounts in fractional reserve banks have never been investment vehicles for anybody. Savings accounts in NS&I (the old Post Office Savings) and the old Trustee Savings Banks were investment vehicles, but the TSBs died in 1976 and the only private sector "savings bank" that remains now as far as I know is Airdrie Savings Bank. So if people want "investment vehicles", they should be putting money in NS&I or managed funds, not in fractional reserve banks. FR banks are lenders, not fund managers. <br /><br />Some businesses are awash with cash, but others are highly leveraged. It is those that I am concerned about. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-65455614784885890592013-09-04T18:40:28.265+01:002013-09-04T18:40:28.265+01:00These accounts certainly *were* investment vehicle...These accounts certainly *were* investment vehicles, but for the Average Joe, who had a shop to mind or a field to plow.<br /><br />I agree completely that this is no longer the case, but not everyone got the memo. And of course there was no memo. <br /><br />If this is not outright theft from the public, it was and is dishonesty on a massive scale. Many, many billions have been diverted away from people who haven't been paying attention, or don't know what to do about it. Fair? Not fair? A tax on stupidity, at least.<br /><br />Perhaps "Save our Savers" should be campaigning just to make people aware of this. Might as well withdraw your money and invest in Single Malt. As a side effect, a good old-fashioned bank run would make the buggers eyes water.<br /><br />Further to your last point, if business are awash with cash as you say, the only reason they'd be interest rate sensitive is if they'd been induced to borrow by absurdly low rates for financial activities like stock buybacks or acquisitions. This is an indicator that the real economy has been distorted. Housing bubbles are another indicator.<br /><br />I believe all of these are ultimately side effects of the need to continue to feed Leviathan.<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-36117342336609356322013-09-04T18:01:09.647+01:002013-09-04T18:01:09.647+01:00I said this in the post:
"....to banks depos...I said this in the post:<br /><br />"....to banks deposits are simply a source of funding. You have lent your money to the bank just the same as if you have bought its bonds. The bank has no responsibility for "looking after your money" or investing it to generate a good return for you. It will invest your money, yes, but to benefit itself, not you."<br /><br />Bank deposit accounts (or as you term them, "savings accounts") are not in any sense investment vehicles, however much unsophisticated savers might like to believe that they are. It is time that people woke up to the reality. Banks DO NOT invest your money on your behalf. They invest it on their own behalf and give you as little as they can get away with. We do not have savings banks any more.<br /><br />The real beneficiaries of low interest rates are the households and businesses who are interest rate sensitive. The effect on the economy of raising interest rates at the moment would be catastrophic. <br /><br /> Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.com