U.S. BANK DEPOSITS FALL BY MOST IN FOUR YEARS

U.S. bank deposits shrank by $370 billion in this year’s second quarter, falling from $19.93 trillion to $19.56 trillion, a record quarterly fall-off and the first decline since 2018, according to the Federal Deposit Insurance Corp.

Bank accounts swelled by $5 trillion in 2020 and 2021 as the federal government sent a series of stimulus payments to businesses and households.

Those stimulus payments nearly tripled the amount of money U.S. banks stored with the U.S. Federal Reserve, often in the form of treasury bonds.

Now the stimulus payments have ended and the Fed is cleaning out its bond portfolio, which will cause banks to store less money there. 

Also, inflation is rampant and the U.S. Federal Reserve is raising interest rates, both of which are forcing consumers to spend more on everything from socks to new homes.

TREND FORECAST: As long as inflation rises faster than worker pay, bank accounts will continue to shrink as people have to pay more to buy less. 

Moreover, with the Federal Reserve raising interest rates the economy will decline as money becomes more expensive to borrow. And the deeper the economy sinks the more people will be fired by companies whose profits are in decline, which results in more people buying less consumer goods. (See in this issue, “When the Economy Falls Jobs Go With It”.)