‘Hoarding Money’ – A New Meme?

Fed: US consumers have decided to ‘hoard money’ … One of the great mysteries of the post-financial crisis world is why the U. S. has lacked inflation despite all the money being pumped into the economy. The St. Louis Federal Reserve thinks it has the answer: A paper the central bank branch published this week blames the low level of money movement in large part on consumers and their “willingness to hoard money.” – CNBC
Dominant Social Theme: This money hoarding has got to stop for the economy to get better.
Free-Market Analysis: Sometimes Federal Reserve white papers attract attention and this one does because of the term “hoarding money.” This is a startling phrase and – who knows – perhaps it marks the beginning of a new meme.
Certainly the word “hoarding” is a popular one with government officials. When governments are uncomfortable with the actions of citizens for whatever reason, the term “hoarding” is often applied to stigmatize certain behaviors and encourage others.
In this case, the authors of this paper don’t seem to have in mind stigmatization so much as explaining the phenomenon they are analyzing and suggesting ways monetary policy can alleviate the behavior.
Here’s more:
The paper also cites the Fed‘s own policies as a reason for consumers’ unwillingness to spend. Though American consumers might dispute the notion that inflation has been low, the indicators the Fed follows show it to be running well below the target rate of 2 percent that would have to come before interest rates would get pushed higher.
That has happened despite nearly six years of a zero interest rate policy and as the Fed has pushed its balance sheet to nearly $4.5 trillion. Much of that liquidity, however, has sat fallow. Banks have put away close to $2.8 trillion in reserves, and households are sitting on $2.15 trillion in savings – about a 50 percent increase over the past five years.

This post was published at The Daily Bell on September 03, 2014.