Saturday, June 8, 2013

But saving is its own reward!

Recent remarks by Jim got me looking at the components of money. One thing led to another and I ended up looking at checking-account deposits versus total deposits at all commercial banks:

Graph #2: Total Deposits (blue) and Checking Account Deposits (red)
The red line is money that the 99% use to buy gasoline and groceries. The blue line is the money that the 1% use to make more money.

Let me interrupt myself to say I know that all of us want to be among the 1%. And I have no trouble thinking of myself as 99% "part of the 99%" and 1% "part of the 1%". There's no class warfare going on here. Anyway...

Here is the red line as a share of the blue... Demand deposits as a share of total deposits:

Graph #3: Demand Deposits as a Falling Share of Total Deposits (the rest of it is savings)

A smaller and smaller share of our money remains circulating, where it may be used for things like gasoline and groceries and payroll. A larger and larger share of our money is already stashed away in savings. More and more, it is true that if we need a dollar we have to borrow a dollar. This is the result of policies that restrict money to fight inflation, and policies that encourage saving.


Jazzbumpa said...

The red line just churns as paychecks get deposited and then spent down to some piddling residual throughout the month.

Blue line just gets bigger and bigger and bigger . . .

jim said...

Hi Art,

If you want to define the money used daily for buying/selling things, then you should include currency. Also, since 1979 deposit institutions have offered checking accounts that pay interest - those accounts aren't counted in demand deposit accounts.

M1 includes all of those funds and travelers checks as money that is most used for daily spending. M1 doesn't include money swept out of checking accounts that get little use.

On a side note, it is interesting that demand deposits increased from about $250 Bn to $300 Bn from 1980 to 2008, then they jumped up to $950 Bn in the last 5 years. I wonder what that is about.

The Arthurian said...

Jim, I know a few of these things. But you seem to have a really good handle on it. That was my impression from your remarks and graphs the other day. Your thoughts here only confirm it for me.

I appreciate the insights.

Just now I was reviewing Wikipedia's "Money Supply" table for Monday's post and noticed that they separate "demand deposits" from "other checkable deposits", as you do. And also, as you said, both are included in M1.

I've looked at that table a dozen times, easy. But your comments helped me notice things I didn't catch before, and understand things better. Thank you.