“Letter from the CEO (of my credit union)
“I’ve taken calls from members over the past several months looking to negotiate deposit rates. I can understand these calls right now; our deposit rates are at the lowest they’ve been in over a decade. I thought I would share with all members why our rates are what they are.
“To combat the Great Recession, the Federal Reserve has kept interest rates historically low. Right now the three-month Treasury yield is .09%, less than a 1/10th of a percent. These rates are being kept low by the Federal Reserve in an attempt to stimulate the economy. With investing rates low, loan rates typically drop also. The theory is that this will make investments by businesses more attractive as the cost to borrow is very low.
“You can see this macro economic theory at work on a micro level at the credit union. Right now we are offering auto loan rates as low as 2.99%. When a member takes this opportunity to buy a new car it creates the desired economic effect from the low rates. A car is purchased, increasing demand for cars, requiring another car to be manufactured, and stimulating the economy.
“The challenge for PNWFCU is that our members, as a whole, are more conservative in this economy. They are maintaining a very understandable fiscal restraint in these uncertain times. As a result loan demand is down significantly, while deposits are increasing.
“Part of the board and management’s job at PNWFCU is maintaining a balance between loans and deposits. With Treasury rates as low as they are, we don’t have an investment source that can return any significant yield, making it very important to lend a significant portion of deposits. Our total loans have dropped from $121.3 million at the end of 2009 to $111.6 million at the end of February 2011. In that same time frame, deposits have risen from $134.8 million to $138 million.
“This is the long way of explaining why our deposit rates are where they are today. Our rates are dependent on balancing both loan and deposit demand. We will be able to review deposit rates when Treasury (investment) rates and loan demand both increase. Until then, we will need to continue to manage and balance the entire credit union portfolio.”
But, y’know, I’m not sure we could ever spend our way on credit to a better economy when the money in one we have is so unfairly distributed. And nothing is going to get better until the money in our economy is more fairly distributed. Like with a flat tax or a reasonably, enforceable graduated income tax (not unlike a flat tax). Revolutionary idea, yes, hopefully not a bloody one.