Digest: The $291 Billion Missing From Our Wallets

Welcome to your weekly digest…my breakdown of the things we’re thinking about and talking about in the Global Intelligence world. 

First up this week, our missing $291 billion… 

Since 2019, Americans have collectively lost out on $291 billion in interest payments on their savings. That’s according to a new Wall Street Journal analysis of S&P Global Market Intelligence data. 

The reason for this is that most Americans have kept their savings at the five biggest U.S. banks, rather than moving them to smaller banks that offer higher rates of return. 

Obviously, this has been an issue for some time, but it has come into much sharper focus of late.  

This year, the Federal Reserve has rapidly jacked up interest rates to the 4% range…their highest levels since 2008. Yet despite this, the rates offered on savings by America’s five biggest banks—Bank of America, Citigroup, JPMorgan, U.S. Bancorp., and Wells Fargo—have barely moved, averaging just 0.4% during the third quarter of this year. 

By contrast, the five highest-yielding savings accounts averaged 2.14% in the same period, according to Bankrate.  

That means American savers missed out on an estimated $42 billion in interest payments in Q3 of this year alone. This is the highest quarterly figure on record. And it will likely be eclipsed in the fourth quarter, since the average interest rate offered by the five highest-yielding savings accounts has ballooned to 3.5% during this quarter so far. 

Of course, the $42 billion figure for Q3 is an oversimplification. If everyone decided to move their savings to those higher-yielding accounts, then the rates on offer would fall. Those higher rates are designed to attract capital to the smaller banks. 

Still, this issue raises an interesting point: Why do people continue to keep their money at bigger banks when the rates on offer are beginning to border on the insulting? 

The answer, of course, is inertia. Most of us don’t want the hassle of opening a new account somewhere and transferring our money. The big banks rely on this inertia. They use it to profit off us. So, my advice is don’t let them.  

It was all well and good to ignore a better interest rate on offer elsewhere when the difference with your current bank’s rate was 0.5% or 1%. 

But now that the difference has jumped to more than 3 percentage points and could well stretch higher, it’s time to act. 

So, if you have a considerable sum sitting in a savings account at a big bank, earning less than 1% interest, I’d advise shopping around. Check Bankrate for the highest-yielding, FDIC-insured accounts. And don’t forget to consider options from Uncle Sam, like Treasury bills and inflation-protected bonds. Those can exceed even the best options in the private sector. 

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Next up…China surrenders to COVID at long last. 

This week, Chinese authorities finally dropped many of the hallmarks of their zero-COVID policy, as I predicted they would. 

Under the new rules, officials cannot arbitrarily lock down neighborhoods or shut down businesses. And patients with mild symptoms and their close contacts will be allowed to quarantine at home, rather than in government-run quarantine centers. 

China’s ruling Communist Party did this for two reasons. 

First, the damage to the economy was worse than officials expected. In November, China’s exports fell at their fastest pace in two years.  

Second, authorities were struggling to contain nationwide protests against the zero-COVID measures.  

That second point is particularly interesting. It is difficult to remember a time in living memory when the Communist Party relented to a protest movement on such a grand scale.  

Now, we need to consider what comes next.  

Authorities held onto the zero-COVID policy for such a long time because they know that the Chinese healthcare system is ill-equipped to handle a mass-COVID outbreak. And Chinese people have little or no immunity to the disease because zero-COVID was enforced for so long. 

So, what happens now, when COVID spreads through Chinese society…when hospitals start filling up…and deaths spike, particularly among the elderly? Might the protests resume? 

The Chinese people have learned a lesson that could prove very dangerous for the Communist Party…namely that protest movements can achieve results. Interesting times could lie ahead in China. 

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Finally, shifting sands in the Arabian Peninsula… 

This week, China’s President Xi Jinping was visiting Saudi Arabia, the world’s #1 oil exporter, to sign billions of dollars in trade deals. 

It is more than a little interesting that Xi has rocked up in the country, for the first time in seven years, just as the U.S.-Saudi relationship is falling apart. 

For decades, the U.S. and Saudi Arabia have been locked in a marriage of convenience. 

The U.S. relied on Saudi for oil. Saudi Arabia relied on the U.S. for military hardware and security guarantees. 

As part of this arrangement, Saudi Arabia was required to sell its oil in U.S. dollars, no matter which country it was selling to, and it had to hold some of its currency reserves in U.S. Treasuries. 

This “petrodollar system” is a foundation of the global economy as we know it. And it has helped preserve the dollar’s status as the global reserve currency. 

But now that may be changing. 

In the past, Saudi Arabia had to remain on relatively good terms with the U.S., since it was the world’s largest economy by some distance and thus, the biggest oil market. 

But in recent decades, China has been catching up. Now, the Saudis can sell a whole bunch of oil to China too. Which explains why the Saudis are increasingly willing to defy America. 

In recent months, the U.S.-Saudi relationship has fractured over the decision by the international energy cartel OPEC+, of which Saudi Arabia is a member, to cut oil production. Before the decision, President Biden had traveled to Saudi Arabia to ask the country to increase production to help a struggling global economy, and he left thinking he’d secured a deal. 

The move by OPEC+ was a slap in the face for America. And now China’s president, Xi Jinping, shows up to sign billions in deals. Hmmm…. 

China has long wanted to price Saudi-China oil deals in its own currency, the yuan, rather than dollars. Might the Saudis now be willing to play ball? 

Maybe not yet. But the day does seem to be getting close. And if the petrodollar system does collapse, it would have a devastating effect on the U.S. dollar…the most powerful weapon in America’s arsenal. 

That brings us to the end of this week’s digest. Many thanks for being a subscriber. And if you have any feedback or questions, reach out through the contact form on the Global Intelligence website. 

Enjoy the rest of your Sunday.