Team-BHP - Understanding Economics

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Originally Posted by DigitalOne (Post 5528640)

- Natural gas price will increase; it has fallen since the war started.

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Originally Posted by vishnurp99 (Post 5528692)

This is actually an interesting point. Household gas bills in Munich actually went up significantly last year - by around 100% if i recollect.

In case the natural gas prices have dropped now, the reason is that industrial production in countries like Germany has dropped by around 4-5% in comparison to 2019 - pre-pandemic year.

Gas prices have indeed gone up in Europe after the war started, especially during winter months. The most popular Natural Gas derivatives traded in NYMEX, a US exchange, actually has nothing much to do with the demand or supply outside USA and reflect only the domestic pricing in USA. Most US traded commodity derivatives act as global benchmarks for pricing but that cannot be said about Natural Gas.

USA in throes of credit crunch as bank deposits shrink $1 trillion: Morgan Stanley

https://www.moneycontrol.com/news/bu...-10431771.html

Excerpts:

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Morgan Stanley's concerns are supported by recent data showing that credit availability for small businesses has seen its largest drop in 20 years as per a recent survey from the National Federation of Independent Business, alongside the highest interest rates seen in 15 years.

The credit crunch appears to have stemmed from the fallout of Silicon Valley Bank (SVB) and is causing banks to scramble to offset a breakneck pace of deposit flight. Morgan Stanley notes that $1 trillion in deposits has been withdrawn from the US banks since the Federal Reserve began raising rates a year ago. More specifically, they show the biggest two-week decline in lending by banks on record, as they simultaneously sell mortgages and treasuries at a record pace to offset deposit flight.

Despite major indices holding steady since the SVB episode, Wilson warns that this should not be taken as a sign that everything is fine. Instead, it is an indicator that stocks are at risk of a sudden drop, similar to what has been seen in small caps and bank stocks since March.

Question for the experts on the thread :–

Q1. If interest rates are rising why would bank deposits be dropping? Isn’t it more attractive for retail & institutional deposit holders to increase their bank deposits and lock in rates to the extent they can?

Q2. Is a drop of $ 1 trillion in deposits in USA a big deal. What is the size of their bank deposits base? Is this just the typical scare mongering that comes in times of uncertainty. By way of rough comparison the FD base in India is said to be about US$ 1.25 trillion.

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Originally Posted by V.Narayan (Post 5532277)

Not an expert by any means but here are my 2 cents (0.05 cents, if you account for inflation). Interest rates are rising but banks are not passing them on to the depositors. And as a fallout of that, people are taking money out of banks and moving them to money market accounts.
U.S. bank deposits have started moving to money market funds - Goldman Sachs

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Originally Posted by amitoj (Post 5532287)

Interest rates are rising but banks are not passing them on to the depositors. And as a fallout of that, people are taking money out of banks and moving them to money market accounts.

I find this very perplexing.

1) Banks are paying 0.25% pa returns on deposits. Because of this, banks can simply park all their funds in short term US treasury bonds, collect 4.25% and pocket a risk-free spread of 4%. Why they are not doing this is a mystery to me.

My guess is that banks in US are limited by some rules. Perhaps they can park only a certain percentage of deposits in short term US treasuries.

2) Why are the bank depositors still investing in banks? Money will always chase higher yield. If banks are offering 0.25% and risk free return is 4.25%, every depositor would logically move all these funds into US treasuries. But that is not happening at fast enough pace.

Understanding Economics-screenshot_1.jpg

My guess here is that most American bank depositors are NOT knowledgeable about money market funds yielding such returns.

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Originally Posted by SmartCat (Post 5532315)

I find this very perplexing.
...If banks are offering 0.25% and risk free return is 4.25%, every depositor would logically move all these funds into US treasuries. But that is not happening at fast enough pace.
....

With Apple launching a saving card account with 4.15% interest rate, why not transfer all money to the Apple account? Easiest for anyone to do without long lock-in period. With no fee associated with the account and an upper limit of $250K, this should be a no brainer.

Am I missing something here? Also, how is Apple doing this?

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Originally Posted by ValarMorghulis (Post 5532620)

With Apple launching a saving card account with 4.15% interest rate, why not transfer all money to the Apple account? Easiest for anyone to do without long lock-in period. With no fee associated with the account and an upper limit of $250K, this should be a no brainer.
Am I missing something here? Also, how is Apple doing this?

Easy enough, because as I mentioned, risk free returns (US treasuries, safer than the safest bank in the world) are 4%+ pa

Understanding Economics-screenshot_2.jpg

Not 100% sure what Apple's plan is. But most Apple products are bought on finance (monthly plans):

Understanding Economics-screenshot_3.jpg

Thanks to the savings account, perhaps Apple will be able to cut out the middleman (banks) and finance the customer purchases themselves.

They are already in payments space via Apple Pay/Apple Wallet after all.

₹1,60,122 crore gross GST revenue collected for March 2023. GST revenues clock 13% growth Year-on-Year

Monthly GST revenues more than ₹1.4 lakh crore for 12 months in a row, with ₹1.6 lakh crore crossed for the 2nd time since inception of GST

March 2023, second highest collection ever, next only to the collection in April 2022. April 2023 might be the highest ever recorded collection. Clearly compliance is working somewhere.

Total gross collection for 2022-23 stands at ₹18.10 lakh crore; average gross monthly collection for the full year is ₹1.51 lakh crore

Gross revenues in 2022-23 were 22% higher than that last year

Monthly GST revenues more than Rs 1.4 lakh crore for 12 straight months in a row. Year on year growth on GST collections over the same month in the previous year consistently in double digits for for over a year now. Some factoids:-

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February 23, 12% higher
January 23, 24% higher y-on-y
December 22, 15% higher y-on-y
November 22, 11% higher y-on-y
October 22, 16% higher y-on-y

Something is afoot :-)

Some States like Haryana are not being able to spend the revenues they collect because of the ineptness of the execution capabilities of Government departments e.g. municipal schools, city commuter bus services, Government hospitals, etc. Earlier we couldn’t spend money as we didn’t have it. Today we can’t spend it because we can’t execute well enough in several sectors. But still being the ever optimist I am glad we as a nation are finally, finally getting healthy in our tax collections. Now for improving execution and seriously making Govt salaries competitive with the commercial sector or at least at 66% - I'd say another 10 to 15 years for that.

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Originally Posted by V.Narayan (Post 5537528)

Isn't this "highest ever" record which we see frequently in the headlines actually an irrelevant one?

For e.g. let's say our GDP grows only barely by 1% each year from today for the next 20 years. Even then, every year we will have a record breaking highest ever GDP each & every year.

Likewise Exports, GST collection & most other things.

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Originally Posted by carboy (Post 5537536)

I believe what needs to be cheerful about is the widening tax base and growth.

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Originally Posted by Linuskm (Post 5537824)

I believe what needs to be cheerful about is the widening tax base and growth.

That's my point - highest ever collection record doesn't necessarily show a widening tax base or a meaningful growth - you can have highest ever GDP or highest ever exports or highest every GST collection & it may actually reflect an extremely poor performance. And it may also be with no growth in tax base either.

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Originally Posted by carboy (Post 5537825)

The numbers are in the post - against ~6.5% GDP growth and ~6.5% inflation, the gross receipts increased by 22%. So obviously there has been a widening of the base.

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Originally Posted by chinkara (Post 5537908)

The numbers are in the post - against ~6.5% GDP growth and ~6.5% inflation, the gross receipts increased by 22%. So obviously there has been a widening of the base.

GDP growth is calculated after adjusting for inflation. i.e. if nominal GDP grows by 6.5% & there is 6.5% inflation, then GDP growth is published as 0%.

Other than that, lot of stats show that the rich have become richer during the the lockdowns while the poor have become poorer., so it may just be the rich spending more because they have become richer.

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Originally Posted by carboy (Post 5537921)

I am aware of that - hence the mention of 6.5% GDP growth and 6.5% inflation - hence nominal growth should be ~13%. Against that receipts grew by 22%. Aren't the numbers self evident?
Or should we just argue for argument's sake?

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Originally Posted by carboy (Post 5537961)

Self evident that receipts grew, not that the base grew. We have had a K-shaped recovery.

So either the number of payees grew or there was a disproportionate growth of the organized segment - suggesting deepening of GST network. Both are good news for GST network, right?
And what has K shaped recovery got to do with anything?