We Study Billionaires - The Investor’s Podcast Network TIP495: The Changing Composition of Money w/ Alfonso Peccatiello
Nov 18, 2022
Alfonso Peccatiello, a macroeconomics and finance expert, shares his insights on shifting monetary policies and the risks banks face in losing deposits to higher-yielding alternatives. He discusses the European Central Bank's evolving strategies and the recent Fed meeting's implications. Peccatiello highlights the dangers of pension funds using interest rate swaps and analyzes the current yield curve inversion's expectations. Tune in for a deep dive into economic dynamics and financial education!
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Banks Risk Losing Deposits
- Banks risk losing deposits to higher-yielding products like money market funds.
- This changes money composition, impacting real economy transactions and overall market dynamics.
Composition of Money
- Households face a choice: bank deposits (banks' liability) or money market funds/treasuries (government's liability).
- The latter, safer and now higher-yielding, may draw deposits away, impacting money velocity and lending.
ECB Changes Tune
- The European Central Bank (ECB) recently hiked rates, acknowledging persistent inflation.
- This suggests a potential shift in monetary policy as central banks grapple with economic slowdown.