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Elon Musk Shares ‘Massive Incentive to Move Money out of Bank Accounts’

Elon Musk Shares 'Massive Incentive to Move Money out of Bank Accounts'

Tesla and Twitter CEO Elon Musk has shared a “massive incentive” to move money out of bank accounts, citing a significant interest rate gap created by the U.S. Treasury and the Federal Reserve. “As more people & companies realize this, bank depositor flight will accelerate to extreme levels, even for banks that are ‘too big to fail,’” Musk warned.

Massive Incentive to Move Money Out of Bank Accounts

Tesla and Twitter CEO Elon Musk shared Monday a “massive incentive” for people to move money out of bank accounts in the U.S. His statement was in response to Twitter user “unusual_whales” who quoted Hugh Hendry, founder of Eclectica Asset Management who ran the hedge fund for 15 years, predicting that the U.S. Treasury and the Federal Reserve may have to step in and “restrict your right as a U.S. citizen to pull money out of the U.S. banking sector, due to capital flight from the U.S. banking system.”

Musk explained that the U.S. Treasury and the Fed have created a massive gap between money market accounts (Treasury Bills) with interest rates of about 4.5% and bank accounts with interest rates of less than 1%. “That’s a massive incentive to move money out of bank accounts,” he emphasized.

This was not the first time Musk has warned about this problem. On May 2, the Tesla boss replied to a tweet about a “liquidity crisis” and “cash being sucked” into Treasury money market accounts with 4.5% interest, stating:

This is a massive problem. Doesn’t make sense to keep money in a <1% interest bank account instead of a 4.5% money market (Treasury Bill) account. As more people & companies realize this, bank depositor flight will accelerate to extreme levels, even for banks that are ‘too big to fail.’

Musk also agreed with former money manager Genevieve Roch-Decter who tweeted Monday that “Banks have successfully fooled depositors into accepting 0.4% interest on savings while the bank makes +5% on treasuries.” She stressed: “The biggest risk for banks is the consumer figuring out they can move their money out of banks and buy treasuries or money market funds themselves.”

Many people have voiced concerns about the U.S. banking crisis. First Republic Bank was seized by regulators last week and most of its assets were sold to JPMorgan Chase. It was the second-largest bank failure in U.S. history since 2008. In March, Silicon Valley Bank and Signature Bank failed. However, Federal Reserve Chairman Jerome Powell insisted that the banking system is “sound and resilient” as Fed officials raised interest rates by 25 basis points last week.

A Swedbank strategist has cautioned that the U.S. banking crisis is spreading, warning of more bank failures in a “vicious spiral.” Billionaire Bill Ackman warned that we are running out of time to fix the banking problem. In addition, the Fed recently revealed that 722 banks reported unrealized losses exceeding 50% of capital in the third quarter of last year.

In an interview with Bloomberg Thursday, Hendry described the situation of the U.S. banking system as “real bad.” The former hedge fund manager elaborated: “The panacea of the Treasury announcing that all deposits are federally insured does not solve this problem. There is capital flight — deposit flight — from the banking sector seeking yield.” He further warned: “I can actually conceive of a federal or Treasury rule coming in and saying ‘for the next 180 days, you can’t pull your money out of the banking sector.'”

Do you agree with Elon Musk about a “massive” incentive to move money out of bank accounts? Let us know in the comments section below.

Source

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