4 ms·

> This I don't get -- why are rich savers bad? How can a large number in some bank account possibly affect anyone else's life in any tangible way? Quite the op

> This I don't get -- why are rich savers bad? How can a large number in some bank account possibly affect anyone else's life in any tangible way? Quite the opposite - savings are integral to a healthy economy. Investment (in an aggregate economy) must equal savings; this is an identity, not an equation. Any money that is invested (whether loaned to private individuals to buy a house or car, or whether invested by the state into public infrastructure) - all that requires others' savings in order to happen. For some reason, people get mad when they think of other people "hoarding" money. But in reality, there's no such thing as "hoarding" money. You can hoard a rivalrous resource, but you can't hoard fiat money.

duaneb 10y ago
Uninvested cash does nobody good.
- tlb 10y ago
  Not true. When you put it in a bank, the bank loans it out (usually at a multiple). Even if you put stacks of bills under your mattress, you're effectively making a loan to the mint to fund government operations. Some invested money is bad, though. Investment in many businesses is bad for the world: cigarette companies, casinos, monopolistic roll-up companies.
  - ZenoArrow 10y ago
    Banks don't loan out savings. That's a myth. The money for the loan is created by the act of creating the loan. Loans are effectively banks 'licence to print money'.
    - caseymarquis 10y ago
      I don't think that's accurate. In our fractional reserve banking system, banks loan out 90% of their reserves. The net effect of that repeating itself is that you end up with 10 times the amount of money in the system, which is maybe what you're referring to? That's just a side effect of our banking system though. Kind of wonder if there's a stat on how much banking has expanded the money supply at any given moment or if it hovers pretty close to the theoretical limit?
      - ZenoArrow 10y ago
        Nope, I'm not referring to fractional reserve banking. I'm literally referring to banks creating loans out of nothing but the promise to pay them back. I realise this is fairly uncommon knowledge, and doesn't seem to make sense. I'd recommend watching this video for a brief synopsis of how it works. http://youtu.be/KvpbQlQwl0A http://youtu.be/KvpbQlQwl0A
ZenoArrow 10y ago
> "Investment (in an aggregate economy) must equal savings; this is an identity, not an equation. Any money that is invested (whether loaned to private individuals to buy a house or car, or whether invested by the state into public infrastructure) - all that requires others' savings in order to happen." Sorry to say but whilst what you say makes logical sense, it is in fact wrong. When a bank makes someone a loan for a house, for example, it isn't based on anyone's savings. It's based on nothing. Creating the loan creates brand new money, backed by the value of the same loan. In other words, when the bank gives you the money for the loan, it is the contract to pay that loan back which is the asset the bank gets in exchange. As for hoarding fiat money, it absolutely is a real thing, but it comes in many forms. When it comes to uses of money, not all uses are equal. For example, increasing house prices rob an economy of its productivity, as money becomes locked away in a non-productive form. Money can only 'do work' and help an economy grow as a medium of exchange. It is, in a sense, lubricant for the economic engine. One of the reasons we have economic inflation as standard is to ensure there's always enough money in the system to function as a medium of exchange, counteracting the money that is lost from active use by saving and other non-productive uses. That's not to say saving is all bad, it still makes sense at a certain level, but it's not universally good.
- auxbuss 10y ago
  Money creation is so poorly understood that the Bank of England undertook to clarify[0]: • This article explains how the majority of money in the modern economy is created by commercial banks making loans. • Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits. • The amount of money created in the economy ultimately depends on the monetary policy of the central bank. In normal times, this is carried out by setting interest rates. The central bank can also affect the amount of money directly through purchasing assets or ‘quantitative easing’. [0] http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf http://www.bankofengland.co.uk/publications/Documents/quarte...

duaneb 10y ago

Uninvested cash does nobody good.

tlb 10y ago
Not true. When you put it in a bank, the bank loans it out (usually at a multiple). Even if you put stacks of bills under your mattress, you're effectively making a loan to the mint to fund government operations. Some invested money is bad, though. Investment in many businesses is bad for the world: cigarette companies, casinos, monopolistic roll-up companies.
- ZenoArrow 10y ago
  Banks don't loan out savings. That's a myth. The money for the loan is created by the act of creating the loan. Loans are effectively banks 'licence to print money'.
  - caseymarquis 10y ago
    I don't think that's accurate. In our fractional reserve banking system, banks loan out 90% of their reserves. The net effect of that repeating itself is that you end up with 10 times the amount of money in the system, which is maybe what you're referring to? That's just a side effect of our banking system though. Kind of wonder if there's a stat on how much banking has expanded the money supply at any given moment or if it hovers pretty close to the theoretical limit?
    - ZenoArrow 10y ago
      Nope, I'm not referring to fractional reserve banking. I'm literally referring to banks creating loans out of nothing but the promise to pay them back. I realise this is fairly uncommon knowledge, and doesn't seem to make sense. I'd recommend watching this video for a brief synopsis of how it works. http://youtu.be/KvpbQlQwl0A http://youtu.be/KvpbQlQwl0A

ZenoArrow 10y ago

> "Investment (in an aggregate economy) must equal savings; this is an identity, not an equation. Any money that is invested (whether loaned to private individuals to buy a house or car, or whether invested by the state into public infrastructure) - all that requires others' savings in order to happen." Sorry to say but whilst what you say makes logical sense, it is in fact wrong. When a bank makes someone a loan for a house, for example, it isn't based on anyone's savings. It's based on nothing. Creating the loan creates brand new money, backed by the value of the same loan. In other words, when the bank gives you the money for the loan, it is the contract to pay that loan back which is the asset the bank gets in exchange. As for hoarding fiat money, it absolutely is a real thing, but it comes in many forms. When it comes to uses of money, not all uses are equal. For example, increasing house prices rob an economy of its productivity, as money becomes locked away in a non-productive form. Money can only 'do work' and help an economy grow as a medium of exchange. It is, in a sense, lubricant for the economic engine. One of the reasons we have economic inflation as standard is to ensure there's always enough money in the system to function as a medium of exchange, counteracting the money that is lost from active use by saving and other non-productive uses. That's not to say saving is all bad, it still makes sense at a certain level, but it's not universally good.

auxbuss 10y ago
Money creation is so poorly understood that the Bank of England undertook to clarify[0]: • This article explains how the majority of money in the modern economy is created by commercial banks making loans. • Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits. • The amount of money created in the economy ultimately depends on the monetary policy of the central bank. In normal times, this is carried out by setting interest rates. The central bank can also affect the amount of money directly through purchasing assets or ‘quantitative easing’. [0] http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf http://www.bankofengland.co.uk/publications/Documents/quarte...