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> "Investment (in an aggregate economy) must equal savings; this is an identity, not an equation. Any money that is invested (whether loaned to private individu

> "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...

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...