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Yes, there's a massive savings glut. But a big part of that is due to central banks. If they tightened up monetary policy, interest rates go up, and investors

Yes, there's a massive savings glut. But a big part of that is due to central banks. If they tightened up monetary policy, interest rates go up, and investors would start getting better returns. But central banks are afraid to raise interest rates because they worry about the possibility of deflation. If companies repatriated their cash, the main thing they would do with it is pay a hefty tax bill to Uncle Sam. This would be a good thing to do when the central banks do increase interest rates.

toomuchtodo 10y ago
Interesting comment. I had not considered central bank monetary policy was holding back corporate profit repatriation, which would realize significant revenues for the federal government, which could be spent on infrastructure.
internaut 10y ago
Can you explain the fear of deflation? I don't understand the reticence of central banks. Why not have a shot of deflation?
- pixl97 10y ago
  Everyone with debt now has more debt (even though the number is the same). We are at the highest debt levels ever.
  - forgetsusername 10y ago
    >We are at the highest debt levels ever We also have the highest population levels ever, the most assets ever, and the most wealth ever. Debt to GDP has fallen, drastically: https://fred.stlouisfed.org/series/HDTGPDUSQ163N https://fred.stlouisfed.org/series/HDTGPDUSQ163N
  - internaut 10y ago
    I understand that people with debt don't want to pay more. But they took a risk taking on that debt and perhaps they should go bankrupt. Seems like I've triggered a nerve!
thaumasiotes 10y ago
> If they tightened up monetary policy, interest rates go up That causation is backwards. Raising interest rates makes money tighter. But tight money causes low interest rates.
- jganetsk 10y ago
  There are many levels of cause and effect. Central banks use open market operations. When they want interest rates to go down, they print money and buy debt on the open market until the rates reach their target. This new money is the cause... the new interest rates are the effect. The new money (aka "monetary base" or M0) is then multiplied 10x by private banks, due to fractional reserve banking. That M1 money is another effect. The controlled interest rate helps the private banks loan that money out.
  - bubbleRefuge 10y ago
    Open market operations only change the "portfolio" makeup of the private sector on the margin. New new assets(new money) are added to the private sector. There is no money multiplier due to open market operations itself. Banks will lend as long as they can make a profit and since banks can create deposits out of thin air, what you are saying is inapplicable to modern monetary/banking systems. Banks can always create deposits to meet loan demand.
    - jganetsk 10y ago
      Except for reserve requirements https://en.wikipedia.org/wiki/Reserve_requirement#United_States https://en.wikipedia.org/wiki/Reserve_requirement#United_Sta... And once the reserve requirement is maxed out, the only thing that can permit more private money creation is central bank money creation
      - bubbleRefuge 10y ago
        Right. Banks can borrow reserves to meet requirements. It doesn't prevent them from meeting loan demand. Money creation is congruent to loan demand. Also, reserve requirements are accounted for in the next accounting period not in real time.
crdoconnor 10y ago
>Yes, there's a massive savings glut. But a big part of that is due to central banks. It's more a feature of wealth and income inequality than central bank policy. Central bank policy accelerated this trend but the "savings glut" (1% wealth) has only been going up since the 70s.
- jganetsk 10y ago
  The distribution of savings has little to do with it. The savings glut is caused by secular stagnation [1]. There is not much investment happening in our economy (savings and investment are two sides of the same coin). Since the 70s, there has been a net "value extraction" rather than "value creation" in the capital markets [2]. That is, rather than "retaining and reinvesting" profits, companies simply "downsize and distribute". This certainly reinforces wealth inequality. It doesn't help that monetary policy of the last 8 years created a liquidity trop that reinforced all this. [1] http://larrysummers.com/category/secular-stagnation/ http://larrysummers.com/category/secular-stagnation/ [2] https://hbr.org/2014/09/profits-without-prosperity https://hbr.org/2014/09/profits-without-prosperity
  - crdoconnor 10y ago
    >The savings glut is caused by ... There is not much investment happening in our economy There is not much investment in the economy because there is not much demand. There is not much demand because of income and wealth inequality. After all, what's the point of producing goods and services for people who can't afford them? >http://larrysummers.com/category/secular-stagnation/ http://larrysummers.com/category/secular-stagnation/ Any economics projections made by Larry Summers ought to be taken with a metric ton of salt. After all, his track record at gambling with Harvard's money is just abysmal: http://www.alternet.org/economy/larry-summers-federal-reserve http://www.alternet.org/economy/larry-summers-federal-reserv...
    - davidjnelson 10y ago
      Isn't the simple solution to force capital tied up by individuals and corporations back into the public sector and markets via policy increasing taxes for those at the top as well as forcing some minimum percent to be spent on either lower end job creation or a basic income program? Capitalism is fine, but it's just gotten really stagnant with the money flow it seems.
forgetsusername 10y ago
>and investors would start getting better returns. One-sided accounting fallacy. For every lender receiving an interest rate, there is someone borrowing at the same rate. Why do you assume that the person lending is more deserving, when it is the risk-takers with need of capital (ie borrowers) who are the inventors and entrepreneurs? This place goes nuts for Elon Musk's projects; well it would be a different world if capital was more expensive for him to access.

toomuchtodo 10y ago

Interesting comment. I had not considered central bank monetary policy was holding back corporate profit repatriation, which would realize significant revenues for the federal government, which could be spent on infrastructure.

internaut 10y ago

Can you explain the fear of deflation? I don't understand the reticence of central banks. Why not have a shot of deflation?

pixl97 10y ago
Everyone with debt now has more debt (even though the number is the same). We are at the highest debt levels ever.
- forgetsusername 10y ago
  >We are at the highest debt levels ever We also have the highest population levels ever, the most assets ever, and the most wealth ever. Debt to GDP has fallen, drastically: https://fred.stlouisfed.org/series/HDTGPDUSQ163N https://fred.stlouisfed.org/series/HDTGPDUSQ163N
- internaut 10y ago
  I understand that people with debt don't want to pay more. But they took a risk taking on that debt and perhaps they should go bankrupt. Seems like I've triggered a nerve!

thaumasiotes 10y ago

> If they tightened up monetary policy, interest rates go up That causation is backwards. Raising interest rates makes money tighter. But tight money causes low interest rates.

jganetsk 10y ago
There are many levels of cause and effect. Central banks use open market operations. When they want interest rates to go down, they print money and buy debt on the open market until the rates reach their target. This new money is the cause... the new interest rates are the effect. The new money (aka "monetary base" or M0) is then multiplied 10x by private banks, due to fractional reserve banking. That M1 money is another effect. The controlled interest rate helps the private banks loan that money out.
- bubbleRefuge 10y ago
  Open market operations only change the "portfolio" makeup of the private sector on the margin. New new assets(new money) are added to the private sector. There is no money multiplier due to open market operations itself. Banks will lend as long as they can make a profit and since banks can create deposits out of thin air, what you are saying is inapplicable to modern monetary/banking systems. Banks can always create deposits to meet loan demand.
  - jganetsk 10y ago
    Except for reserve requirements https://en.wikipedia.org/wiki/Reserve_requirement#United_States https://en.wikipedia.org/wiki/Reserve_requirement#United_Sta... And once the reserve requirement is maxed out, the only thing that can permit more private money creation is central bank money creation
    - bubbleRefuge 10y ago
      Right. Banks can borrow reserves to meet requirements. It doesn't prevent them from meeting loan demand. Money creation is congruent to loan demand. Also, reserve requirements are accounted for in the next accounting period not in real time.

crdoconnor 10y ago

>Yes, there's a massive savings glut. But a big part of that is due to central banks. It's more a feature of wealth and income inequality than central bank policy. Central bank policy accelerated this trend but the "savings glut" (1% wealth) has only been going up since the 70s.

jganetsk 10y ago
The distribution of savings has little to do with it. The savings glut is caused by secular stagnation [1]. There is not much investment happening in our economy (savings and investment are two sides of the same coin). Since the 70s, there has been a net "value extraction" rather than "value creation" in the capital markets [2]. That is, rather than "retaining and reinvesting" profits, companies simply "downsize and distribute". This certainly reinforces wealth inequality. It doesn't help that monetary policy of the last 8 years created a liquidity trop that reinforced all this. [1] http://larrysummers.com/category/secular-stagnation/ http://larrysummers.com/category/secular-stagnation/ [2] https://hbr.org/2014/09/profits-without-prosperity https://hbr.org/2014/09/profits-without-prosperity
- crdoconnor 10y ago
  >The savings glut is caused by ... There is not much investment happening in our economy There is not much investment in the economy because there is not much demand. There is not much demand because of income and wealth inequality. After all, what's the point of producing goods and services for people who can't afford them? >http://larrysummers.com/category/secular-stagnation/ http://larrysummers.com/category/secular-stagnation/ Any economics projections made by Larry Summers ought to be taken with a metric ton of salt. After all, his track record at gambling with Harvard's money is just abysmal: http://www.alternet.org/economy/larry-summers-federal-reserve http://www.alternet.org/economy/larry-summers-federal-reserv...
  - davidjnelson 10y ago
    Isn't the simple solution to force capital tied up by individuals and corporations back into the public sector and markets via policy increasing taxes for those at the top as well as forcing some minimum percent to be spent on either lower end job creation or a basic income program? Capitalism is fine, but it's just gotten really stagnant with the money flow it seems.

forgetsusername 10y ago

>and investors would start getting better returns. One-sided accounting fallacy. For every lender receiving an interest rate, there is someone borrowing at the same rate. Why do you assume that the person lending is more deserving, when it is the risk-takers with need of capital (ie borrowers) who are the inventors and entrepreneurs? This place goes nuts for Elon Musk's projects; well it would be a different world if capital was more expensive for him to access.