14 ms·

Savers are slowly choking off the life of the world economy

54 points by aburan28 10y ago

zeahfj 10y ago
This article is all kinds of wrong. It does not make an appreciable difference between savings, investing, and speculation. There is not a glut in savings but there is a glut in speculation. This is due to a global war on savers. Savers are punished by artificially low interest rates, inflation of money supply, high taxes on earned income, and subsidies to speculators (e.g. various housing subsidies).
- krona 10y ago
  There is a colossal glut in savings at the global level. There are books which cover the topic in depth (e.g. The End of Alchemy) but instead I'll just link to the relevant Wikipedia article: https://en.wikipedia.org/wiki/Global_saving_glut https://en.wikipedia.org/wiki/Global_saving_glut
  - zeahfj 10y ago
    Firstly, savings are not currency although they are used interchangeably with the assumption that currency is safe. This is not guaranteed to hold. Secondly, with rehypothecation the same currency is counted at least 9 times (M2 money supply). I'd contest that it's 50 to 100 times due mechanisms to get around the 10% reserve requirement - but this is difficult to explain. Thirdly, the increase in savings is dwarfed by speculation that the savings is backing and the resulting mix or risk reward when combined is still speculation. As in this is not unencumbered savings. And finally, the wikipedia link has a long list of references from people who are wrong about everything.
- neolefty 10y ago
  > artificially low interest rates I'm pretty sure this is market forces. Glut of savings --> low rates. Sure there are local exceptions and regulatory impacts, but those generally can't stand against the tide, so I'd say it's 95% natural. > inflation of money supply Depends on the currency, but in the case of USD, increasing the supply is necessary to avoid deflation, which would seem superficially good for savers, but would be disastrous for economic productivity. > high taxes on earned income ??? > subsidies to speculators (housing subsidies) I don't know much about this one, but I think most subsidies are homestead-y (to owner-occupiers and first-time buyers).
  - zeahfj 10y ago
    Not market forces, see reserve bank interventions. Deflation is not disastrous for economic productivity but it is a side effect of economic productivity. Taxes on earned income vs capital is a regressive tax system on the working class and a subsidy to the upper class. Owner-occupiers and first-time buyer subsidies are subsidies to the speculators. Increase in house prices happen the moment such policies are implemented to capture the entire benefit. The policies are only implemented after speculators have invested and drive up housing prices. This only benefits speculators (who can also be first-time buyers).
    - neolefty 10y ago
      I should have read the article before replying! Indeed, the article seems blind to capital taxes, focusing instead on income tax. Wealth tax is a pretty alien concept in the US -- I think it would face strong cultural resistance, and cause even more wealth flight to tax havens. And yet, I can see how it would tackle a big part of the problems described here. It may need to be implemented in a coordinated global fashion to avoid cheating. You'd need the rich nations to do it, with a working enforcement mechanism that spans international borders. That, combined with cultural resistance, sounds hard.
      - zeahfj 10y ago
        No need for a global system in taxes to reduce wealth disparity. Just need to stop subsidising speculation. Due to agency costs (information asymmetry etc.) it's harder to make large returns on large amounts so the wealth levels off. The problem with a global system in taxes is that the taxes will just be used to subsidise more speculation.
  - sullenpaladin 10y ago
    Interest rates are all directly or indirectly based on rates set by the Federal Reserve (in the US). Market forces have no say in interest rates.
    - 10y ago
- Someone 10y ago
  "There is a glut in speculation. [...] Savers are punished by artificially low interest rates" I thought interest rates were kept low to entice those having money to, rather than put it in the bank, invest it, that is: speculate. Problem seems to be that that's not what households did. In many countries, they paid back on their mortgages and put more money in the bank, despite the low interest rates. The science of psychological economics isn't that well developed, it seems.
  - zeahfj 10y ago
    That is it's intent but ironically it increased the amount of savings required to retire so ordinary people couldn't participate in the speculation but still have to pay tax to subsidise it. It's huge wealth transfer from ordinary people to the finance industry.
krona 10y ago
Varoufakis calls this problem the "twin peaks paradox" in his TED talk: https://www.youtube.com/watch?v=GB4s5b9NL3I https://www.youtube.com/watch?v=GB4s5b9NL3I (specifically 2 minutes in)
- neolefty 10y ago
  From the video: > One peak is the mountain of debt ... that is casting its shadow over the whole world ... We all recognize the mountain of debt. > But few people recognize its twin: A mountain of idle cash, belonging to rich savers and corporations, too terrified to invest it into the productive activities that can generate the incomes from which you can extinguish the mountain of debt, and which can produce all those things that humanity desperately needs, like green energy ... > Now, let me give you two numbers ...
  - pdkl95 10y ago
    >> Now, let me give you two numbers ... Mark Blyth recently mentioned[1] two numbers that are particularly effective at explaining where money is being "saved". > In 2015, Wall St. bonuses - not regular compensation, bonuses - seven years after they were bailed out with the public purse totaled $28.4 billion. Total compensation paid to every single person in this country who earns minimum wage: $14 billion. [1] https://www.youtube.com/watch?v=VWMmBG3Z4DI#t=1104 https://www.youtube.com/watch?v=VWMmBG3Z4DI#t=1104
- rileymat2 10y ago
  It is intriguing, but with nearly every statement he makes, I feel like I need a citation to believe it, because they feel like overstatements or misleading.
  - mdekkers 10y ago
    Varoufakis is a very smart man. His talk on this subject is interesting, and the figures easily verified. Unfortunately most of the critisim if his ideas come in the form of some type of ad-hominem: "Well he is a Marxist, so everything he says is false"
BrandonMarc 10y ago
Well that's brilliant ... take a wise behavior that far too few people do, and blame it for the world's problems. Our rulers know that if we don't save any money, we'll be more vulnerable and dependent ... plus, it's too hard to tax saved money, whereas it's trivial to tax money that's moving.
- harterrt 10y ago
  I don't think the issue is that it's hard to tax savings. Printing money is a pretty effective tax. I think the real issue is the money multiplier effect. If I spend a dollar, it's spent and re-spent. This means that it gets to be taxed many times.
- trendia 10y ago
  First step is to blame it for the world's problems. Next is to remove the ability to use or store cash. Finally, charge to save with negative interest rates. And if negative interest rates don't spur growth, it's because they weren't negative enough!
- deleted 10y ago
  [deleted]
- zeahfj 10y ago
  Next thing they'll be blaming AI and robots on destroying the world economy and not the bankers.
  - vkou 10y ago
    In an economic system which requires either gainful employment, or humiliation, poverty, and destitution from its people, AI and robots are indeed destroying the economy. America produces more then it ever did, yet manufacturing is considered dead as a source of jobs. The small number of well-paid engineering jobs AI and robots create is dwarfed by those losses.
    - zeahfj 10y ago
      It only destroys imagined wealth and not actual wealth (more useful stuff is created). In the current system the new wealth creation is skewed to the already wealthy, hence why the majority will see a decline in living standard and the feeling of the destruction of the economy. However wealth disparities takes money to maintain, and it is inefficient. It requires taxpayer subsidies to be maintained. If the wealthy had to pay the unsubsidized cost of the police, legal system, and foreign wars to protect their investments they would stop being wealthy very quickly. So it's not AI or robots that will destroy the economy it's high income taxes and low capital taxes.
bshimmin 10y ago
From the article: Firstly there is the sheer scale of savings held by individuals, companies and governments. From http://www.bbc.co.uk/news/magazine-35801951 http://www.bbc.co.uk/news/magazine-35801951: A survey by the Money Advice Service has found that four in 10 adults in the UK do not have £500 or more in savings. Another by ING bank suggests 28% of UK adults have nothing at all in the bank. Yeah, I'm sure all those hardcore savers in the UK are ruining it for the world's economy.
- dx034 10y ago
  In addition to that they name pension funds as #1 source of savings. So they really want people to stop saving for their pensions? I doubt the author of the article wants to live off £150/weekk state pension.. If you want to lower the savings rate you have to introduce a state pension system like Germany where (most of the) pension is paid by current workers. Doesn't work well with the ageing population but means that all money is directly distributed.
  - srssays 10y ago
    State pension systems tie your financial security directly to government finances, and also to election results decades in the future. They are essentially a form of gambling. No rational person relies upon them, and rational people are precisely the kinds of people to have savings!
    - pjc50 10y ago
      Private pensions also tie you directly to private finances, and market results decades in the future. You're also gambling that the money won't be stolen by the institutions or suffer a collapse in value - banking on a TBTF bailout in the future. (Overstated slightly, but there is a role for both private and state pensions in a sensible system!)
      - deleted 10y ago
        [deleted]
SixSigma 10y ago
The "savers" in the OP are not individual citizens domestic savings but money that would be used for speculating with investment. With record low interest rates, any project that gives an ROI worth gambling on is worth borrowing for.
to3m 10y ago
I doff my hat to the Guardian's clickbait team on this one. This is the best I've read in ages. Is it self-parody? Is it bullshit? Does the guy believe this nonsense? I CAN'T TELL. My slack-jawed incomprehension remained firmly in place throughout the entire article, with only my motivation changing. A master craftsman is at work here. <sheds single tear> (More generally: a few years ago I saw a random comment on somebody's blog suggesting that it was only a matter of time before savers were rebranded as hoarders. So it's interesting to see this perhaps (finally) start to come to pass.)
- neolefty 10y ago
  It's not individual savers, but institutional investors that collectively hold ~$100tn, as estimated by the IMF. They're risk-averse, which leads to rent-seeking. That's $100,000,000,000,000. I don't get to write that many zeroes very often. The article argues that we would all be better off if that money were spent on the common good -- infrastructure, green tech, education, even ag & manufacturing -- rather than being put into buying up what used to be the public sector and putting a price on it without improving it. Of course, how to make that happen is a hard question.
  - vkou 10y ago
    Unfortunately, given our current course and heading, the answer to that is as likely to be molotovs and guillotines as it is to be something sensible. Populism is on the rise, and the demagogues steering it aren't actually going to fix any of the problems that created it.
throwaway21011 10y ago
It is the herd behavior of the banks. Before the Lehman Brothers bankruptcy everyone got a credit, no questions asked. Now, when the banks are supposed to give out more credits (which is why the interest rates are so low in the first place), the current herd behavior is to refuse anyone but clients who don't need any credit to begin with. I wonder if it is time that the central banks lend directly to private individuals. Scoring and credit rating is largely done by computers anyway, at least for the typical amounts that private individuals need. No reason to have a middle man who does not meet his traditional obligations.
johndoez 10y ago
This article is overblown, but the demographic changes in the West are heavily impacting economic growth. It isn't so much to do with saving as to do with the Boomers getting older. The Baby Boomers are retiring and their spending patterns are changing. No new cars, downsizing in property, and less expense on child rearing. At the same time there is a fertility crisis among the young, meaning we will not see another Baby Boom anytime soon. These changes are as big a reason for low growth as the rise of automation, debt levels, and deleveraging.
lawless123 10y ago
I think there are some legitimate concerns in here about privatization ,large investors and questionable practices which is being confused with ordinary savers.
pjc50 10y ago
The headline and first few paragraphs are a disaster, because they set up everyone to get fighty about "savers". On closer inspection: It says institutional investors such as pension funds, insurance companies and mutual funds, along with the sovereign wealth funds of oil-rich nations and central banks, hold around $100 trillion in assets under management. This huge sum compares to US GDP of around $18 trillion and the total market value of US-listed companies in 2015 of $19 trillion (which today is more like $25 trillion). Hyper-concentration of wealth is what's choking off the economy. An economy where most of the returns flow to the 0.01% is unsustainable.
- johnwheeler 10y ago
  technically, saving is saving whether you're rich or poor or whether or not the assets are held by a custodian. the article doesn't make the distinction. as far as wealth concentration, it certainly is happening. what's scary is: whether or not it's sustainable remains to be seen. what will society look like if it is?
  - neolefty 10y ago
    It could be sustainable but far from optimal. How long can we live at the edge of dysfunction?
    - johnwheeler 10y ago
      Is there anything in my comment that implies I think it would be optimal?
- beojan 10y ago
  This isn't hyper-concentration of wealth. The funds consist of the wealth of thousands or even millions of individuals.
X86BSD 10y ago
Savers? What savers? No one is saving. Americans are drowning in debt. How many studies have been done showing the average American is living Paycheck to paycheck and couldn't sustain losing their job or a medical emergency? Even those wishing to save can never ever make money chasing 0% interest or even worse negative interest in almost all financial vehicles. Savings? That is a complete and total joke. The average American is being snuffed out and reduced to a wage slave.
davecheney 10y ago
What a load of scaremongering bollocks.

54 points by aburan28 10y ago

This article is all kinds of wrong. It does not make an appreciable difference between savings, investing, and speculation. There is not a glut in savings but there is a glut in speculation. This is due to a global war on savers. Savers are punished by artificially low interest rates, inflation of money supply, high taxes on earned income, and subsidies to speculators (e.g. various housing subsidies).

krona 10y ago
There is a colossal glut in savings at the global level. There are books which cover the topic in depth (e.g. The End of Alchemy) but instead I'll just link to the relevant Wikipedia article: https://en.wikipedia.org/wiki/Global_saving_glut https://en.wikipedia.org/wiki/Global_saving_glut
- zeahfj 10y ago
  Firstly, savings are not currency although they are used interchangeably with the assumption that currency is safe. This is not guaranteed to hold. Secondly, with rehypothecation the same currency is counted at least 9 times (M2 money supply). I'd contest that it's 50 to 100 times due mechanisms to get around the 10% reserve requirement - but this is difficult to explain. Thirdly, the increase in savings is dwarfed by speculation that the savings is backing and the resulting mix or risk reward when combined is still speculation. As in this is not unencumbered savings. And finally, the wikipedia link has a long list of references from people who are wrong about everything.
neolefty 10y ago
> artificially low interest rates I'm pretty sure this is market forces. Glut of savings --> low rates. Sure there are local exceptions and regulatory impacts, but those generally can't stand against the tide, so I'd say it's 95% natural. > inflation of money supply Depends on the currency, but in the case of USD, increasing the supply is necessary to avoid deflation, which would seem superficially good for savers, but would be disastrous for economic productivity. > high taxes on earned income ??? > subsidies to speculators (housing subsidies) I don't know much about this one, but I think most subsidies are homestead-y (to owner-occupiers and first-time buyers).
- zeahfj 10y ago
  Not market forces, see reserve bank interventions. Deflation is not disastrous for economic productivity but it is a side effect of economic productivity. Taxes on earned income vs capital is a regressive tax system on the working class and a subsidy to the upper class. Owner-occupiers and first-time buyer subsidies are subsidies to the speculators. Increase in house prices happen the moment such policies are implemented to capture the entire benefit. The policies are only implemented after speculators have invested and drive up housing prices. This only benefits speculators (who can also be first-time buyers).
  - neolefty 10y ago
    I should have read the article before replying! Indeed, the article seems blind to capital taxes, focusing instead on income tax. Wealth tax is a pretty alien concept in the US -- I think it would face strong cultural resistance, and cause even more wealth flight to tax havens. And yet, I can see how it would tackle a big part of the problems described here. It may need to be implemented in a coordinated global fashion to avoid cheating. You'd need the rich nations to do it, with a working enforcement mechanism that spans international borders. That, combined with cultural resistance, sounds hard.
    - zeahfj 10y ago
      No need for a global system in taxes to reduce wealth disparity. Just need to stop subsidising speculation. Due to agency costs (information asymmetry etc.) it's harder to make large returns on large amounts so the wealth levels off. The problem with a global system in taxes is that the taxes will just be used to subsidise more speculation.
- sullenpaladin 10y ago
  Interest rates are all directly or indirectly based on rates set by the Federal Reserve (in the US). Market forces have no say in interest rates.
  - 10y ago
Someone 10y ago
"There is a glut in speculation. [...] Savers are punished by artificially low interest rates" I thought interest rates were kept low to entice those having money to, rather than put it in the bank, invest it, that is: speculate. Problem seems to be that that's not what households did. In many countries, they paid back on their mortgages and put more money in the bank, despite the low interest rates. The science of psychological economics isn't that well developed, it seems.
- zeahfj 10y ago
  That is it's intent but ironically it increased the amount of savings required to retire so ordinary people couldn't participate in the speculation but still have to pay tax to subsidise it. It's huge wealth transfer from ordinary people to the finance industry.

krona 10y ago

Varoufakis calls this problem the "twin peaks paradox" in his TED talk: https://www.youtube.com/watch?v=GB4s5b9NL3I https://www.youtube.com/watch?v=GB4s5b9NL3I (specifically 2 minutes in)

neolefty 10y ago
From the video: > One peak is the mountain of debt ... that is casting its shadow over the whole world ... We all recognize the mountain of debt. > But few people recognize its twin: A mountain of idle cash, belonging to rich savers and corporations, too terrified to invest it into the productive activities that can generate the incomes from which you can extinguish the mountain of debt, and which can produce all those things that humanity desperately needs, like green energy ... > Now, let me give you two numbers ...
- pdkl95 10y ago
  >> Now, let me give you two numbers ... Mark Blyth recently mentioned[1] two numbers that are particularly effective at explaining where money is being "saved". > In 2015, Wall St. bonuses - not regular compensation, bonuses - seven years after they were bailed out with the public purse totaled $28.4 billion. Total compensation paid to every single person in this country who earns minimum wage: $14 billion. [1] https://www.youtube.com/watch?v=VWMmBG3Z4DI#t=1104 https://www.youtube.com/watch?v=VWMmBG3Z4DI#t=1104
rileymat2 10y ago
It is intriguing, but with nearly every statement he makes, I feel like I need a citation to believe it, because they feel like overstatements or misleading.
- mdekkers 10y ago
  Varoufakis is a very smart man. His talk on this subject is interesting, and the figures easily verified. Unfortunately most of the critisim if his ideas come in the form of some type of ad-hominem: "Well he is a Marxist, so everything he says is false"

BrandonMarc 10y ago

Well that's brilliant ... take a wise behavior that far too few people do, and blame it for the world's problems. Our rulers know that if we don't save any money, we'll be more vulnerable and dependent ... plus, it's too hard to tax saved money, whereas it's trivial to tax money that's moving.

harterrt 10y ago
I don't think the issue is that it's hard to tax savings. Printing money is a pretty effective tax. I think the real issue is the money multiplier effect. If I spend a dollar, it's spent and re-spent. This means that it gets to be taxed many times.
trendia 10y ago
First step is to blame it for the world's problems. Next is to remove the ability to use or store cash. Finally, charge to save with negative interest rates. And if negative interest rates don't spur growth, it's because they weren't negative enough!
deleted 10y ago
[deleted]
zeahfj 10y ago
Next thing they'll be blaming AI and robots on destroying the world economy and not the bankers.
- vkou 10y ago
  In an economic system which requires either gainful employment, or humiliation, poverty, and destitution from its people, AI and robots are indeed destroying the economy. America produces more then it ever did, yet manufacturing is considered dead as a source of jobs. The small number of well-paid engineering jobs AI and robots create is dwarfed by those losses.
  - zeahfj 10y ago
    It only destroys imagined wealth and not actual wealth (more useful stuff is created). In the current system the new wealth creation is skewed to the already wealthy, hence why the majority will see a decline in living standard and the feeling of the destruction of the economy. However wealth disparities takes money to maintain, and it is inefficient. It requires taxpayer subsidies to be maintained. If the wealthy had to pay the unsubsidized cost of the police, legal system, and foreign wars to protect their investments they would stop being wealthy very quickly. So it's not AI or robots that will destroy the economy it's high income taxes and low capital taxes.

bshimmin 10y ago

From the article: Firstly there is the sheer scale of savings held by individuals, companies and governments. From http://www.bbc.co.uk/news/magazine-35801951 http://www.bbc.co.uk/news/magazine-35801951: A survey by the Money Advice Service has found that four in 10 adults in the UK do not have £500 or more in savings. Another by ING bank suggests 28% of UK adults have nothing at all in the bank. Yeah, I'm sure all those hardcore savers in the UK are ruining it for the world's economy.

dx034 10y ago
In addition to that they name pension funds as #1 source of savings. So they really want people to stop saving for their pensions? I doubt the author of the article wants to live off £150/weekk state pension.. If you want to lower the savings rate you have to introduce a state pension system like Germany where (most of the) pension is paid by current workers. Doesn't work well with the ageing population but means that all money is directly distributed.
- srssays 10y ago
  State pension systems tie your financial security directly to government finances, and also to election results decades in the future. They are essentially a form of gambling. No rational person relies upon them, and rational people are precisely the kinds of people to have savings!
  - pjc50 10y ago
    Private pensions also tie you directly to private finances, and market results decades in the future. You're also gambling that the money won't be stolen by the institutions or suffer a collapse in value - banking on a TBTF bailout in the future. (Overstated slightly, but there is a role for both private and state pensions in a sensible system!)
    - deleted 10y ago
      [deleted]

SixSigma 10y ago

The "savers" in the OP are not individual citizens domestic savings but money that would be used for speculating with investment. With record low interest rates, any project that gives an ROI worth gambling on is worth borrowing for.

to3m 10y ago

I doff my hat to the Guardian's clickbait team on this one. This is the best I've read in ages. Is it self-parody? Is it bullshit? Does the guy believe this nonsense? I CAN'T TELL. My slack-jawed incomprehension remained firmly in place throughout the entire article, with only my motivation changing. A master craftsman is at work here. <sheds single tear> (More generally: a few years ago I saw a random comment on somebody's blog suggesting that it was only a matter of time before savers were rebranded as hoarders. So it's interesting to see this perhaps (finally) start to come to pass.)

neolefty 10y ago
It's not individual savers, but institutional investors that collectively hold ~$100tn, as estimated by the IMF. They're risk-averse, which leads to rent-seeking. That's $100,000,000,000,000. I don't get to write that many zeroes very often. The article argues that we would all be better off if that money were spent on the common good -- infrastructure, green tech, education, even ag & manufacturing -- rather than being put into buying up what used to be the public sector and putting a price on it without improving it. Of course, how to make that happen is a hard question.
- vkou 10y ago
  Unfortunately, given our current course and heading, the answer to that is as likely to be molotovs and guillotines as it is to be something sensible. Populism is on the rise, and the demagogues steering it aren't actually going to fix any of the problems that created it.

throwaway21011 10y ago

It is the herd behavior of the banks. Before the Lehman Brothers bankruptcy everyone got a credit, no questions asked. Now, when the banks are supposed to give out more credits (which is why the interest rates are so low in the first place), the current herd behavior is to refuse anyone but clients who don't need any credit to begin with. I wonder if it is time that the central banks lend directly to private individuals. Scoring and credit rating is largely done by computers anyway, at least for the typical amounts that private individuals need. No reason to have a middle man who does not meet his traditional obligations.

johndoez 10y ago

This article is overblown, but the demographic changes in the West are heavily impacting economic growth. It isn't so much to do with saving as to do with the Boomers getting older. The Baby Boomers are retiring and their spending patterns are changing. No new cars, downsizing in property, and less expense on child rearing. At the same time there is a fertility crisis among the young, meaning we will not see another Baby Boom anytime soon. These changes are as big a reason for low growth as the rise of automation, debt levels, and deleveraging.

lawless123 10y ago

I think there are some legitimate concerns in here about privatization ,large investors and questionable practices which is being confused with ordinary savers.

pjc50 10y ago

The headline and first few paragraphs are a disaster, because they set up everyone to get fighty about "savers". On closer inspection: It says institutional investors such as pension funds, insurance companies and mutual funds, along with the sovereign wealth funds of oil-rich nations and central banks, hold around $100 trillion in assets under management. This huge sum compares to US GDP of around $18 trillion and the total market value of US-listed companies in 2015 of $19 trillion (which today is more like $25 trillion). Hyper-concentration of wealth is what's choking off the economy. An economy where most of the returns flow to the 0.01% is unsustainable.

johnwheeler 10y ago
technically, saving is saving whether you're rich or poor or whether or not the assets are held by a custodian. the article doesn't make the distinction. as far as wealth concentration, it certainly is happening. what's scary is: whether or not it's sustainable remains to be seen. what will society look like if it is?
- neolefty 10y ago
  It could be sustainable but far from optimal. How long can we live at the edge of dysfunction?
  - johnwheeler 10y ago
    Is there anything in my comment that implies I think it would be optimal?
beojan 10y ago
This isn't hyper-concentration of wealth. The funds consist of the wealth of thousands or even millions of individuals.

X86BSD 10y ago

Savers? What savers? No one is saving. Americans are drowning in debt. How many studies have been done showing the average American is living Paycheck to paycheck and couldn't sustain losing their job or a medical emergency? Even those wishing to save can never ever make money chasing 0% interest or even worse negative interest in almost all financial vehicles. Savings? That is a complete and total joke. The average American is being snuffed out and reduced to a wage slave.

davecheney 10y ago

What a load of scaremongering bollocks.