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It really doesn't matter where the money goes though. Even if an investor spends the money on golden bathtubs and private jets, the money is being spent in the

It really doesn't matter where the money goes though. Even if an investor spends the money on golden bathtubs and private jets, the money is being spent in the economy. If they keep it in the bank it's getting leant out to small businesses.

KGIII 9y ago
The sharp influx should even help with the velocity of money. I am not an economist but I've been trying to learn a bit about it and a bit about financial management/investing. I'm currently at the velocity of money stage of my learning. https://en.m.wikipedia.org/wiki/Velocity_of_money https://en.m.wikipedia.org/wiki/Velocity_of_money It's not really the same thing as the trickle down that the parent poster mentioned. From what I can tell, you hit the nail on the head. An influx of money will mean the money moves. Also, when money moves is when the government taxes it. So, the influx will increase the velocity of money and will have an effect on the economy. That's not the same as the parent post implied, where there's a reduction in taxes and that is supposed to result in the money trickling down. That's not the same as an influx of money. One is people keeping their money, the second is people getting more money. If I understand correctly, they are different things. Then again, I may not understand correctly. As I said, I am still learning.
Retric 9y ago
That's a theory, but it does not hold up in practice. The issue seems to be money just pools in specific areas like money markets where only a percentage can be lent out. The other issue is velocity. If loans last 10 years but it takes 1 year to find someone to lend the money to. Then effectively only 90% of the money is loaned out on average.
- roenxi 9y ago
  Hi, I turn up in these discussions to represent the hard money advocates. In practice you might well be right about velocity, but there is no "the money" of which 90% is lent out. America & most other countries use fractional reserve banking. A pretty reasonable interpretation of this is that making a loan is nearly equivalent to creating the money needed to make the loan. All the existing money that can be lent that exists is, in fact, currently lent out.
  - Retric 9y ago
    The average americans checking accounts has high fluctuations over a month so it can be used for overnight interbank loans but not directly turned into home loans. This means two banks need to cover their reserve requirements so ~(90% of 90%) of the money in checking accounts can be loaned out. Savings accounts are more stable so ~(90%) of the money of the money can be loaned. Also, banks may make loans, but they can also sell them to other groups without reserve requirements. Allowing for a near endless streams of new loans. Thus the total amount of loans is not fixed and depends on where in the economy the actual currency is.
mdorazio 9y ago
But it does matter where it goes. What if it all goes into real estate (again), for example? Then you get another housing bubble and even more unaffordable housing for middle Americans. You're also assuming that cash being spent on things like luxury goods is flowing into the US economy as opposed to the global economy. Globalization has changed that dynamic significantly.
- bmmayer1 9y ago
  The housing bubble wasn't because of rich people buying real estate. It was because of middle class and poor people over-leveraging.
  - mdorazio 9y ago
    Sorry, I don't see how that rebuts my statement. Also, that's a gross oversimplification of what actually happened. My point is that if the windfall from dollar repatriation goes into real estate and we get another bubble, how does that help middle Americans? We can't assume that everyone will go out and put their repatriated dollars into economically productive places. Also, I've said this before and no one has given me a good answer yet. Corporations already have record amounts of cash on hand [1], but they're largely not doing anything with it. What reason do we have to believe that getting cash back on shore would change this behavior at all? After all, taxes are on profits - companies could effectively repatriate their money tax free today by spending it on hiring more people, building factories, etc. [1] https://www.spglobal.com/our-insights/US-Corporate-Cash-Reaches-19-Trillion-But-Rising-Debt-and-Tax-Reform-Pose-Risk.html https://www.spglobal.com/our-insights/US-Corporate-Cash-Reac...
  - christocracy 9y ago
    “Mounting evidence suggests that the notion that the 2007 crash happened because people with shoddy credit borrowed to buy houses they couldn’t afford is just plain wrong. The latest comes in a new NBER working paper arguing that it was wealthy or middle-class house-flipping speculators who blew up the bubble” https://qz.com/1064061/house-flippers-triggered-the-us-housing-market-crash-not-poor-subprime-borrowers-a-new-study-shows/ https://qz.com/1064061/house-flippers-triggered-the-us-housi...

KGIII 9y ago

The sharp influx should even help with the velocity of money. I am not an economist but I've been trying to learn a bit about it and a bit about financial management/investing. I'm currently at the velocity of money stage of my learning. https://en.m.wikipedia.org/wiki/Velocity_of_money https://en.m.wikipedia.org/wiki/Velocity_of_money It's not really the same thing as the trickle down that the parent poster mentioned. From what I can tell, you hit the nail on the head. An influx of money will mean the money moves. Also, when money moves is when the government taxes it. So, the influx will increase the velocity of money and will have an effect on the economy. That's not the same as the parent post implied, where there's a reduction in taxes and that is supposed to result in the money trickling down. That's not the same as an influx of money. One is people keeping their money, the second is people getting more money. If I understand correctly, they are different things. Then again, I may not understand correctly. As I said, I am still learning.

Retric 9y ago

That's a theory, but it does not hold up in practice. The issue seems to be money just pools in specific areas like money markets where only a percentage can be lent out. The other issue is velocity. If loans last 10 years but it takes 1 year to find someone to lend the money to. Then effectively only 90% of the money is loaned out on average.

roenxi 9y ago
Hi, I turn up in these discussions to represent the hard money advocates. In practice you might well be right about velocity, but there is no "the money" of which 90% is lent out. America & most other countries use fractional reserve banking. A pretty reasonable interpretation of this is that making a loan is nearly equivalent to creating the money needed to make the loan. All the existing money that can be lent that exists is, in fact, currently lent out.
- Retric 9y ago
  The average americans checking accounts has high fluctuations over a month so it can be used for overnight interbank loans but not directly turned into home loans. This means two banks need to cover their reserve requirements so ~(90% of 90%) of the money in checking accounts can be loaned out. Savings accounts are more stable so ~(90%) of the money of the money can be loaned. Also, banks may make loans, but they can also sell them to other groups without reserve requirements. Allowing for a near endless streams of new loans. Thus the total amount of loans is not fixed and depends on where in the economy the actual currency is.

mdorazio 9y ago

But it does matter where it goes. What if it all goes into real estate (again), for example? Then you get another housing bubble and even more unaffordable housing for middle Americans. You're also assuming that cash being spent on things like luxury goods is flowing into the US economy as opposed to the global economy. Globalization has changed that dynamic significantly.

bmmayer1 9y ago
The housing bubble wasn't because of rich people buying real estate. It was because of middle class and poor people over-leveraging.
- mdorazio 9y ago
  Sorry, I don't see how that rebuts my statement. Also, that's a gross oversimplification of what actually happened. My point is that if the windfall from dollar repatriation goes into real estate and we get another bubble, how does that help middle Americans? We can't assume that everyone will go out and put their repatriated dollars into economically productive places. Also, I've said this before and no one has given me a good answer yet. Corporations already have record amounts of cash on hand [1], but they're largely not doing anything with it. What reason do we have to believe that getting cash back on shore would change this behavior at all? After all, taxes are on profits - companies could effectively repatriate their money tax free today by spending it on hiring more people, building factories, etc. [1] https://www.spglobal.com/our-insights/US-Corporate-Cash-Reaches-19-Trillion-But-Rising-Debt-and-Tax-Reform-Pose-Risk.html https://www.spglobal.com/our-insights/US-Corporate-Cash-Reac...
- christocracy 9y ago
  “Mounting evidence suggests that the notion that the 2007 crash happened because people with shoddy credit borrowed to buy houses they couldn’t afford is just plain wrong. The latest comes in a new NBER working paper arguing that it was wealthy or middle-class house-flipping speculators who blew up the bubble” https://qz.com/1064061/house-flippers-triggered-the-us-housing-market-crash-not-poor-subprime-borrowers-a-new-study-shows/ https://qz.com/1064061/house-flippers-triggered-the-us-housi...