3 ms·
"Deflation at some point causes people to build stashes of tokens instead of investing in real businesses with real production capacity." I know we are comment
by AznHisoka 9y ago
"Deflation at some point causes people to build stashes of tokens instead of investing in real businesses with real production capacity."
I know we are commenting on cryptos but what about money?
wouldnt people put their money into savings accounts (which is also investing not hoarding as banks loan their money out) or into a business if they were going to get a higher return than deflationary rate? Of course i M not going to invest in you if you offer a pitiful 1% interest rate and the deflation rate is 1.5%.
With money, building stashes and hoarding would literally be hoarding it under your bed, no? Putting it into your savings account is technically investing it as it allows banks to loan more to businesses. Where is the flaw in my thinking?
- BenoitEssiambre 9y agoUnder deflationary conditions banks don't lend out because banks too want to get the above market returns of deflationary cash. That is why the amount of excess reserves (unlent money) shot up during the last financial crisis. This is a bit of a simplification. You also have to take into account risk and liquidity. Banks or anyone else won't lend out or invest unless the money has a lower return than market investment or that the volatile money gets too risky to hold. Eventually money gets pushed towards enough volatility that some level of investment returns. This might help avoid complete economic ruin.