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Discouraging savings is actually the point. We should tax money that sits idle and provides tax benefits to money invested. If you can build wealth around bein

Discouraging savings is actually the point. We should tax money that sits idle and provides tax benefits to money invested. If you can build wealth around being active rather than just reaping the benefit of interest of interests then that should be encouraged rather than just grabbing and keeping.

kgwgk 9y ago
Money in a savings account is money invested.
- Retric 9y ago
  > money invested Only in the most inefficient way possible. The 'problem' is banks are limited in what they can do with this money which ends up creating investment bubbles and other market distortions which hurt the economy overall. If you slowly transitioned banks so they could not invest this money over say 100 years the net result would not be harmful. In the end money is not actual wealth, it's simply a representation of wealth. Anything that turns money into more money needs an intermediary where some cash flow is generated. And those intermediary's are often harmful see in excess like pay day loans.
  - kgwgk 9y ago
    You want to forbid loans?
    - Retric 9y ago
      No, you can still make a loan by buying a bond etc. I simply feel banks have conflicting goals as they need to be 'good at' customer service and making loans. This creates a lot of poor incentives and economic distortions.
      - kgwgk 9y ago
        Yes, it will be very convenient for people to issue bonds when they need a loan to buy a house or start a business...
        Retric 9y ago
        Credit Cards are an example of non bank loans. The difference is people fronting money for loans would need to take on real risks without FDIC protection or have safe deposits but need to pay for bank services.
        kgwgk 9y ago
        You know that the large majority of credit card loans are given out by banks, right? https://www.nilsonreport.com/upload/TopIssuersofUSGPCC.3.jpg https://www.nilsonreport.com/upload/TopIssuersofUSGPCC.3.jpg
        Retric 9y ago
        Sure, but like GM's finance division making car loans; Credit Cards are a viable business even without access to depositors. Often the capital for many bank issued credit cards does not come from depositors at all.
        kgwgk 9y ago
        Ok, so we don’t let banks loan money. I guess they may still take deposits but if they are not going to pay any interest people will keep accounts as low as possible. On the other hand, all the financing needs will be covered by other means. These “non-banks” will have to obtain capital as equity and debt, maybe even loans from other non-banks, but certainly not as deposits. What was the problem that we where trying to fix anyway?
        Retric 9y ago
        > What was the problem that we where trying to fix anyway? Risk of financial collapse. Banks are risky because they have a lot of leverage, people more directly loaning money may take a 20% hit after a housing collapse, but that's not such a big deal.
    - geofft 9y ago
      I don't see why this is a blanket terrible idea - a ban on loans with interest, which are the only sort of loans that are economically rational for the lender, is a moral principle of one of the world's most popular religions (Islam) and used to be a moral principle of another (Christianity) until it was corrupted by capitalism in its lands. So we must at least concede that the idea of a world where loans are forbidden is well within the Overton window. A world where people don't need loans seems like a pretty good world, honestly. I've been fortunate enough that my parents were able to finance my college education out of their savings, and I rent my apartment because I don't want a big mortgage, and my life is I think better compared to people I know with student loans and mortgages. A world where everyone has the same access to resources that I had is a worthy goal, and if we can fund that by banning loans, seems fine.
      - tptacek 9y ago
        Wait, why are interest-free loans the only kind of economically rational loans? Commercial debt contracts include interest, and are executed exclusively between sophisticated buyers and sellers of debt.
        geofft 9y ago
        I think I put too many negatives in that sentence. I am claiming that interest-bearing loans are the only economically rational ones (because otherwise you're taking on nonzero risk for definitely zero reward), and interest-free loans used to be widely acknowledged as the only morally justifiable ones.
        tptacek 9y ago
        Ah, you're right. It's just the sentence structure that confused me. (I asked another question here but decided I'm having a hard time reading or composing standard written English today so, some other time!)
      - kgwgk 9y ago
        There is a whole industry of sharia-compliant finance to work around the ban on loans. The solution for the christian dislike for money-lending back on those days was for non-christians to do it. A world where people don’t need loans might be nice, but not all the people can use your parents’ money (and depending on what you want to do and how rich is your family, even you might need additional financing).
  - enraged_camel 9y ago
    >>The 'problem' is banks are limited in what they can do with this money which ends up creating investment bubbles and other market distortions which hurt the economy overall. If you slowly transitioned banks so they could not invest this money over say 100 years the net result would not be harmful. Um, no. The type of investing you suggest includes the risk of losing the money. This doesn't work with commercial banks because they are insured by the federal government, i.e. the taxpayer. When people put money in the bank they expect it to stay safe. That's why the concept of a bank exists in the first place. If there was the risk of it evaporating due to bad investments, that would basically be more of "privatized gains, socialized losses."
    - Retric 9y ago
      I think you misunderstood my comment. Banks are currently allowed to loan out a percentage of their deposits IE: they need to keep say 10% cash on hand and can loan say 90%. I am saying if your raise that percentage to 11% cash on hand not much changes. Then next year that becomes 12% cash on hand... until banks can no longer lend money. At no point in this process is physical wealth destroyed only shifting how loans are created.
      - logfromblammo 9y ago
        If the reserve requirement is 10%, the banks actually loan 990%. That is not a typo. Of the deposit account, they keep 10% in the vault/Fed, and loan out 90%. Of that 90%, they keep 10% in the vault (9%), and re-loan 90% of it (81%). Of that 81%, they keep 10% in the vault (8.1%) and re-loan 90% of it (72.9%). Sum the series, and the effect on the money supply from loans and the reserve requirement is to divide the vault cash by the reserve requirement to get the bank account totals. Raise the requirement from 10% to 11% and the circulating money supply drops from 10 x vault cash to 9.1 x vault cash. Raise it again to 12% and that drops to 8.3 x vault cash. To keep things steady, you have to print extra money for the express purpose of putting it into reserves. The de jure impact of the reserve requirement on the money supply isn't "not much"; it's actually huge. But that is only down to the point where it goes below the de facto requirement imposed by normal bank operations. You drop the requirement to 0%, and banks will still keep cash on hand to cover their own needs. It is certainly possible to raise it all the way to 100% (or even higher, by requiring that banks freeze some of their own cash when accepting a deposit). But that would have to be done very slowly and cautiously.
dnautics 9y ago
You would force people to consume? There's diminishing returns to that. At some point there are fewer worthwhile things to spend on and you start creating an system of make-work with the attendant environmental destruction and resource exhaustion. Free markets are neutral on these questions, it's policy that distorts social preference away from conservation and towards unsustainable growth that exacerbate the situation we're in now.
- ThomPete 9y ago
  How would I force them to do it? They would still make money if they kept them it would just be less beneficial than it is now. No long term capital gains as an example. People with little money consume everything they have already, they have no choice, no retirements no nothing.
- heylook 9y ago
  > We should tax money that sits idle and provide tax benefits to money invested >> You would force people to consume? That's a complete misreading of the comment
eru 9y ago
Thanks to fiat money there's no money sitting idle: if you stuff your paper bills under a mattress, the central bank is just gonna print more money (temporarily) to reach its eg inflation targets. (And if you take your money out from under your mattress, they will print less money for a while.)

kgwgk 9y ago

Money in a savings account is money invested.

Retric 9y ago
> money invested Only in the most inefficient way possible. The 'problem' is banks are limited in what they can do with this money which ends up creating investment bubbles and other market distortions which hurt the economy overall. If you slowly transitioned banks so they could not invest this money over say 100 years the net result would not be harmful. In the end money is not actual wealth, it's simply a representation of wealth. Anything that turns money into more money needs an intermediary where some cash flow is generated. And those intermediary's are often harmful see in excess like pay day loans.
- kgwgk 9y ago
  You want to forbid loans?
  - Retric 9y ago
    No, you can still make a loan by buying a bond etc. I simply feel banks have conflicting goals as they need to be 'good at' customer service and making loans. This creates a lot of poor incentives and economic distortions.
    - kgwgk 9y ago
      Yes, it will be very convenient for people to issue bonds when they need a loan to buy a house or start a business...
      - Retric 9y ago
        Credit Cards are an example of non bank loans. The difference is people fronting money for loans would need to take on real risks without FDIC protection or have safe deposits but need to pay for bank services.
        kgwgk 9y ago
        You know that the large majority of credit card loans are given out by banks, right? https://www.nilsonreport.com/upload/TopIssuersofUSGPCC.3.jpg https://www.nilsonreport.com/upload/TopIssuersofUSGPCC.3.jpg
        Retric 9y ago
        Sure, but like GM's finance division making car loans; Credit Cards are a viable business even without access to depositors. Often the capital for many bank issued credit cards does not come from depositors at all.
        kgwgk 9y ago
        Ok, so we don’t let banks loan money. I guess they may still take deposits but if they are not going to pay any interest people will keep accounts as low as possible. On the other hand, all the financing needs will be covered by other means. These “non-banks” will have to obtain capital as equity and debt, maybe even loans from other non-banks, but certainly not as deposits. What was the problem that we where trying to fix anyway?
        Retric 9y ago
        > What was the problem that we where trying to fix anyway? Risk of financial collapse. Banks are risky because they have a lot of leverage, people more directly loaning money may take a 20% hit after a housing collapse, but that's not such a big deal.
  - geofft 9y ago
    I don't see why this is a blanket terrible idea - a ban on loans with interest, which are the only sort of loans that are economically rational for the lender, is a moral principle of one of the world's most popular religions (Islam) and used to be a moral principle of another (Christianity) until it was corrupted by capitalism in its lands. So we must at least concede that the idea of a world where loans are forbidden is well within the Overton window. A world where people don't need loans seems like a pretty good world, honestly. I've been fortunate enough that my parents were able to finance my college education out of their savings, and I rent my apartment because I don't want a big mortgage, and my life is I think better compared to people I know with student loans and mortgages. A world where everyone has the same access to resources that I had is a worthy goal, and if we can fund that by banning loans, seems fine.
    - tptacek 9y ago
      Wait, why are interest-free loans the only kind of economically rational loans? Commercial debt contracts include interest, and are executed exclusively between sophisticated buyers and sellers of debt.
      - geofft 9y ago
        I think I put too many negatives in that sentence. I am claiming that interest-bearing loans are the only economically rational ones (because otherwise you're taking on nonzero risk for definitely zero reward), and interest-free loans used to be widely acknowledged as the only morally justifiable ones.
        tptacek 9y ago
        Ah, you're right. It's just the sentence structure that confused me. (I asked another question here but decided I'm having a hard time reading or composing standard written English today so, some other time!)
    - kgwgk 9y ago
      There is a whole industry of sharia-compliant finance to work around the ban on loans. The solution for the christian dislike for money-lending back on those days was for non-christians to do it. A world where people don’t need loans might be nice, but not all the people can use your parents’ money (and depending on what you want to do and how rich is your family, even you might need additional financing).
- enraged_camel 9y ago
  >>The 'problem' is banks are limited in what they can do with this money which ends up creating investment bubbles and other market distortions which hurt the economy overall. If you slowly transitioned banks so they could not invest this money over say 100 years the net result would not be harmful. Um, no. The type of investing you suggest includes the risk of losing the money. This doesn't work with commercial banks because they are insured by the federal government, i.e. the taxpayer. When people put money in the bank they expect it to stay safe. That's why the concept of a bank exists in the first place. If there was the risk of it evaporating due to bad investments, that would basically be more of "privatized gains, socialized losses."
  - Retric 9y ago
    I think you misunderstood my comment. Banks are currently allowed to loan out a percentage of their deposits IE: they need to keep say 10% cash on hand and can loan say 90%. I am saying if your raise that percentage to 11% cash on hand not much changes. Then next year that becomes 12% cash on hand... until banks can no longer lend money. At no point in this process is physical wealth destroyed only shifting how loans are created.
    - logfromblammo 9y ago
      If the reserve requirement is 10%, the banks actually loan 990%. That is not a typo. Of the deposit account, they keep 10% in the vault/Fed, and loan out 90%. Of that 90%, they keep 10% in the vault (9%), and re-loan 90% of it (81%). Of that 81%, they keep 10% in the vault (8.1%) and re-loan 90% of it (72.9%). Sum the series, and the effect on the money supply from loans and the reserve requirement is to divide the vault cash by the reserve requirement to get the bank account totals. Raise the requirement from 10% to 11% and the circulating money supply drops from 10 x vault cash to 9.1 x vault cash. Raise it again to 12% and that drops to 8.3 x vault cash. To keep things steady, you have to print extra money for the express purpose of putting it into reserves. The de jure impact of the reserve requirement on the money supply isn't "not much"; it's actually huge. But that is only down to the point where it goes below the de facto requirement imposed by normal bank operations. You drop the requirement to 0%, and banks will still keep cash on hand to cover their own needs. It is certainly possible to raise it all the way to 100% (or even higher, by requiring that banks freeze some of their own cash when accepting a deposit). But that would have to be done very slowly and cautiously.

dnautics 9y ago

You would force people to consume? There's diminishing returns to that. At some point there are fewer worthwhile things to spend on and you start creating an system of make-work with the attendant environmental destruction and resource exhaustion. Free markets are neutral on these questions, it's policy that distorts social preference away from conservation and towards unsustainable growth that exacerbate the situation we're in now.

ThomPete 9y ago
How would I force them to do it? They would still make money if they kept them it would just be less beneficial than it is now. No long term capital gains as an example. People with little money consume everything they have already, they have no choice, no retirements no nothing.
heylook 9y ago
> We should tax money that sits idle and provide tax benefits to money invested >> You would force people to consume? That's a complete misreading of the comment

eru 9y ago

Thanks to fiat money there's no money sitting idle: if you stuff your paper bills under a mattress, the central bank is just gonna print more money (temporarily) to reach its eg inflation targets. (And if you take your money out from under your mattress, they will print less money for a while.)