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> Much of the money isn't going to other investments. It goes to savings. This is nonsense. Saving in a bank expands the bank's ability to lend. Saving in trea

> Much of the money isn't going to other investments. It goes to savings. This is nonsense. Saving in a bank expands the bank's ability to lend. Saving in treasury bonds finances government operations. Saving in the stock market provides the incentive for VCs to invest in startups. Saving in municipal or corporate bonds finances the leveraged operations of those entities, contributing to better long-term planning. Saving in gold at least turns the money over to someone else who will probably spend it on something more useful than gold. For the most part, saving is investment. Only in niche scenarios does saved money leave the money supply.

dumbfoundded 7y ago
Investment doesn't increase the size of the economy if it doesn't result in increased spending. Spending money on a product or service is the only way to grow the economy. Investment often results in money effectively leaving the economy as its multiplier rates are much lower than giving the money to consumers who spend it quickly, usually to small businesses that spend the money quickly.
- dodobirdlord 7y ago
  > Investment doesn't increase the size of the economy if it doesn't result in increased spending. Spending money on a product or service is the only way to grow the economy. Outside of niche scenarios, investment opportunities only exist when there is a desire to spend money on a product or service, but no money is available to spend. > Investment often results in money effectively leaving the economy as its multiplier rates are much lower than giving the money to consumers who spend it quickly, usually to small businesses that spend the money quickly. A lower velocity of money is not the same thing as a reduction in the money supply.
skybrian 7y ago
While investment and savings aren't opposites, they also aren't guaranteed to be linked, at least if by investment you mean "increase in productive capacity" rather than an accounting identity in some macroeconomic models. Increasing a bank's ability to lend doesn't mean they will necessarily do it; the reserve ratio is an upper bound. Also, even when they do make a loan, it also doesn't mean it will necessarily go towards building or improving productive assets. Sometimes loans go towards buying existing assets (such as houses) in a way that might just result in asset inflation. (As in, for example, stock buybacks.) The idea of a "global savings glut" is somewhat controversial but not obviously nonsense. We can't learn anything by defining it away.
- aeternus 7y ago
  Buying existing assets only results in asset inflation if you lack a free market. Otherwise, buying existing assets (such as houses) will increase the price which will trigger increased production of that asset.
lumost 7y ago
I would normally buy this argument, however the data in the featured article indicates that increases to bank balance sheets through corporate lending simply return to the bank via savings rates for the wealthy. Traditional models of money supply were built around agricultural and industrial uses of the money supply, and it's not inherently clear that the current model is yielding anything other than higher asset prices.
solotronics 7y ago
"Saving in a bank expands the bank's ability to lend." Lending in modern banks is fractional reserve, they only have a fraction of what they send out in loans, there is literally no law or anything preventing them from typing on a computer and making way more loans than they have money.
jquery 7y ago
>saved money leave the money supply. And in that situation, it marginally increases the value of everyone else's dollar, increasing the value of their investments. You can't save money without directly or indirectly investing in something (https://en.wikipedia.org/wiki/Saving_identity https://en.wikipedia.org/wiki/Saving_identity)
w0utert 7y ago
>> This is nonsense. Saving in a bank expands the bank's ability to lend. Haha, maybe 100 years ago when banking still worked like that this would be true. Nowadays bank deposits are probably almost entirely irrelevant for banks' lending capacity, as they just lever outstanding debt and whatever other non-transparent assets they can manage to slap a value on without breaking any laws. Also, there is no mystery what happens with the wealth accumulated by the 0.1%. Piketty wrote an 800-page book about it. It's just moved abroad where it can not be taxed easily and mostly sits there idle to be passed on to next generations. One would have to be stuck very firmly in the Silicon Valley bubble to think much more than a tiny percentage of this wealth is used to be 're-invested in new enterprises'.
spiralx 7y ago
Bank lending is not tied in any way to the amount of deposits they have on hand: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

dumbfoundded 7y ago

Investment doesn't increase the size of the economy if it doesn't result in increased spending. Spending money on a product or service is the only way to grow the economy. Investment often results in money effectively leaving the economy as its multiplier rates are much lower than giving the money to consumers who spend it quickly, usually to small businesses that spend the money quickly.

dodobirdlord 7y ago
> Investment doesn't increase the size of the economy if it doesn't result in increased spending. Spending money on a product or service is the only way to grow the economy. Outside of niche scenarios, investment opportunities only exist when there is a desire to spend money on a product or service, but no money is available to spend. > Investment often results in money effectively leaving the economy as its multiplier rates are much lower than giving the money to consumers who spend it quickly, usually to small businesses that spend the money quickly. A lower velocity of money is not the same thing as a reduction in the money supply.

skybrian 7y ago

While investment and savings aren't opposites, they also aren't guaranteed to be linked, at least if by investment you mean "increase in productive capacity" rather than an accounting identity in some macroeconomic models. Increasing a bank's ability to lend doesn't mean they will necessarily do it; the reserve ratio is an upper bound. Also, even when they do make a loan, it also doesn't mean it will necessarily go towards building or improving productive assets. Sometimes loans go towards buying existing assets (such as houses) in a way that might just result in asset inflation. (As in, for example, stock buybacks.) The idea of a "global savings glut" is somewhat controversial but not obviously nonsense. We can't learn anything by defining it away.

aeternus 7y ago
Buying existing assets only results in asset inflation if you lack a free market. Otherwise, buying existing assets (such as houses) will increase the price which will trigger increased production of that asset.

lumost 7y ago

I would normally buy this argument, however the data in the featured article indicates that increases to bank balance sheets through corporate lending simply return to the bank via savings rates for the wealthy. Traditional models of money supply were built around agricultural and industrial uses of the money supply, and it's not inherently clear that the current model is yielding anything other than higher asset prices.

solotronics 7y ago

"Saving in a bank expands the bank's ability to lend." Lending in modern banks is fractional reserve, they only have a fraction of what they send out in loans, there is literally no law or anything preventing them from typing on a computer and making way more loans than they have money.

jquery 7y ago

>saved money leave the money supply. And in that situation, it marginally increases the value of everyone else's dollar, increasing the value of their investments. You can't save money without directly or indirectly investing in something (https://en.wikipedia.org/wiki/Saving_identity https://en.wikipedia.org/wiki/Saving_identity)

w0utert 7y ago

>> This is nonsense. Saving in a bank expands the bank's ability to lend. Haha, maybe 100 years ago when banking still worked like that this would be true. Nowadays bank deposits are probably almost entirely irrelevant for banks' lending capacity, as they just lever outstanding debt and whatever other non-transparent assets they can manage to slap a value on without breaking any laws. Also, there is no mystery what happens with the wealth accumulated by the 0.1%. Piketty wrote an 800-page book about it. It's just moved abroad where it can not be taxed easily and mostly sits there idle to be passed on to next generations. One would have to be stuck very firmly in the Silicon Valley bubble to think much more than a tiny percentage of this wealth is used to be 're-invested in new enterprises'.

spiralx 7y ago

Bank lending is not tied in any way to the amount of deposits they have on hand: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...