5 ms·

Guess it just sucks for people who make a modest living and want to save a modest portion of their income over many years.

by baddox 7y ago

javert 7y ago
For that, you need honest, sound money.
- arcticbull 7y ago
  There's nothing honest or dishonest, sound or unsound about this. It's a question of what the role of money is in a given civil society. The US tends to view money as a tool for voting on which projects, companies, etc are most efficient. Saving doesn't always mean saving money but rather saving value. If you own your house and land outright, would you not consider that "savings"? What about government bonds? Corporate bonds? Fixed-incomes? Dividend bearing stocks? Growth stocks? All of that is savings. Cash in a mattress is an unproductive asset, it's a waste of potential. An account at a bank that lends and kicks some back to you may be the most productive allocation in some circumstances but overwhelmingly it isn't. Money is only valuable when it moves.
  - fauigerzigerk 7y ago
    >An account at a bank that lends and kicks some back to you may be the most productive allocation in some circumstances but overwhelmingly it isn't. At least it's better than putting money in an index ETF, because bankers making loans do actually contribute to the capital allocation process in a meaningful way.
    - arcticbull 7y ago
      I believe thats a decision everyone has to make individually, and that's the point :)
      - fauigerzigerk 7y ago
        Of course, but we are discussing the macroeconomic effects of those decisions. Maybe I misunderstand ...
        arcticbull 7y ago
        Oh no I might not have been clear. I'm just taking the position that allocating capital between cash and even index ETFs is meant to be a voting mechanism of how that capital can be most effectively utilized. You're right that active capital management via the bank represents a choice by someone with experience, but that doesn't mean that it's the best use of capital. Further, even if you invest in broad market ETFs you're still picking winners. We may actually just agree here :)
        fauigerzigerk 7y ago
        >Further, even if you invest in broad market ETFs you're still picking winners. What you're not doing is provide capital to companies or contribute to the information processing that makes markets efficient (at least not very much). Crucially, bank loans (as well as IPOs, rights issues and bond issues) provide capital. Trading existing stocks doesn't. So when it comes to capital allocation, you're not picking winners and losers by buying an index ETF, because no capital is created at all.
        arcticbull 7y ago
        This is a legitimate question, does it not set the rates for any secondary offerings?
  - repolfx 7y ago
    Saving doesn't always mean saving money but rather saving value Well, this is the crux of the issue. In the language I learned (British English) the word savings does refer exclusively to cash. Investment is an entirely separate concept, as are assets. I would never consider a house to be savings, because savings are there to provide a buffer if your income suddenly drops below your structural spending level - the proverbial rainy day. Selling a house takes a very long time and has huge overheads, plus, of course, you still need somewhere to live. Unless your first reaction to e.g. losing a job is to immediately sell your house, your house is therefore not savings. Government bonds? Great until they default. Corporate bonds? Ditto. Growth stocks?!?! The things that can easily move in value 20% in a single day? That's not savings, that's an investment at best or a risky gamble at worst. Money is only valuable when it moves. No, money is a store of value, that's literally a part of the definition of what makes something money. It is valuable because it lets you obtain resources later, without having to barter for them at that exact moment. Money saved means you can lose your job and continue to buy things: that fact alone has value even if the money itself isn't moving right now. This really isn't hard to understand. The demonisation of savings in our society is one of the most severe problems we face, if not the most severe. It's impossible to have any kind of justice or stability in the world if nobody has any savings, because they convinced themselves a tech stock is the same thing.
    - kamyarg 7y ago
      I wish I could upvote twice, this is so true. It is funny when people forget what money was meant to be; "a store of value".
      - mcguire 7y ago
        A "store of value", like putting money under your mattress, is, economically speaking, useless.¹ Remember the categorical imperative: "Act only according to that maxim whereby you can, at the same time, will that it should become a universal law." ¹ Beyond a point anyway. Keep 3 to 6 months' income readily available.
    - jay_kyburz 7y ago
      I speak mostly British English here in Australia as well, and here and I believe most people would expect you to have your savings parked somewhere doing something. Having your house paid off or even paying down the mortgage or an investment properly is still considered saving. Anything that could be converted back to cash if needed.
  - javert 7y ago
    I mean, you're arguing against a point I didn't make, but I'll take the bait anyway.... People should not be forced to go further out on the risk spectrum than they want to by government policy (which is what you are suggesting by saying that we shouldn't have what economists call sound money). Forcing them to do that distorts the economy. People should buy bonds because they think the extra risk is justified, not because there is no alternative.
    - chii 7y ago
      and perhaps the situation has come to the point where low risk investments aren't available anymore. The banks (or ECB) cannot offer risk free interest rates anymore because there just isn't enough such investments to satisfy the demand. The lever that policy has is interest rates, and by lowering it even more, it forces savers to adjust their view on risk - if they can handle the lowered interest because their risk tolerance is so low that they cant buy bonds or anything, then they will need to suffer the low rates. It's just that a lot of people are in the situation where they cannot take on any risk with their savings. Historiaclly, banks being risk free is just a gimmick (even if the gov't is insuring the deposit). Banks's risks are diversified, and minimized. But if the economy is doing poorly, they cannot magically produce the low risk returns. I think the only way forward is actually gov't spending sprees - invest in long term projects, like 100 year long projects, and make these projects the backbone of fiscal policy (print money, if needed). Long term projects that can derive value for all of society, such as establishing bases on moon/mars, mining asteroids, etc.
      - javert 7y ago
        Another option is "sound money" (historically, this was gold). If you had a sound money option available, people could save wealth without going further out on the risk curve. At this point, even high-quality corporate bonds are going negative in Europe, so people who want to save have to take a big risk. In my opinion that is unnatural; it's a creation of central planners who forced everyone away from gold and into fiat currencies. Gold is pretty risky now because it's not actually used as a currency and thus has low liquidity. If we all used gold as a currency, it would have high liquidity and it would be very stable. (I don't want to go back to gold because digital currency is far more practical, but I'm just making a historical point.) > I think the only way forward is actually gov't spending sprees That is going further in the direction of central planning and also further inhibits regular people from saving and investing safely and wisely. How is the middle class going to save and invest under this paradigm? I think the most likely answer is that they won't/can't, and the middle class disappears (like what happens with hyperinflation, e.g. Weimar Germany). A recurring theme: I am really against central planning. The planners do not always get it right, and when they screw up big time, it makes the system collapse. When people are free to make their own choices the economy adjusts dynamically.
wbl 7y ago
They can put their money to work in the stock markets.
- rorykoehler 7y ago
  Germany recently changed the law so you have to pay capital gains on unrealised gains so even that is expensive now.
  - wbl 7y ago
    Well aren't there gains if you are being taxed?
  - crucialfelix 7y ago
    Wow that's complicated. As you hold the fund, each year you need to recalculate estimated cap gains. You do get a credit if the fund goes down. But what if I (German resident US citizen) leave the country before I sell the fund? They would have to refund all they had taxed; otherwise how do you reconcile that with tax in a new country of residence? https://www.howtogermany.com/pages/germantaxesforinvestment.html https://www.howtogermany.com/pages/germantaxesforinvestment....

Guess it just sucks for people who make a modest living and want to save a modest portion of their income over many years.

by baddox 7y ago

Guess it just sucks for people who make a modest living and want to save a modest portion of their income over many years.

javert 7y ago

For that, you need honest, sound money.

arcticbull 7y ago
There's nothing honest or dishonest, sound or unsound about this. It's a question of what the role of money is in a given civil society. The US tends to view money as a tool for voting on which projects, companies, etc are most efficient. Saving doesn't always mean saving money but rather saving value. If you own your house and land outright, would you not consider that "savings"? What about government bonds? Corporate bonds? Fixed-incomes? Dividend bearing stocks? Growth stocks? All of that is savings. Cash in a mattress is an unproductive asset, it's a waste of potential. An account at a bank that lends and kicks some back to you may be the most productive allocation in some circumstances but overwhelmingly it isn't. Money is only valuable when it moves.
- fauigerzigerk 7y ago
  >An account at a bank that lends and kicks some back to you may be the most productive allocation in some circumstances but overwhelmingly it isn't. At least it's better than putting money in an index ETF, because bankers making loans do actually contribute to the capital allocation process in a meaningful way.
  - arcticbull 7y ago
    I believe thats a decision everyone has to make individually, and that's the point :)
    - fauigerzigerk 7y ago
      Of course, but we are discussing the macroeconomic effects of those decisions. Maybe I misunderstand ...
      - arcticbull 7y ago
        Oh no I might not have been clear. I'm just taking the position that allocating capital between cash and even index ETFs is meant to be a voting mechanism of how that capital can be most effectively utilized. You're right that active capital management via the bank represents a choice by someone with experience, but that doesn't mean that it's the best use of capital. Further, even if you invest in broad market ETFs you're still picking winners. We may actually just agree here :)
        fauigerzigerk 7y ago
        >Further, even if you invest in broad market ETFs you're still picking winners. What you're not doing is provide capital to companies or contribute to the information processing that makes markets efficient (at least not very much). Crucially, bank loans (as well as IPOs, rights issues and bond issues) provide capital. Trading existing stocks doesn't. So when it comes to capital allocation, you're not picking winners and losers by buying an index ETF, because no capital is created at all.
        arcticbull 7y ago
        This is a legitimate question, does it not set the rates for any secondary offerings?
- repolfx 7y ago
  Saving doesn't always mean saving money but rather saving value Well, this is the crux of the issue. In the language I learned (British English) the word savings does refer exclusively to cash. Investment is an entirely separate concept, as are assets. I would never consider a house to be savings, because savings are there to provide a buffer if your income suddenly drops below your structural spending level - the proverbial rainy day. Selling a house takes a very long time and has huge overheads, plus, of course, you still need somewhere to live. Unless your first reaction to e.g. losing a job is to immediately sell your house, your house is therefore not savings. Government bonds? Great until they default. Corporate bonds? Ditto. Growth stocks?!?! The things that can easily move in value 20% in a single day? That's not savings, that's an investment at best or a risky gamble at worst. Money is only valuable when it moves. No, money is a store of value, that's literally a part of the definition of what makes something money. It is valuable because it lets you obtain resources later, without having to barter for them at that exact moment. Money saved means you can lose your job and continue to buy things: that fact alone has value even if the money itself isn't moving right now. This really isn't hard to understand. The demonisation of savings in our society is one of the most severe problems we face, if not the most severe. It's impossible to have any kind of justice or stability in the world if nobody has any savings, because they convinced themselves a tech stock is the same thing.
  - kamyarg 7y ago
    I wish I could upvote twice, this is so true. It is funny when people forget what money was meant to be; "a store of value".
    - mcguire 7y ago
      A "store of value", like putting money under your mattress, is, economically speaking, useless.¹ Remember the categorical imperative: "Act only according to that maxim whereby you can, at the same time, will that it should become a universal law." ¹ Beyond a point anyway. Keep 3 to 6 months' income readily available.
  - jay_kyburz 7y ago
    I speak mostly British English here in Australia as well, and here and I believe most people would expect you to have your savings parked somewhere doing something. Having your house paid off or even paying down the mortgage or an investment properly is still considered saving. Anything that could be converted back to cash if needed.
- javert 7y ago
  I mean, you're arguing against a point I didn't make, but I'll take the bait anyway.... People should not be forced to go further out on the risk spectrum than they want to by government policy (which is what you are suggesting by saying that we shouldn't have what economists call sound money). Forcing them to do that distorts the economy. People should buy bonds because they think the extra risk is justified, not because there is no alternative.
  - chii 7y ago
    and perhaps the situation has come to the point where low risk investments aren't available anymore. The banks (or ECB) cannot offer risk free interest rates anymore because there just isn't enough such investments to satisfy the demand. The lever that policy has is interest rates, and by lowering it even more, it forces savers to adjust their view on risk - if they can handle the lowered interest because their risk tolerance is so low that they cant buy bonds or anything, then they will need to suffer the low rates. It's just that a lot of people are in the situation where they cannot take on any risk with their savings. Historiaclly, banks being risk free is just a gimmick (even if the gov't is insuring the deposit). Banks's risks are diversified, and minimized. But if the economy is doing poorly, they cannot magically produce the low risk returns. I think the only way forward is actually gov't spending sprees - invest in long term projects, like 100 year long projects, and make these projects the backbone of fiscal policy (print money, if needed). Long term projects that can derive value for all of society, such as establishing bases on moon/mars, mining asteroids, etc.
    - javert 7y ago
      Another option is "sound money" (historically, this was gold). If you had a sound money option available, people could save wealth without going further out on the risk curve. At this point, even high-quality corporate bonds are going negative in Europe, so people who want to save have to take a big risk. In my opinion that is unnatural; it's a creation of central planners who forced everyone away from gold and into fiat currencies. Gold is pretty risky now because it's not actually used as a currency and thus has low liquidity. If we all used gold as a currency, it would have high liquidity and it would be very stable. (I don't want to go back to gold because digital currency is far more practical, but I'm just making a historical point.) > I think the only way forward is actually gov't spending sprees That is going further in the direction of central planning and also further inhibits regular people from saving and investing safely and wisely. How is the middle class going to save and invest under this paradigm? I think the most likely answer is that they won't/can't, and the middle class disappears (like what happens with hyperinflation, e.g. Weimar Germany). A recurring theme: I am really against central planning. The planners do not always get it right, and when they screw up big time, it makes the system collapse. When people are free to make their own choices the economy adjusts dynamically.

wbl 7y ago

They can put their money to work in the stock markets.

rorykoehler 7y ago
Germany recently changed the law so you have to pay capital gains on unrealised gains so even that is expensive now.
- wbl 7y ago
  Well aren't there gains if you are being taxed?
- crucialfelix 7y ago
  Wow that's complicated. As you hold the fund, each year you need to recalculate estimated cap gains. You do get a credit if the fund goes down. But what if I (German resident US citizen) leave the country before I sell the fund? They would have to refund all they had taxed; otherwise how do you reconcile that with tax in a new country of residence? https://www.howtogermany.com/pages/germantaxesforinvestment.html https://www.howtogermany.com/pages/germantaxesforinvestment....