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Doesn’t saving money decrease economic activity? Seeing as the money is just sitting there, rather than being used to buy goods and services.

• jtbayly 7y ago
  It’s not all just sitting there. Other people borrow it to spend it on things. The more people save, the more money is available to borrow and the lower the interest rates. Even if saving decreases economic activity, I doubt it decreases it that much.
  • jakear 7y ago
    Why can’t I just give people money in exchange for their goods/services, rather than give the bank money, which then gives people money, that they then pay off by providing goods/services. What macroeconomic value does the bank provide serving as a middleman?
    • Retric 7y ago
      Safety, as having large quantities of cash in transit, at homes, or at business is risky and dangerous. Even banks try and avoid this as much as possible. Convince, as writing a check or using a bank card allows for large and specific transactions. Paying rent every month via check for 1234.56$ is easy, with cash you need to count and recount etc. This is especially true for transactions over the internet. Scale this up and you get into Logistics for large transactions like buying property. Verifying a 1,000,000$ Bill is not fake is one issue, as is trying to get change for huge denominations. On it’s own this would creat an ecosystem of bank like entities such as money exchanges with associated fees. Efficiency, banks make use of deposits for loans which allows them to offer services at a discount. Remove that and people end up directly paying for this stuff. Banks provide other services like transactions between physical and digital currency at ATM’s. The large unbanked population ends up paying high fees for many services banks provide.
    • jtbayly 7y ago
      By all means, if you desire to live paycheck to paycheck, immediately spending all of what you get, go for it. If you don’t, then you’ll have your answer as soon as you figure out why you don’t.
• Retric 7y ago
  Money is an abstraction. If you buy a house the money is not just siting there it’s going to the prior owner. If they then buy some asset from another owner they can extend the chain, but eventually someone ends up spending the money. For example, VC firms entire business model is based around investors generating economic activity by handing it to someone that’s going to spend it. Government bonds are another ‘investment’ that seems to sit around doing nothing, but the bonds are not money. The money was more or less instantly spent by the issuing government or handed to an earlier bond holder.