4 ms·

Money is free for the credit worthy. And by credit worthy that has nothing to do with your social/credit score.

vladimirralev 7y ago
At the same time the business media can't stop talking about both US and global savings glut being the issue. The Fed says the average American doesn't save enough. Every few hours talking heads turn around and say something completely different with no change in fundamentals. The whole system has turned into a joke. We get to see Powell answering the same questions with less sophistication than a fifth grader. While serious analysts actually do the math and prove policy makers' models diverged from their stated goal decades ago.
- QuesnayJr 7y ago
  The saving glut and the wave of debt are the exact same phenomenon. Savers can only save if someone else is borrowing. Collectively low US savings rates show up in the current account deficit -- the US attracts savings from abroad.
  - vladimirralev 7y ago
    > The saving glut and the wave of debt are the exact same phenomenon. Savers can only save if someone else is borrowing. I've heard this before and it doesn't go far to explain any of this. The modern plumbing between savers and borrowers makes this almost meaningless. There is the fractional reserve system to begin with. Savings are only a tiny fraction of the money actually borrowed out there. On top of that, the collateral is historically overvalued while rates are low. I don't know if you are suggesting that savings = debt, that's a subject to interpretation but the way most economists understand it that's not true in this system by a long shot. > the US attracts savings from abroad I assume by savings from abroad you mean foreigners buy dollars to buy stocks and (to a lesser extent) bonds. I don't think this refers to actual cash which is the savings from "the savings glut".
    - rolltiide 7y ago
      These are related issues. The debt glut exists because interest rates are low, interest rates are low for the specific goal of making savers feel like owning US debt or parking money in bank accounts is a waste of time. The goal is for those savers to give random entrepreneurs their money to do fuck all with to "stimulate the economy", and the market is saying "hell no, instead of me earning minuscule interest, I'll literally pay you so I don't have to do that", so governments and corporations issue even more debt at lower and even negative yields.
    - skybrian 7y ago
      Leaving banking to one side, here are the key facts about foreign investment: 1) Nobody sells stuff for free. This includes foreigners selling us imported goods. They will always be compensated somehow. 2) Investors try not to lose money. This includes foreign investors. 3) The U.S. has been running a trade deficit for decades. The result is that foreign investment in the U.S. keeps going up. As long as imports don't balance exports, the difference becomes an increase in foreign ownership of US investment assets. There are two ways for foreign investment to stop increasing. Either the trade balance reverses (fewer imports and more exports) or foreign investors lose their investments and write them off. This does happen sometimes; consider the Saudis, Softbank, and WeWork. In a way, this is good from the US point of view, because foreign losses mean we did eventually get some of our previous imports for free. It's a good trade! But, usually investors learn from their mistakes, so this can't be guaranteed. Not wanting to lose money (but not wanting to spend it either) means there is a high demand for safe investments like Treasury bonds. This drives interest rates down. In the meantime, more imports fuel ever more demand for apparently good investments. This is part of the demand side of the "global savings glut" (it doesn't mean actual cash). Many countries would like to increase exports and own more foreign investments. Much of Wall Street financial innovation comes from attempting to give these investors what they think they want. Some of the things they come up with may actually be good investments and others might just look good. This trend can keep going as long as there are countries trying to become richer via export-led growth, foreign investors don't lose confidence, and foreign consumers aren't empowered and encouraged to buy enough international goods to match their countries' exports. Even troubled times might not cause investors to stop investing in the more stable countries due to lack of good alternatives. Instead there is a "rush to safety".
- skybrian 7y ago
  The problem with talking about averages is that it hides differences between people. Apparently some people save too much (there is a lack of profitable investments and interest rates are low due to supply and demand) while other people save too little (they don't have enough savings for emergencies, let alone retirement). It sounds like inequality to me.
  - Proven 7y ago
    > Apparently some people save too much That's not true. People save according to their preferences and abilities. The whole point of banking system is to lend money. The reason banks can lend is because some people save "too much" (don't spend almost everything they earn). People who are net borrowers would pay a lot more in interest if other people saved less. > It sounds like inequality to me. People are not equal in their abilities, but in their rights. There's no right to have a ton of money in the bank.

At the same time the business media can't stop talking about both US and global savings glut being the issue. The Fed says the average American doesn't save enough. Every few hours talking heads turn around and say something completely different with no change in fundamentals. The whole system has turned into a joke. We get to see Powell answering the same questions with less sophistication than a fifth grader. While serious analysts actually do the math and prove policy makers' models diverged from their stated goal decades ago.

QuesnayJr 7y ago
The saving glut and the wave of debt are the exact same phenomenon. Savers can only save if someone else is borrowing. Collectively low US savings rates show up in the current account deficit -- the US attracts savings from abroad.
- vladimirralev 7y ago
  > The saving glut and the wave of debt are the exact same phenomenon. Savers can only save if someone else is borrowing. I've heard this before and it doesn't go far to explain any of this. The modern plumbing between savers and borrowers makes this almost meaningless. There is the fractional reserve system to begin with. Savings are only a tiny fraction of the money actually borrowed out there. On top of that, the collateral is historically overvalued while rates are low. I don't know if you are suggesting that savings = debt, that's a subject to interpretation but the way most economists understand it that's not true in this system by a long shot. > the US attracts savings from abroad I assume by savings from abroad you mean foreigners buy dollars to buy stocks and (to a lesser extent) bonds. I don't think this refers to actual cash which is the savings from "the savings glut".
  - rolltiide 7y ago
    These are related issues. The debt glut exists because interest rates are low, interest rates are low for the specific goal of making savers feel like owning US debt or parking money in bank accounts is a waste of time. The goal is for those savers to give random entrepreneurs their money to do fuck all with to "stimulate the economy", and the market is saying "hell no, instead of me earning minuscule interest, I'll literally pay you so I don't have to do that", so governments and corporations issue even more debt at lower and even negative yields.
  - skybrian 7y ago
    Leaving banking to one side, here are the key facts about foreign investment: 1) Nobody sells stuff for free. This includes foreigners selling us imported goods. They will always be compensated somehow. 2) Investors try not to lose money. This includes foreign investors. 3) The U.S. has been running a trade deficit for decades. The result is that foreign investment in the U.S. keeps going up. As long as imports don't balance exports, the difference becomes an increase in foreign ownership of US investment assets. There are two ways for foreign investment to stop increasing. Either the trade balance reverses (fewer imports and more exports) or foreign investors lose their investments and write them off. This does happen sometimes; consider the Saudis, Softbank, and WeWork. In a way, this is good from the US point of view, because foreign losses mean we did eventually get some of our previous imports for free. It's a good trade! But, usually investors learn from their mistakes, so this can't be guaranteed. Not wanting to lose money (but not wanting to spend it either) means there is a high demand for safe investments like Treasury bonds. This drives interest rates down. In the meantime, more imports fuel ever more demand for apparently good investments. This is part of the demand side of the "global savings glut" (it doesn't mean actual cash). Many countries would like to increase exports and own more foreign investments. Much of Wall Street financial innovation comes from attempting to give these investors what they think they want. Some of the things they come up with may actually be good investments and others might just look good. This trend can keep going as long as there are countries trying to become richer via export-led growth, foreign investors don't lose confidence, and foreign consumers aren't empowered and encouraged to buy enough international goods to match their countries' exports. Even troubled times might not cause investors to stop investing in the more stable countries due to lack of good alternatives. Instead there is a "rush to safety".
skybrian 7y ago
The problem with talking about averages is that it hides differences between people. Apparently some people save too much (there is a lack of profitable investments and interest rates are low due to supply and demand) while other people save too little (they don't have enough savings for emergencies, let alone retirement). It sounds like inequality to me.
- Proven 7y ago
  > Apparently some people save too much That's not true. People save according to their preferences and abilities. The whole point of banking system is to lend money. The reason banks can lend is because some people save "too much" (don't spend almost everything they earn). People who are net borrowers would pay a lot more in interest if other people saved less. > It sounds like inequality to me. People are not equal in their abilities, but in their rights. There's no right to have a ton of money in the bank.