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Pretty sure illiquidity is not caused by wealth hoarding. It’s caused by taking out more debt than one can service, and people becoming scared to lend to others

by ericd 6y ago

Pretty sure illiquidity is not caused by wealth hoarding. It’s caused by taking out more debt than one can service, and people becoming scared to lend to others, because they’re worried they won’t be paid back. When everyone gets scared at once, things grind to a halt. And there’s a natural tendency while times are good to take out more and more debt, because you can use it to enhance your productivity. EDIT: (so things naturally trend toward the overlevered state and a crunch)

mdale 6y ago
Is that not just the other side of the same coin ? Short of centralized banking printing money there is no competition for wealthy just hording and letting time pass and demand grow. Kind of like bitcoin ;)
- ericd 6y ago
  Eh the wealthy don’t hold onto stacks of cash, they immediately turn around and invest the vast majority of it in company equity, bonds, etc. Not sure if there’d be some sort of hoarding cash crunch in the absence of central banking, I haven’t studied the history there.
- missedthecue 6y ago
  Can you explain how one "hoards money"? Like are they burying it in their backyard or stuffing it in their mattress? Do they have a McScrooge money pit?
  - throwaway316943 6y ago
    On a gold standard you can literally hoard it in a vault without losing value. Without inflation it’s actually not a terrible idea because you have high liquidity, you don’t have to sell assets to free up cash. You’d still buy assets but only the ones you actually needed or wanted rather than as a hedge against inflation.
    - Robotbeat 6y ago
      What’s wrong with investing in productive machines (or productivity enhancements) as a hedge against inflation instead of just burying the talents and letting them go to waste?
  - Judgmentality 6y ago
    I don't think it's a revelation that lots of ultra wealthy people hide money in offshore bank accounts, as well as other means. I'd say many of them are literally hoarding it.
    - missedthecue 6y ago
      If it's in a bank account, it's not being hoarded. It's being loaned out and the people who get the loans are spending it on houses, businesses, automobiles, etc...
      - dctoedt 6y ago
        > If it's in a bank account, it's not being hoarded. It's being loaned out and the people who get the loans are spending it on houses, businesses, automobiles, etc. This presupposes banks actually loan it out — which doesn't always happen, for example if lending officers are gun-shy or underwriting policies get too tight because senior management is gun-shy.
        missedthecue 6y ago
        Banks aren't charities. It costs a good bit of money to keep deposits, on top of the interest expense. (deposit insurance, overhead, staff, etc...) I think it's highly unlikely that these overseas banks that the rich use are doing nothing but sitting on their money and this practice accounts for all the purported "hoarding".
        dctoedt 6y ago
        From the St. Louis Federal Reserve: "Lending growth slowed to zero during the 1990-91 and 2001 recessions but recovered after a few quarters. In contrast, during the Great Recession (2007-09), loan growth became strongly negative and remained so for almost four years." https://research.stlouisfed.org/publications/economic-synopses/2016/02/05/bank-lending-during-recessions https://research.stlouisfed.org/publications/economic-synops...
- OminousWeapons 6y ago
  It's true that capital begets more capital, but that's because anyone with money lends it back out seeking growth. Even if you have very little money and you put it in a bank account, you are lending that money to the bank for them to invest or lend out. Basically no one is just sitting on piles of physical cash, because if you did so you would lose value behind inflation.
  - throwaway316943 6y ago
    Well we are talking about non inflationary systems compared to inflationary ones.

by ericd 6y ago

mdale 6y ago

Is that not just the other side of the same coin ? Short of centralized banking printing money there is no competition for wealthy just hording and letting time pass and demand grow. Kind of like bitcoin ;)

ericd 6y ago
Eh the wealthy don’t hold onto stacks of cash, they immediately turn around and invest the vast majority of it in company equity, bonds, etc. Not sure if there’d be some sort of hoarding cash crunch in the absence of central banking, I haven’t studied the history there.
missedthecue 6y ago
Can you explain how one "hoards money"? Like are they burying it in their backyard or stuffing it in their mattress? Do they have a McScrooge money pit?
- throwaway316943 6y ago
  On a gold standard you can literally hoard it in a vault without losing value. Without inflation it’s actually not a terrible idea because you have high liquidity, you don’t have to sell assets to free up cash. You’d still buy assets but only the ones you actually needed or wanted rather than as a hedge against inflation.
  - Robotbeat 6y ago
    What’s wrong with investing in productive machines (or productivity enhancements) as a hedge against inflation instead of just burying the talents and letting them go to waste?
- Judgmentality 6y ago
  I don't think it's a revelation that lots of ultra wealthy people hide money in offshore bank accounts, as well as other means. I'd say many of them are literally hoarding it.
  - missedthecue 6y ago
    If it's in a bank account, it's not being hoarded. It's being loaned out and the people who get the loans are spending it on houses, businesses, automobiles, etc...
    - dctoedt 6y ago
      > If it's in a bank account, it's not being hoarded. It's being loaned out and the people who get the loans are spending it on houses, businesses, automobiles, etc. This presupposes banks actually loan it out — which doesn't always happen, for example if lending officers are gun-shy or underwriting policies get too tight because senior management is gun-shy.
      - missedthecue 6y ago
        Banks aren't charities. It costs a good bit of money to keep deposits, on top of the interest expense. (deposit insurance, overhead, staff, etc...) I think it's highly unlikely that these overseas banks that the rich use are doing nothing but sitting on their money and this practice accounts for all the purported "hoarding".
        dctoedt 6y ago
        From the St. Louis Federal Reserve: "Lending growth slowed to zero during the 1990-91 and 2001 recessions but recovered after a few quarters. In contrast, during the Great Recession (2007-09), loan growth became strongly negative and remained so for almost four years." https://research.stlouisfed.org/publications/economic-synopses/2016/02/05/bank-lending-during-recessions https://research.stlouisfed.org/publications/economic-synops...
OminousWeapons 6y ago
It's true that capital begets more capital, but that's because anyone with money lends it back out seeking growth. Even if you have very little money and you put it in a bank account, you are lending that money to the bank for them to invest or lend out. Basically no one is just sitting on piles of physical cash, because if you did so you would lose value behind inflation.
- throwaway316943 6y ago
  Well we are talking about non inflationary systems compared to inflationary ones.