4 ms·

You get what you incentivize. We are currently incentivizing debt over savings, so that's what we get. When I was in college, the bank would give something lik

You get what you incentivize. We are currently incentivizing debt over savings, so that's what we get. When I was in college, the bank would give something like 6-7% on savings. If I had a million dollars in the bank I could comfortably live off that interest for life. Now if I put a million dollars in the bank, I lose wealth due to inflation, so I'm incentivized to put it in a fund or something now, which is a lot riskier than bank interest.

whimsicalism 5y ago
> Now if I put a million dollars in the bank, I lose wealth due to inflation, so I'm incentivized to put it in a fund or something now, which is a lot riskier than bank interest. Yes, people investing in productive enterprise is actually better for real output, prices, and generally overall welfare.
- cies 5y ago
  Consumers buying is what drives production. Not investment. > better [...] prices, and generally overall welfare. How does investment do that? Plenty examples of the opposite can be found. I find those claims baseless.
  - whimsicalism 5y ago
    Investment and low rates drives wages which drives consumption. Investment also shifts aggregate supply to the right, which causes more output.
    - RussianCow 5y ago
      > Investment and low rates drives wages which drives consumption. I know this is Economics 101, but is there any evidence that this actually happens in practice?
- Clubber 5y ago
  It's certainly good for the shareholders to have more money in the market, I'm not sure about the others. I know I'd much rather have a solid 6-7% interest return than a flaky market return.
  - whimsicalism 5y ago
    > I know I'd much rather have a solid 6-7% interest return than a flaky market return. And college debt holders, mortgage holders, generally impoverished people would rather have lower rates on the debt that they have. They'd also rather have jobs, which again comes with more investment. They'd also like to have a higher quality of life, again which comes with more investment in capital/production/real output.
    - Clubber 5y ago
      >generally impoverished people would rather have lower rates on the debt that they have. Generally impoverished people aren't granted lower rates because of the credit system. They typically pay usury rates. Only people with existing assets / collateral get low rates. >They'd also rather have jobs, which again comes with more investment. Generally impoverished people have shit jobs, that's why they are generally impoverished. Also, investment leads to automation and offshoring which actually lowers jobs. >They'd also like to have a higher quality of life, again which comes with more investment in capital/production/real output. If investment in capital/production/real output helps impoverished people, it's very little. It generally helps already wealthy people. You're looking at stuff from a textbook macroeconomic position. In the realistic / microeconomic world, things aren't as you are portraying them.
      - whimsicalism 5y ago
        1. If you get higher interest rate returns, how do you think that is being paid for if poor people aren't getting higher rates? 2. Unexpectedly lower interest rates increase employer competition in the labor market, raising wages. This is well studied. 3. The quality of life of a poor person in the US is unimaginably better than that of someone ranked relatively the same 100 years ago. That is due to investment. Denying those massive quality life improvements is absurd, although increasingly popular in our out-of-touch political climate.
- Burnafter186 5y ago
  What do you think banks do with your money, exactly?
  - whimsicalism 5y ago
    Loan it out? What is your real question? I would rather not play Plato to your Socrates in a comment thread.
    - PeterisP 5y ago
      The point is that your money gets invested in productive enterprise in any case, no matter if it's done through equity financing or credit financing; so if you take out money from your savings account and buy shares then that does not really change the total amount of investment in the economy.
      - whimsicalism 5y ago
        Yes, both of those are increased with lower rates. My point remains exactly the same.
- MisterMower 5y ago
  Savings does exactly that. You’re money doesn’t just sit in the bank, the bank loans it out to people engaging in economic activity, businesses that want to expand, buy inventory, etc.
  - imtringued 5y ago
    In our fractional reserve system your saved money literally sits in the bank. The debtor gets fresh money and when he repays the loan the money disappears into thin air. It's important that people delay consumption so that there is enough room for investments but european countries are running well below capacity. Savings mostly affects inflation rather than the nominal amount of money that can be lent out.
  - spiralx 5y ago
    No, banks create money when they make a loan, they don't lend out deposits. Loans are constrained by risk and by reserve requirements set by central banks. 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-...
sokoloff 5y ago
Was there ever a time where a savings account of $1M both provided a livable income over many decades and didn’t lose value to inflation? What were inflation rates while savings rates were 6-7%?
- Clubber 5y ago
  Sure, say I had $1M in the bank in 1996, it would yield ~$70K which would provide a comfortable living situation both then and today. Inflation was around 2-3%, which is generally the target. >lose value to inflation Inflation always erodes money of course, so there was never a time when that didn't happen when there was inflation.
  - deleted 5y ago
    [deleted]
  - lkbm 5y ago
    The question is whether the inflation exceeds interest. With index funds it generally doesn't, but I'm not sure about a savings account. Right now inflation easily beats a high interest savings account, but I'm not sure about 1996.
  - sokoloff 5y ago
    If you took $70K to pay taxes and spend every year, your million would slowly dwindle (CD rates were in the 5-6% range) At 3% inflation, that $70K/yr would lose half its purchasing value in the span of 24 years of your retirement. (It also would cease yielding $50-70K per year over that time as well, but that’s with the benefit of hindsight and you could lock in the rate with a longer term CD at retirement. That still leaves you with half the purchasing power though.) I don’t think savings accounts have ever been a reasonable way to invest the bulk of your money for future retirement.
    - MisterMower 5y ago
      You’re double counting that $70k. That’s interest on the $1M. Assuming rates stay at 7%, you’d get that $70k every year. You are correct that $70k wouldn’t go as far today due to inflation. But $70k per year was great money in 1996. Related, my dad and a buddy invested $10k in a CD that yielded 21% back in 1984 I think. If the rates are high enough CDs can be an excellent investment. They’re basically risk free. My bank is offering 0.6% currently. Real rates are very negative right now.
criddell 5y ago
The Treasury sells savings bonds that are at 7.12% right now. It's not the same thing as a savings account and you can't put a million dollars in, but you can still get a good interest rate on smaller amounts.
- gruez 5y ago
  >The Treasury sells savings bonds that are at 7.12% right now. source? yields top out at 2.05% right now. https://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/textview.aspx?data=yield https://www.treasury.gov/resource-center/data-chart-center/i...
  - criddell 5y ago
    https://treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_ibuy.htm https://treasurydirect.gov/indiv/research/indepth/ibonds/res...
    - hackingforfun 5y ago
      This is good to know. I wasn't aware of this website. However, you can't live off of 7.12% on a limit of $10k electronic bonds. I do wish savings accounts still had high interest rates and there wasn't so much incentive to invest in riskier assets like stocks.
  - deleted 5y ago
    [deleted]
- bigwavedave 5y ago
  "For the first six months you own it, the Series I bond we sell from November 2021 through April 2022 earns interest at an annual rate of 7.12 percent. A new rate will be set every six months based on this bond's fixed rate (0.00 percent) and on inflation." As someone who's never bought bonds before, how do I know the 7.12% won't change after the 6 months of the locked rate to the 0.00% and whatever pittance they decide to toss my way in an attempt to account for inflation? Sincere question, I don't know anything about anything.
spamizbad 5y ago
Okay, but now you're talking about using monetary policy to change American culture away from consumption and more towards saving. I'm not sure such change is politically sustainable.
- MisterMower 5y ago
  And what we have today (steeply negative real rates) is?

whimsicalism 5y ago

> Now if I put a million dollars in the bank, I lose wealth due to inflation, so I'm incentivized to put it in a fund or something now, which is a lot riskier than bank interest. Yes, people investing in productive enterprise is actually better for real output, prices, and generally overall welfare.

cies 5y ago
Consumers buying is what drives production. Not investment. > better [...] prices, and generally overall welfare. How does investment do that? Plenty examples of the opposite can be found. I find those claims baseless.
- whimsicalism 5y ago
  Investment and low rates drives wages which drives consumption. Investment also shifts aggregate supply to the right, which causes more output.
  - RussianCow 5y ago
    > Investment and low rates drives wages which drives consumption. I know this is Economics 101, but is there any evidence that this actually happens in practice?
Clubber 5y ago
It's certainly good for the shareholders to have more money in the market, I'm not sure about the others. I know I'd much rather have a solid 6-7% interest return than a flaky market return.
- whimsicalism 5y ago
  > I know I'd much rather have a solid 6-7% interest return than a flaky market return. And college debt holders, mortgage holders, generally impoverished people would rather have lower rates on the debt that they have. They'd also rather have jobs, which again comes with more investment. They'd also like to have a higher quality of life, again which comes with more investment in capital/production/real output.
  - Clubber 5y ago
    >generally impoverished people would rather have lower rates on the debt that they have. Generally impoverished people aren't granted lower rates because of the credit system. They typically pay usury rates. Only people with existing assets / collateral get low rates. >They'd also rather have jobs, which again comes with more investment. Generally impoverished people have shit jobs, that's why they are generally impoverished. Also, investment leads to automation and offshoring which actually lowers jobs. >They'd also like to have a higher quality of life, again which comes with more investment in capital/production/real output. If investment in capital/production/real output helps impoverished people, it's very little. It generally helps already wealthy people. You're looking at stuff from a textbook macroeconomic position. In the realistic / microeconomic world, things aren't as you are portraying them.
    - whimsicalism 5y ago
      1. If you get higher interest rate returns, how do you think that is being paid for if poor people aren't getting higher rates? 2. Unexpectedly lower interest rates increase employer competition in the labor market, raising wages. This is well studied. 3. The quality of life of a poor person in the US is unimaginably better than that of someone ranked relatively the same 100 years ago. That is due to investment. Denying those massive quality life improvements is absurd, although increasingly popular in our out-of-touch political climate.
Burnafter186 5y ago
What do you think banks do with your money, exactly?
- whimsicalism 5y ago
  Loan it out? What is your real question? I would rather not play Plato to your Socrates in a comment thread.
  - PeterisP 5y ago
    The point is that your money gets invested in productive enterprise in any case, no matter if it's done through equity financing or credit financing; so if you take out money from your savings account and buy shares then that does not really change the total amount of investment in the economy.
    - whimsicalism 5y ago
      Yes, both of those are increased with lower rates. My point remains exactly the same.
MisterMower 5y ago
Savings does exactly that. You’re money doesn’t just sit in the bank, the bank loans it out to people engaging in economic activity, businesses that want to expand, buy inventory, etc.
- imtringued 5y ago
  In our fractional reserve system your saved money literally sits in the bank. The debtor gets fresh money and when he repays the loan the money disappears into thin air. It's important that people delay consumption so that there is enough room for investments but european countries are running well below capacity. Savings mostly affects inflation rather than the nominal amount of money that can be lent out.
- spiralx 5y ago
  No, banks create money when they make a loan, they don't lend out deposits. Loans are constrained by risk and by reserve requirements set by central banks. 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-...

sokoloff 5y ago

Was there ever a time where a savings account of $1M both provided a livable income over many decades and didn’t lose value to inflation? What were inflation rates while savings rates were 6-7%?

Clubber 5y ago
Sure, say I had $1M in the bank in 1996, it would yield ~$70K which would provide a comfortable living situation both then and today. Inflation was around 2-3%, which is generally the target. >lose value to inflation Inflation always erodes money of course, so there was never a time when that didn't happen when there was inflation.
- deleted 5y ago
  [deleted]
- lkbm 5y ago
  The question is whether the inflation exceeds interest. With index funds it generally doesn't, but I'm not sure about a savings account. Right now inflation easily beats a high interest savings account, but I'm not sure about 1996.
- sokoloff 5y ago
  If you took $70K to pay taxes and spend every year, your million would slowly dwindle (CD rates were in the 5-6% range) At 3% inflation, that $70K/yr would lose half its purchasing value in the span of 24 years of your retirement. (It also would cease yielding $50-70K per year over that time as well, but that’s with the benefit of hindsight and you could lock in the rate with a longer term CD at retirement. That still leaves you with half the purchasing power though.) I don’t think savings accounts have ever been a reasonable way to invest the bulk of your money for future retirement.
  - MisterMower 5y ago
    You’re double counting that $70k. That’s interest on the $1M. Assuming rates stay at 7%, you’d get that $70k every year. You are correct that $70k wouldn’t go as far today due to inflation. But $70k per year was great money in 1996. Related, my dad and a buddy invested $10k in a CD that yielded 21% back in 1984 I think. If the rates are high enough CDs can be an excellent investment. They’re basically risk free. My bank is offering 0.6% currently. Real rates are very negative right now.

criddell 5y ago

The Treasury sells savings bonds that are at 7.12% right now. It's not the same thing as a savings account and you can't put a million dollars in, but you can still get a good interest rate on smaller amounts.

gruez 5y ago
>The Treasury sells savings bonds that are at 7.12% right now. source? yields top out at 2.05% right now. https://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/textview.aspx?data=yield https://www.treasury.gov/resource-center/data-chart-center/i...
- criddell 5y ago
  https://treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_ibuy.htm https://treasurydirect.gov/indiv/research/indepth/ibonds/res...
  - hackingforfun 5y ago
    This is good to know. I wasn't aware of this website. However, you can't live off of 7.12% on a limit of $10k electronic bonds. I do wish savings accounts still had high interest rates and there wasn't so much incentive to invest in riskier assets like stocks.
- deleted 5y ago
  [deleted]
bigwavedave 5y ago
"For the first six months you own it, the Series I bond we sell from November 2021 through April 2022 earns interest at an annual rate of 7.12 percent. A new rate will be set every six months based on this bond's fixed rate (0.00 percent) and on inflation." As someone who's never bought bonds before, how do I know the 7.12% won't change after the 6 months of the locked rate to the 0.00% and whatever pittance they decide to toss my way in an attempt to account for inflation? Sincere question, I don't know anything about anything.

spamizbad 5y ago

Okay, but now you're talking about using monetary policy to change American culture away from consumption and more towards saving. I'm not sure such change is politically sustainable.

MisterMower 5y ago
And what we have today (steeply negative real rates) is?