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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 exp
by 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 agoIn 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 agoNo, 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-...