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>Unless you want savings limits and expiry dates on your money. I don't believe in saving limits or expiry dates in the sense of losing 100% of your money. But
by imtringued 3y ago
>Unless you want savings limits and expiry dates on your money.
I don't believe in saving limits or expiry dates in the sense of losing 100% of your money. But think about what impact limiting savings has on debt. In aggregate, there can only be as much debt as there are savings. This means if you want to limit debt in the economy, you are going to have to limit savings as well.
This is particularly relevant with debt brakes. A country with a debt brake but without a savings brake is going to run into a pretty fundamental limitation.
Savers can delay their spending decisions and this ultimately delays the ability to repay debts but since debtor's are at the mercy of lenders, we blame the debtor for the lenders tardiness.
- nimbleplum40 3y agoSavings and debt in an economy are related, but not 1:1. See the money multiplier [1]. [1] https://en.m.wikipedia.org/wiki/Money_multiplier https://en.m.wikipedia.org/wiki/Money_multiplier
- spiralx 3y agoWhich, as the article says, is an inaccurate model of how modern monetary economies actually work. Bank loans create new money, they don't lend out existing deposits, and repayments destroy that money. Reserve requirements - in countries that have them - don't affect whether a loan can be made or not.
- nimbleplum40 3y ago> Bank loans create new money, they don't lend out existing deposits Do you mind clarifying? I agree banks create new money, but they do that by lending out existing deposits. A bank can’t lend out money that don’t have on their books…
- spiralx 3y agoIt helps if you think about it in accounting terms where assets minus liabilities needs to add up to zero. When a bank makes a loan for $100 it adds $100 to the balance in your account - which is a $100 liability - and the $100 loan to its assets, balancing the books. Bank deposits aren't stores of physical cash, they're numbers in a ledger indicating what the bank owes you, and when you get a loan it means the bank owes you more money and not that it owes anybody else less money. This Bank of England paper is by far the simplest and best explanation of the whole process, well worth a look even if just for the summary on the first page :) 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-...
- nimbleplum40 3y agoRight, but I’m not tracking your previous statement that banks don’t lend out existing deposits. They do! Sometimes up to 100% of existing deposits! I suspect we’re saying the same thing though. For example, a bank might take a $100 deposit, keep $10, and loan out the additional $90. That creates $90 because they original depositor still has the $100 in their account.
- spiralx 3y agoThey don't lend out deposits, if a bank had zero deposits it could still loan you that $100 just by adjusting your balance and adding the loan to their books. It's a subtle difference, and honestly, the BoE explainer I linked to is by far better at explaining this than I am.
- nimbleplum40 3y agoUntil you went to withdraw any of that money… I get what you’re saying in theory, but show me a bank with 0 capital…
- nimbleplum40 3y agoAlso, this doesn’t negate the money multiplier. Assuming non-zero reserve requirements, the money multiplier is still an upper bound on the amount of money that can be created.