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From what I remember of econ 101, if people are saving more, that should mean more deposits in banks which should then provoke banks to lend more out - easing t
by gcheong 18y ago
From what I remember of econ 101, if people are saving more, that should mean more deposits in banks which should then provoke banks to lend more out - easing the credit crunch, which should then lead to more spending, etc so in the long run the extra saving should actually help the economy, no?.
- antiismist 18y agoOrdinarily this is true. What is happening now is that financial institutions are trying to deleverage, so that will soak up a huge amount of deposits without any extra lending at all.
- cchooper 18y agoIt's not true ordinarily either. Whether people save or spend makes no difference to bank deposits, because all money spent or saved gets deposited in a bank anyway. Spending is just the transfer of your deposits to someone else, not a net change in the number of deposits. However, if people moved their money from current accounts to savings accounts (which you would expect if people actually wanted to save for the future) then potential lending would increase because banks lend savings cash more readily that current account cash. But people are probably not saving for the future. They are saving because they have less access to credit and/or are worried about losing their job. If anything, that encourages people to liquidate savings accounts rather than increase them, so the potential money banks can lend could be decreasing.
- deleted 18y ago[deleted]
- teej 18y agoHopefully that means banks competing for deposits, which should lead to the interest rate on my ING account to go up.