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Saving and hoarding are not the exact same thing. Saving is invested (on any variety of forms and risks), meaning that it is actively used in the economy to (at

Saving and hoarding are not the exact same thing. Saving is invested (on any variety of forms and risks), meaning that it is actively used in the economy to (at least try to) generate more value. Hoarding is just sitting on top of it, which is not a great for economy.

nhaehnle 14y ago
Unfortunately, this notion of saving is based on a rather antiquated understanding of how banks work. In modern banking, lending is not constrained by the amount of deposits or reserves that a bank has. The only thing limiting the amount of loans given out are capital requirements, and of course risk/return considerations of the bank. The result is that putting money into a savings account of a bank does cause the bank to increase its lending volume. Rather, the amount of bank lending is determined by how many willing and credit-worthy borrowers approach the bank. This in turn depends much more on the overall state of the economy (e.g., whether households are confident enough in the job situation to take on a mortgage, and whether businesses are confident enough of future demand to expand). Note that saving actually tends to be a drag on those factors, because the first-order effect of increased saving is a reduction of aggregate demand. The reason some economists believe that saving is good at a macroeconomic level is that they believe interest rates will adjust to such an extent that banks will be approached by more willing borrowers. The problem with that notion is that loan demand is not actually all that sensitive to interest rates. Even worse is the fact that (nominal) interest rates cannot drop below zero, and (real) interest rates cannot drop below minus the rate of inflation. This makes the conservative position on the economy (disregard the demand side and target low inflation) completely untenable, but I digress...

nhaehnle 14y ago

Unfortunately, this notion of saving is based on a rather antiquated understanding of how banks work. In modern banking, lending is not constrained by the amount of deposits or reserves that a bank has. The only thing limiting the amount of loans given out are capital requirements, and of course risk/return considerations of the bank. The result is that putting money into a savings account of a bank does cause the bank to increase its lending volume. Rather, the amount of bank lending is determined by how many willing and credit-worthy borrowers approach the bank. This in turn depends much more on the overall state of the economy (e.g., whether households are confident enough in the job situation to take on a mortgage, and whether businesses are confident enough of future demand to expand). Note that saving actually tends to be a drag on those factors, because the first-order effect of increased saving is a reduction of aggregate demand. The reason some economists believe that saving is good at a macroeconomic level is that they believe interest rates will adjust to such an extent that banks will be approached by more willing borrowers. The problem with that notion is that loan demand is not actually all that sensitive to interest rates. Even worse is the fact that (nominal) interest rates cannot drop below zero, and (real) interest rates cannot drop below minus the rate of inflation. This makes the conservative position on the economy (disregard the demand side and target low inflation) completely untenable, but I digress...