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You're right that QE erodes the savings and income of not-rich people - the middle class and the poor. You're wrong in your theory that accumulated wealth does

by brc 12y ago

You're right that QE erodes the savings and income of not-rich people - the middle class and the poor. You're wrong in your theory that accumulated wealth does nothing. In a QE world, the very rich don't sit on cash - that would mean losing money through currency decreases. There is no such thing as 'wasted capital' - rich people store their wealth in a variety of vehicles - whether in banks (where it is re-lent out for many uses), public stock ( where it is used for company investment and operations), and private investment, such as investing in pre-IPOD start ups and private equity. Even Apples massive cash hoard is put to good use, somewhere. What there is a shortage of, is productive investments where lots of capital can be deployed to get a healthy return. This is a function of multiple problems, of which uncertainty is one. It's a very cartoonish model to imagine a daddy warbucks with a big pile of cash saying 'I just don't have time to spend this'. In actual fact, there would be a team of investment managers saying 'we can't find any good places to invest, so we're letting the bank invest it for us, for the time being'. The answer to Japan's problems is cutting government spending and debt. This has always been the answer, this will always be the answer, whether you're an individual with 20k in debt or a country with 200b in debt. The key is to realise that there is no magic Keynes multiplier.

shit_parade 12y ago
When the ECB introduces such things as negative interest rates then yes, sometimes large amounts of capital does essentially sit and do nothing but be savings (in a healthy real-market economy this would naturally reduce interest rates), large institutional wealth is often as interested in capital preservation as it is in capital growth -- this pretty much what the bond market is all about.
yarou 12y ago
>You're wrong in your theory that accumulated wealth does nothing. In a QE world, the very rich don't sit on cash - that would mean losing money through currency decreases. Correct, but they still don't spend money. The very wealthy are known to hoard money, it doesn't matter in which "vehicle" they store their money in. >There is no such thing as 'wasted capital' - rich people store their wealth in a variety of vehicles - whether in banks (where it is re-lent out for many uses), public stock ( where it is used for company investment and operations), and private investment, such as investing in pre-IPOD start ups and private equity. It's not wasted capital, but it doesn't stimulate the economy either. They are not contributing to investment, in the real economic sense. >Even Apples massive cash hoard is put to good use, somewhere. Wrong. >It's a very cartoonish model to imagine a daddy warbucks with a big pile of cash saying 'I just don't have time to spend this'. In actual fact, there would be a team of investment managers saying 'we can't find any good places to invest, so we're letting the bank invest it for us, for the time being'. It's still not real investment. I think you don't understand what the "I" component in GDP is. [0] [0] http://en.wikipedia.org/wiki/Gross_private_domestic_investment http://en.wikipedia.org/wiki/Gross_private_domestic_investme... >The answer to Japan's problems is cutting government spending and debt. This has always been the answer, this will always be the answer, whether you're an individual with 20k in debt or a country with 200b in debt. The key is to realise that there is no magic Keynes multiplier. Wrong again. Greece cut their government spending a lot, they don't seem to be in great shape. The reality of the matter (while counterintuitive) is that deficit spending helps stimulate the economy. As long as Japan wants to devalue their currency, government spending is the last option left to stimulate their economy.
- adventured 12y ago
  It absolutely does matter what vehicle the rich store their wealth in. If they store it in a bank, it boosts the lending capabilities of that bank. If they buy stocks, it provides financing for public companies. Even if the rich hide their cash under a mattress for a long time, they provide a purchasing power boost to other consumers by reducing the freely available supply of currency. Saying that the parent is wrong about Apple's cash, does not actually prove they're wrong. "Wrong." is not an argument. There's practically nothing a rich person can do with their hoard to harm the economy, other than to take that capital out of the domestic economy or invest into a ponzi scheme or asset bubble.

by brc 12y ago

shit_parade 12y ago

When the ECB introduces such things as negative interest rates then yes, sometimes large amounts of capital does essentially sit and do nothing but be savings (in a healthy real-market economy this would naturally reduce interest rates), large institutional wealth is often as interested in capital preservation as it is in capital growth -- this pretty much what the bond market is all about.

yarou 12y ago

>You're wrong in your theory that accumulated wealth does nothing. In a QE world, the very rich don't sit on cash - that would mean losing money through currency decreases. Correct, but they still don't spend money. The very wealthy are known to hoard money, it doesn't matter in which "vehicle" they store their money in. >There is no such thing as 'wasted capital' - rich people store their wealth in a variety of vehicles - whether in banks (where it is re-lent out for many uses), public stock ( where it is used for company investment and operations), and private investment, such as investing in pre-IPOD start ups and private equity. It's not wasted capital, but it doesn't stimulate the economy either. They are not contributing to investment, in the real economic sense. >Even Apples massive cash hoard is put to good use, somewhere. Wrong. >It's a very cartoonish model to imagine a daddy warbucks with a big pile of cash saying 'I just don't have time to spend this'. In actual fact, there would be a team of investment managers saying 'we can't find any good places to invest, so we're letting the bank invest it for us, for the time being'. It's still not real investment. I think you don't understand what the "I" component in GDP is. [0] [0] http://en.wikipedia.org/wiki/Gross_private_domestic_investment http://en.wikipedia.org/wiki/Gross_private_domestic_investme... >The answer to Japan's problems is cutting government spending and debt. This has always been the answer, this will always be the answer, whether you're an individual with 20k in debt or a country with 200b in debt. The key is to realise that there is no magic Keynes multiplier. Wrong again. Greece cut their government spending a lot, they don't seem to be in great shape. The reality of the matter (while counterintuitive) is that deficit spending helps stimulate the economy. As long as Japan wants to devalue their currency, government spending is the last option left to stimulate their economy.

adventured 12y ago
It absolutely does matter what vehicle the rich store their wealth in. If they store it in a bank, it boosts the lending capabilities of that bank. If they buy stocks, it provides financing for public companies. Even if the rich hide their cash under a mattress for a long time, they provide a purchasing power boost to other consumers by reducing the freely available supply of currency. Saying that the parent is wrong about Apple's cash, does not actually prove they're wrong. "Wrong." is not an argument. There's practically nothing a rich person can do with their hoard to harm the economy, other than to take that capital out of the domestic economy or invest into a ponzi scheme or asset bubble.