Savers are bad for the economy at large though because they don't invest in high risk businesses, but rather in low risk assets (RE, bonds, etc) that do nothing for no one. They're like scrooge mcduck swimming in their pile of gold.
What an absurd position. First off, risk isn't the goal, reward is. Risk is just the price of increasing rewards. But we shouldn't mistake the two, or valorize risk itself. Any high risk business not taking risk mitigations available to it is a poor one. And any investor who isn't using low risk, uncorrelated assets to juice their returns is missing out!
Secondly. Bonds are not assets that "do nothing for no one;" they don't sit there in a vault. They are a loan to busineses, and they allow businesses and governments to build factories, bridges, and even other companies. They invite additional capital into the market, which can be used to make more high risk / high reward investments, for a small cut of the rewards. Even savings is a loan to the bank, which recirculates the money with their own loan desk. Negative interest rates in Germany aside, very little money in the system sits in an idle 'pile of gold.'
And that's really the problem here -- electronic deposits with the ECB cost banks money, so they're not using the central bank. The money still exists, and economy is still moving, but the normal holder of cash deposits is charging instead of paying for it. This is why it was theorized that 0 percent was the lower bound on interest rates, so it would be a more surprising outcome if this sort of thing didn't happen.
Well, it's how the FOMC operates. There's plenty of state and local bonds issued that match the model. But if you want to play the #notallbonds card, be my guest.
Savers may not invest in high risk businesses, but the opposite of saving is not investing, it's spending, generally on consumer goods rather than on anything "productive". There's a different conversation to be had about how much consumer spending benefits those high risk businesses, but only a fraction of income earned by a business gets reinvested into plant and equipment in any case.
I'm not sure you understand these assets if you think they do nothing. If you want to rent an apartment then someone has to build and own it first. If you want to borrow money for your business then someone has to save money and put it aside so it becomes available to you. Your comparison to scrooge mcduck doesn't make sense because you're assuming that the money will never be used. If your goal is to save 20000€ over 7 years to buy a car without financing then you would be incredibly foolish to put that money into a risky asset. If the stock market crashes the same year you wanted to buy your car the you will need to obtain liquidity by borrowing money from a bank (remember those stupid scrooge mcducks swimming in their pile of gold? now you're begging them to give you money) and getting the car loan you wanted to avoid with the hope that in 3 years the value of your asset recovers and you can finally sell it to pay off the loan.
>If the stock market crashes the same year you wanted to buy your car the you will need to obtain liquidity by borrowing money from a bank (remember those stupid scrooge mcducks swimming in their pile of gold? now you're begging them to give you money)
Are banks not able to in effect create money in todays system?
Banks can create an amount of money beyond what they get in deposits, but that’s limited by the fractional reserve system and the amount they hold as deposits (this makes some simple assumptions, but is mostly true). They cannot create an infinite amount of money by themselves (without a central bank’s intervention).
All well and good when youve strong economic growth, but all that stored capital comes in handy when there’s a shock. It provides a way to make money from your less well prepared neighbours ...
But seriously, there’s no harm damping things a bit. Runaway growth can have its issues too. I reckon best is to keep your inflation just ahead of population growth.
Savers are bad for business because liquidity stops when money hits them.
US has such a strong economy because barely anyone save. Japan had so much savings that they literally need exports to survive, there’s no home market to speak of because everyone save so much. Once export tanks, their economy tank.
That document is widely misread. It's true that the bank doesn't have to wait around for a saver to make a loan (they can borrow from other banks), but at the same time banks do fund most of their loans through deposits. Look at the balance sheet for any commercial bank, and you will see most of their liabilities are in the form of deposits.
