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Rory
Post  Post subject: Our Economy Treats Savers Like Sinners  |  Posted: Sat Feb 28, 2015 6:07 pm
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[MODNOTE] The posts below were split from the off-topic thread here: post19373.html#p19373

On another note, please don't ask about the irony of them being split from the off-topic thread for being off-topic! [/MODNOTE]


Observations of the day:

i. It's a peculiar economy that treats savers like sinners but that's the situation we find ourselves in.

ii. The work of the police is going to become more complex as political tensions rise in the West - take, for example, the Pegida and anti-Pegida demonstrations that occurred today in Newcastle necessitating that the police form a human cordon between the 400 and 2,000 -strong (respectively) rival groups. What are the police going to do when the splinter groups are in the double digits and all demonstrating at the same time in the same area? Hide, one might think.

iii. Bought a new brand of water-absorbant cat litter that makes a 'snap, crackle, pop' Rice Crispies sound when my cats go pee-pee. :P

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iNow
Post  Post subject: Re: Our Economy Treats Savers Like Sinners  |  Posted: Sat Feb 28, 2015 7:19 pm
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Rory wrote:
It's a peculiar economy that treats savers like sinners but that's the situation we find ourselves in.

When 70% of your economy is based on public consumption, saving hurts everyone. It is a strange paradox, but makes sense from an objective standpoint, at least.

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marnixR
Post  Post subject: Re: Our Economy Treats Savers Like Sinners  |  Posted: Sat Feb 28, 2015 9:29 pm
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from a purely selfish point of view saving before you spend costs less than borrowing in order to spend
it's one of the reasons why the rich are rich : they don't have to borrow in order to spend, and hence get a better deal

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Rory
Post  Post subject: Re: Our Economy Treats Savers Like Sinners  |  Posted: Sun Mar 01, 2015 9:55 am
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I think it's kind of short-sighted to hold savers to ransom in this way, though, because all it means is that they will spend whatever savings they have on small items and will be precluded from building their savings to a point that would otherwise have made them a more 'useful' consumer (from the perspective of other economic participants) by increasing their income (investing in eduation or training to break into higher paid employment) or allowing for a more substantial purchase (saving enough to afford a house deposit).

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iNow
Post  Post subject: Re: Our Economy Treats Savers Like Sinners  |  Posted: Sun Mar 01, 2015 3:05 pm
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I'm not advocating any punishment of frugality or a focus on saving, but realize from a systemic level that your spending is someone else's income.

If everyone saves at once then everyone's income also decreases at once and the economy as a whole begins to crumble. This is in large part what happened during the 2008 crisis... Everyone stopped spending money and began hiding cash under their mattresses and banks stopped lending and the gears of the economy grinder to a halt. Businesses weren't making money since fewer and fewer people were spending money with them and so had to lay people off, then those laid off employees didn't have money to spend and more businesses had to start laying people off so it became a self-reinforcing spiral until government and reserve banks stepped in to inject liquidity and put the brakes on.


http://www.nytimes.com/2012/06/01/opini ... genda.html
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[S]lashing spending while the economy is deeply depressed is a self-defeating strategy, because it just deepens the depression. <...> The bad metaphor — which you’ve surely heard many times — equates the debt problems of a national economy with the debt problems of an individual family. A family that has run up too much debt, the story goes, must tighten its belt. So if Britain, as a whole, has run up too much debt — which it has, although it’s mostly private rather than public debt — shouldn’t it do the same? What’s wrong with this comparison?

The answer is that an economy is not like an indebted family. Our debt is mostly money we owe to each other; even more important, our income mostly comes from selling things to each other. Your spending is my income, and my spending is your income.

So what happens if everyone simultaneously slashes spending in an attempt to pay down debt? The answer is that everyone’s income falls — my income falls because you’re spending less, and your income falls because I’m spending less. And, as our incomes plunge, our debt problem gets worse, not better.

This isn’t a new insight. The great American economist Irving Fisher explained it all the way back in 1933, summarizing what he called “debt deflation” with the pithy slogan “the more the debtors pay, the more they owe.” Recent events, above all the austerity death spiral in Europe, have dramatically illustrated the truth of Fisher’s insight.



Note: I've split this off to its own thread since (oddly) we're far off-topic in the off-topic thread. :lol:

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Rory
Post  Post subject: Re: Our Economy Treats Savers Like Sinners  |  Posted: Sun Mar 01, 2015 6:11 pm
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I understand that the government has wanted to force a consumer-led economic recovery by keeping interest rates low - and presumably that policy is informed by the concept you have outlined above, iNow. But isn't that policy short-sighted?

Those with a small amount of savings (<10k) will be encouraged to spend their meagre lot rather than continue to build up that amount. So instead of spending in the medium term on something like a car, a degree (which could potentially have boosted their disposable income in the medium to long term) or a house deposit, they instead use it to supplement their income to pay banal utility and food costs. So that might make a bit of business for the local economy in the short term but it is sabotaging what could have been big business (relatively speaking) for the local economy in the medium term.

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kojax
Post  Post subject: Re: Our Economy Treats Savers Like Sinners  |  Posted: Sun Mar 01, 2015 6:14 pm
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Remember that ultimately "the economy" is meant to map to something fully physical.

Where in the physical world is saving any resource rewarded? There are some places. A farmer does well to store up grain for the Winter. A bear tries to get fat in fall so it can hibernate.

But most of the time, if you try to save something, it rots. If you're a hunter and you kill a deer, then either you need to put the deer in a freezer (which will consume electricity), or you need to eat it right away. Even the farmer who saves grain needs to make sure and rotate their storage so no one bushel of grain sits too long in the silo.

The trouble with the financial system is that money doesn't rot. But.... just about everything the money represents does rot.

If you buy a bunch of laptops and put them in a warehouse for 10 years, they'll be massively outdated. Nobody would pay you full price for a 10 year old laptop. If you put automobiles in storage they might even rust, in addition to becoming outdated.


So what I'm trying to say is: savings represents an area of the economy where the financial system is badly out of sync with the physical system.


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Rory
Post  Post subject: Re: Our Economy Treats Savers Like Sinners  |  Posted: Sun Mar 01, 2015 6:20 pm
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I'll remember that the next time I have deer sandwiches for lunch ;) Only thing I have is dear sandwiches.

So, what are you saying, kojax?

Saving (if you can afford to) is the optimal economic strategy except in cases of significant inflation or in cases in which investment would deliver handsome returns.

Why is that a bad thing? Do you have some personal grudge against saving?

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iNow
Post  Post subject: Re: Our Economy Treats Savers Like Sinners  |  Posted: Sun Mar 01, 2015 8:42 pm
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Rory wrote:
Those with a small amount of savings (<10k) will be encouraged to spend their meagre lot rather than continue to build up that amount.

Sure, they'll be encouraged to act a specific way, but they are free to disregard that encouragement. In the end, they're often hurting themselves by saving anyway, at least that is if the form their savings take grows more slowly than the rate of inflation which will tend to erode the purchasing power of that savings over time.

Unrelated meta comment: Too often, it feels like the economy is used as yet another screen on to which we project our own personal moralities. We should be able to discuss the merits of each point and the validity of certain programs without getting bogged down each time in concepts of shame or sin, but we so rarely seem to see that anymore.

Rory wrote:
So that might make a bit of business for the local economy in the short term but it is sabotaging what could have been big business (relatively speaking) for the local economy in the medium term.

I'm not sure I follow. Can you elaborate? It sounds as if saving you're saying saving is only good because it allows us to spend more later. Is that what you mean, that spending more later in big chunks is somehow better than spending more now in smaller chunks? If so, why?

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Rory
Post  Post subject: Re: Our Economy Treats Savers Like Sinners  |  Posted: Mon Mar 02, 2015 11:36 pm
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Morality is always going to come into it when the actions of one individual or group impact on those of another. Personally if it were possible I would isolate my own finances from the turbulence of the global economy but unfortunately that is not yet possible.

Of course it is possible for savers to keep on saving even under conditions of a low interest rate but, on a backdrop of austerity and a failing economy, the chances are that if they have <10k they will be struggling income wise to make ends meet. Combine that with the realisation that, if inflation is increasing, that their savings depreciate over time, and you build up pressure on the saver to spend. Not to mention that the welfare system here in the UK is not designed to help those with savings (however meagre) but those who have nothing in the way of savings will receive decent state support. The middle is not a comfortable place to be: strategically you are better off being either indisputably wealthy or abjectly poor.

My point about spending is that, if people use their savings to make many small purchases (e.g. food) rather than one big purchase (e.g. degree, car, house deposit) then it will help many companies a little bit (probably not enough that they would notice) whereas one of the bigger purchases would have represented an ongoing substantial contribution to the economy. The government then has to spend more money trying to help young people onto the property ladder through the 'help to buy' and now the 20% discount for young first time buyers. The government always does that: take with one hand and when it inevitably screws up, give with the other.

That circus coukd have been averted if the economic culture had been different - if savers had been appreciated for the responsible citizens they are rather than waiting on the needs of selfish irresponsible power-drunk bankers and debt-ridden families everywhere. "Can't make your repayment? Oh, I am sorry, I'll just nick all the interest from our savers, to stoke your debt. There, there. Can I get you anything else, sir? A Lambourghini, perhaps?"

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iNow
Post  Post subject: Re: Our Economy Treats Savers Like Sinners  |  Posted: Tue Mar 03, 2015 1:54 am
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I understand your sentiment, I just try to avoid emotive and moralistic stances when discussing the dynamics underlying the economy. I prefer to save my moral lashings for how we chose to spend /not spend our taxes on social wellbeing and investments in our future.

I also understand that policy decisions may disproportionately impact savers and not reward them for their choice, but I struggle to accept that such policies intend to punish them. I suggest decision makers are just prioritizing different things for different reasons.

Rory wrote:
Personally if it were possible I would isolate my own finances from the turbulence of the global economy but unfortunately that is not yet possible.

I'm not sure such a thing is even logically possible. Having finances means you're a part of the economy. Having /earning money (whether you save or spend it) means you're a part of the economy. The economy is inherently dynamic, ever-changing, and (as you say) turbulent. The only way to achieve what you suggest is to live completely isolated, off the grid, and never interact with another human being even to barter.

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kojax
Post  Post subject: Re: Our Economy Treats Savers Like Sinners  |  Posted: Tue Mar 03, 2015 3:08 am
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Rory wrote:
I'll remember that the next time I have deer sandwiches for lunch ;) Only thing I have is dear sandwiches.

So, what are you saying, kojax?

Saving (if you can afford to) is the optimal economic strategy except in cases of significant inflation or in cases in which investment would deliver handsome returns.

Why is that a bad thing? Do you have some personal grudge against saving?



The rules change when you are a big fish in a small pond, compared with being a small fish in a big pond.

The small fish in a big pond does well to save. But if everyone saves, then the economy stagnates because the money isn't circulating. It works when one person does it, and only for that person.

The best possible economy is one where the money is circulating like crazy. You spend 10 dollars to hire a cook to make you a hamburger, they spend the 10 dollars to get a haircut, the hair stylist spends the 10 dollars to buy a handbag, the handbag maker spends the 10 dollars to go watch a movie.

The same 10 dollars just caused 4 things to get produced. That's good. If the money were simply saved, then nothing would have been produced. How do you expect to have a good economy if nothing is getting produced?

The only reason it seems like a good idea for everyone to save money is if you don't understand that there is a difference between money and wealth. Money is a placeholder meant to represent wealth. Having lots of money saved doesn't mean having lots of wealth saved. Indeed, it tends to end up quite the opposite. Because the money is being taken out of circulation, production slows down, leading to a situation where there is actually less wealth out there.

You see: most of the wealth your money is represented by is tommorrow's production, not yesterday's production. It's factories that were built yesterday in order to produce goods tomorrow. If you stop buying stuff, then those goods never get produced in the first place. It's not like they're sitting in a warehouse somewhere.


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kojax
Post  Post subject: Re: Our Economy Treats Savers Like Sinners  |  Posted: Tue Mar 03, 2015 11:53 am
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Another way to put this is to say that money is debt. It's IOU's. If those IOU's are continually getting redeemed, they retain their worth because they're constantly getting converted into real wealth.

If you stop redeeming them, then they're just empty promises. The businesses that had been redeeming them gradually atrophy. Their infrastructure deteriorates because they're not bringing in enough income to afford to keep doing maintenance on it. As that infrastructure erodes, they have less and less ability to redeem an IOU even if one were brought to them.

Did you ever watch the movie "Dumb and Dumber"? Do you remember the part near the end (sorry for any spoilers) where they bring the suitcase full of cash to the kidnapper and he opens it and it's just full of IOU's instead of money? And the two idiots are telling him he needs to hold onto those notes because they're "just as good as cash", especially the one for the Lamborghini they had bought? It's funny because the audience knows just about how likely it is for those two guys to be able to realistically pay off a loan that big.

That is what happens to an economy when too many people save too much money. The economy reaches a point where it has about as realistic a likelihood of being able to make good on its promises as the guys in the movie had.


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marnixR
Post  Post subject: Re: Our Economy Treats Savers Like Sinners  |  Posted: Tue Mar 03, 2015 12:55 pm
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still, we've seen what happened in 2008 : spending money that you have is fine, but spending money you don't have is expensive
hence you need to save in order to be able to spend at low cost

it's a bit like a water reservoir : you need one if you want a steady supply of water, and you need to make sure that the level doesn't become too low so that you can live through the dry season and still have running water

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Rory
Post  Post subject: Re: Our Economy Treats Savers Like Sinners  |  Posted: Tue Mar 03, 2015 10:42 pm
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There is no perfect option, kojax. The value of savings may depreciate if the economy stagnates, but then investments in real estate or the stock market or whatever are also risky. Besides which, just increasing the circulation of money isn't going to service an economy in which profits feed up and up the economic food chain to a minority who may or may not choose to spend.

It's not like working or lower middle class citizens are going to save indefinitely - in general they will save for something specific, and then spend. It is my contention that such deferred spending is healthier for the economy than putting pressure on people to consume their savings dripwise.

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kojax
Post  Post subject: Re: Our Economy Treats Savers Like Sinners  |  Posted: Wed Mar 04, 2015 4:32 am
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Rory wrote:
There is no perfect option, kojax. The value of savings may depreciate if the economy stagnates, but then investments in real estate or the stock market or whatever are also risky. Besides which, just increasing the circulation of money isn't going to service an economy in which profits feed up and up the economic food chain to a minority who may or may not choose to spend.


If the profits feed upward to a minority who will not choose to spend it (but prefers to save it or roll it up in investments), then the money would stop circulating.

It's just the same problem by another avenue.

But the point of circulating money around is to increase how much is produced day by day. Day by day production is the only form most wealth can take. Most of it can't take the form of a big warehouse full of stuff. So if more is being produced, then there exists in total, more wealth. If there exists, in total, more wealth, then your money is worth more.


Quote:
It's not like working or lower middle class citizens are going to save indefinitely - in general they will save for something specific, and then spend. It is my contention that such deferred spending is healthier for the economy than putting pressure on people to consume their savings dripwise.


They build up 401k type retirement plans. You wonder why savings is starting to be overabundant in the present economy? Look how many people are reaching retirement age.

Pulling their nest egg out of the retirement account and then trying to see where they can invest it to hopefully keep it growing so they can live on it until they die. But if too many people all want to invest their money in the same place, then that creates a supply-and-demand issue. They won't get a very good interest rate because supply of viable investments is smaller than demand for viable investments.


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kojax
Post  Post subject: Re: Our Economy Treats Savers Like Sinners  |  Posted: Wed Mar 04, 2015 4:47 am
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What causes viable investments? Demand for goods and services causes viable investments. A viable venture capital investment can only be made if a startup company is anticipating that it will make enough sales to keep up with its loan payments.

But there won't be demand for goods and services if people refuse to convert their money into goods and services (which is what saving money is: it is refusing to convert your money into goods and services.)


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Rory
Post  Post subject: Re: Our Economy Treats Savers Like Sinners  |  Posted: Wed Mar 04, 2015 8:13 pm
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Conversely, the over-65s may represent an 'economy of scale' in the eyes of investment companies, in the same way that this demographic represents a political 'economy of scale' for politicians willing to buy the votes of this increasing age group who more reliably turn out to vote when compared with the young. Older people actually get quite a good deal thanks to the Conservative government's introduction of a bond with a decent interest rate for pensioners - no, the adverse effects of an ongoing low interest rate are left to the younger generations, the ones who have to pay bus fare, TV licences, rent and full heating bills - you know, because they are the ones who "can control their earning power" (yeah, best of luck with that, when nobody will employ you). :roll:

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marnixR
Post  Post subject: Re: Our Economy Treats Savers Like Sinners  |  Posted: Wed Mar 04, 2015 9:36 pm
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please keep in mind that retired people know that their income is not likely to grow with the cost of living, and hence a nice little nest egg delays the time that you have to restrict your lifestyle to your new (lower) income

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Rory
Post  Post subject: Re: Our Economy Treats Savers Like Sinners  |  Posted: Thu Mar 05, 2015 12:01 am
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Saving is the most responsible option for all age groups who can afford it - but decent savings options should be available to all not just the elderly - why don't younger generations also deserve a government bond with a decent interest rate?

It's just another form of institutionalised age discrimination on the part of Her Majesty's government - like how once you hit age 35 apparently you become worthy of the top rate of housing benefit, any younger than that and presumably, in the eyes of the government, you do not need space, resources or privacy.

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iNow
Post  Post subject: Re: Our Economy Treats Savers Like Sinners  |  Posted: Thu Mar 05, 2015 4:07 am
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Perhaps it would be more accurate to suggest that saving is the best path until you reach some threshold level where alternative uses of that money will allow it to grow more than saving alone would?

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kojax
Post  Post subject: Re: Our Economy Treats Savers Like Sinners  |  Posted: Fri Mar 06, 2015 4:35 am
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Rory wrote:
Saving is the most responsible option for all age groups who can afford it - but decent savings options should be available to all not just the elderly - why don't younger generations also deserve a government bond with a decent interest rate?


Saving is the most responsible option for who? It is wise for the saver. But, as I've pointed out, the economy overall requires the majority of people to not be saving their money most of the time.

However I need to qualify that statement. It is good for everyone in the economy to have some money in savings at all times. At least enough to get you through 2 months of unemployment, so you are leaving yourself the option to change jobs, or avoid borrowing money when a catastrophe hits.

The problem is not people keeping some money in savings. Even building up a 401 k is not too bad, because probably only a small fraction of your income is being put there, and the rest is getting spent.

The really big savings issue is the very rich. They're the ones who are putting the overwhelming majority of their income either directly into savings, or (more often) into some kind of investment vehicle, and thereby flooding the investment market, and indirectly depreciating the value of everyone else's savings.

As wealth consolidates more and more, savings gets more and more out of hand.

iNow wrote:
Perhaps it would be more accurate to suggest that saving is the best path until you reach some threshold level where alternative uses of that money will allow it to grow more than saving alone would?



The threshold isn't very difficult to define. It's just like a human being storing hydrocarbons on their body as fat. A certain amount of fat is a good thing. You need it to allow you to wait between meals, so your body doesn't shut down the first time dinner is late.

But you only need as much energy in savings as what will get you through forseeable shortages. You don't want to become a 600 kilo lard ball that's ready to weather a whole Winter of starvation. That's not practical.

In the economy, there no use for saved money above the threshold of what makes it easy to keep things stable. Households financially solvent. Businesses able to meet their day to day financial obligations even during a brief period of poor sales. (A long period of poor sales would be a signal it might be time to close the business, or at least change it substantially.)


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Rory
Post  Post subject: Re: Our Economy Treats Savers Like Sinners  |  Posted: Fri Mar 06, 2015 8:37 pm
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Well, from the perspective of the saver, saving until you have a 600 kilo lard ball may still be the optimum strategy - then you can pass it on to your genetic descendants or charity or whatever.

And in the context of a failing economy in which you may well get laid off and become long term unemployed without anyone giving a toss about you, "excessive" savings actually become a lifeline.

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kojax
Post  Post subject: Re: Our Economy Treats Savers Like Sinners  |  Posted: Sat Mar 07, 2015 3:47 am
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The problem is you're only looking at one person.

If everyone saves up enough money to become a 600 kilo lard ball, then the value of the very money they saved changes.

Think about a run on the supermarkets before a hurricane hits your area. How does a person who saved thousands of dollars actually hope to convert their savings into real goods and services in a situation like that? What will happen instead is the price of food will skyrocket (or in other words, the town's food and supplies market will become subject to hyperinflation.)

Excessive saving creates price instability, because the supply of money in circulation is now variable. Inflation is based on money in circulation. Stagnant money has no effect on it. It's as though the stagnant money didn't exist. However, money in savings is money that could come back into circulation at any time, possibly creating runaway inflation.

It will tend to make financial planners plan cautiously. It adds more things to plan for, and adding more things to plan for increases the risk (but not the reward) for investors. And that in turn, will tend to make investors less interested in investing.


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Rory
Post  Post subject: Re: Our Economy Treats Savers Like Sinners  |  Posted: Sat Mar 07, 2015 2:44 pm
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So are you suggesting that a minority of people be encouraged to save and the rest to spend?

I need not remind you that that is not a fair policy.

Why should ordinary citizens always be the ones expected to sacrifice their own self interest for the sake of the interest of the greater economy, when the politicians and financial leaders are quite content to screw it up and then punish average Joe?

There comes a point at which you can give no more, and care no more, for a nation and economic system that only ever takes.

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kojax
Post  Post subject: Re: Our Economy Treats Savers Like Sinners  |  Posted: Sat Mar 07, 2015 3:15 pm
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Rory wrote:
So are you suggesting that a minority of people be encouraged to save and the rest to spend?

I need not remind you that that is not a fair policy.


The problem is actually being caused by excessive concentration of wealth. It is a small minority that is doing almost all of the saving right now. The super rich rarely spend more than a tiny fraction of their massive incomes buying production, but instead focus on trying to store it in the form of gold and real estate.

Quote:
Why should ordinary citizens always be the ones expected to sacrifice their own self interest for the sake of the interest of the greater economy, when the politicians and financial leaders are quite content to screw it up and then punish average Joe?


Perhaps the conditions that make an average citizen feel a need to save should be alleviated.

However, I don't think average citizens are really the driving force behind the problem we see today. To a degree they are, because there are so many retirees right now, but having too many retirees is always a problem anyway, regardless of whether they save or not. (It's not their fault they were born into an excessively large generation, but it's hard for a small labor force to support a large pool of retirees.)

Quote:

There comes a point at which you can give no more, and care no more, for a nation and economic system that only ever takes.


Oh, the system is very, very generous. ............to a select few.

And because it has been so generous, those few are now piling up saved money and ruining the economy for everyone else.


They'll try and blame the mom and pop savers, but it's pretty obvious where the real excesses are happening in the savings market.


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