Entirely fascinating

Borrowers tend to be less wealthy, so when they receive an incremental dollar, they tend to spend it. This creates demand, and stimulates investment to meet that demand. Lenders are generally the wealthy, or governments of countries with excess savings such as Germany and China. Such lenders tend to save dollars they receive — adding to the global savings glut, rather than stimulating demand or investment.

An economics in which lowering the price does not increase demand. Lowering the price of capital does not increase investment. Fascinating, isn’t it?

6 thoughts on “Entirely fascinating”

  1. Such lenders tend to save dollars they receive — adding to the global savings glut, rather than stimulating demand or investment

    He really thinks they just hide cash under their beds doesn’t he?

  2. “He really thinks they just hide cash under their beds doesn’t he?”

    You caught me at a bored moment, so I did some Googling. If you stuff a king sized mattress with $100 bills you need roughly $6.78 million per inch of thickness. That means Jeff Bezos’ mattress is ~630 yards (just over a third of a mile) thick.

  3. Sure, the government of Germany is a lender. That’s why the government of Germany that exists in Murphyland saves all the money it rakes in, rather than spending yet more money it doesn’t even have the common decency to tax off its current citizens.

  4. @ Dennis
    Yes, really. That is why banks can offer interest rates of less than inflation on savings accounts. There are a record number and there is a record %age of people like me to who want to live on their pension having reached what we were told, when we were young, is retirement age. So we have paid into pension schemes (in the UK) or saved into ERISA accounts or invested in property or high-yielding Investment Trusts or …
    I don’t know whether you’ve noticed lots of Brits jumping up and down screaming for and against “Pension Freedoms” in the UK which happened because George Osborne noticed (possibly because people sat on him and shouted in his ear) that anyone buying an annuity would get back less (adjusted for inflation) than he/she paid.
    If there was *not* a savings glut the interest rate on savings and the interest rate on borrowings less the bank’s operating costs and their required return on capital would be in balance. Traditionally the return on savings was 3% net of inflation, now it’s 0.1% in the UK. I admit that I don’t know what it is in Ohio but the UK rates are ridiculous.

  5. The low return is surely less a savings glut than the fact that capitalism has eaten itself.

    Value is created on a $600 laptop on a kitchen table. No longer so much on a $600,000,000 machine that hurts when you drop it on yer foot. Ergo capital is no longer required to add value to many things.

    We’re just realising now what Japan realised a couple of lost decades ago.

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