Then I pointed out that savings were, in the way that we make them in the UK present, in any case, almost wholly economically unproductive. They are either stored in the form of cash balances at banks, and banks never lend deposits made by customers to those who ask for the loans (which I had to explain to him). In that case, these balances served little economic purpose.
Savings are, alternatively, almost entirely used for the purchase of either second-hand shares that are already an issue and are quoted on a stock exchange, or for the purchase of second-hand assets. He protested that this was not true, as private equity proved. However, as I pointed out, private equity almost entirely invests in companies already in existence, and has a notoriously poor track record in adding value to the companies in question whilst delivering enormous returns to the private equity operators who fleece every pound of value out of them that they can.
Unless, in that case, we change the way in which we save so that money put aside by those who think that they undertake this activity is actually used as the capital that might underpin new economic activity, as I have proposed with regard to investment for a green transition, then the act of saving has almost nothing whatsoever to do with the creation of new economic activity in the economy.
People buying second hand investments means that the people who made the original ones can cash out – increasing the returns from making original ones. Also, people buying second hand investments increases the value of second hand investments – which raises the return to making original investments. Thus people investing in second hand financial assets increases the amount of original investment going on. Because they’ve got someone to sell at at a higher price.
Now run this same point back the other way. We’re thinking about curbing current consumption in order to invest in something that might make a future profit. OK. If it’s successful we can never sell it – there is no market in second hand investments. Instead we can gain access to the income from from our now successful investment but not the capital sum itself – beause there’s no one in the economy buying second hand investments. This increases, or reduces, our propensity to curb consumption in order to make an investment?
Fuckin’ idiot.
It’s another of his imaginary conversations. “By a remarkable coincidence, someone asked me about all the strawmen I’ve created about a topic I wanted to talk about and I was able to wisely educate them”.
“I was in discussion with a friend last week who raised his concern about the shortage of savings in the UK, which, he suggested, provided an explanation for our slow economic growth.”
Andrew C is right, it’s an imaginary friend. Murphy’s capacity to piss off everyone he meets means any friendships he believes he has are a one sided friendship, not reciprocated, or very short-lived.
I’ve said this before. He fundamentally fails to understand the nature of money. Money is a token of value readily, confidently & widely exchangeable for goods & services in commerce. And money is valued by the quantity of goods & services it is exchangeable for. So the money in an economy must represent the value being created in the economy by commerce.* So when a person makes a deposit in a bank or buys investments, who consumes the value that the money represents? Banks & stock exchanges aren’t full of piles of of goods & hordes of people waiting to provide services. When you save it is your deferred consumption. But someone has to be doing the consumption, don’t they?
*No. Government printing or withdrawing money from circulation doesn’t change this. It’s the total of money not each individual token. Money creation & destruction, taxation & government borrowing/spending are all government influencing who gets to do the consumption. There’s no immediate change to the total quantity of value available to consume.
In other words, what he’s talking about isn’t actually there. It’s simply an artefact of the book keeping. You can see this with assets. Notionally assets have value. But you couldn’t sell all assets & exchange them for tokens of value exchangeable for goods & services in commerce at their current book values. There wouldn’t be the goods & services available to redeem them. The market price of assets would tend to zero. Generally assets are exchanged for other assets. It’s just book keeping entries. It’s not reality. Assets generally consume goods & services in their creation. Those are now gone. You can’t get them back again, so someone else can consume them.
Do you think he could understand this if he’d ever done anything else but push numbers around on paper? I think most people do. You consume something it isn’t there any more. It isn’t a number in another column in a ledger.
“I was in discussion with a friend last week who raised his concern about the shortage of savings in the UK…”
You’re choosing who gets to consume, not him.
BiS: « I’ve said this before. »
True
“People buying second hand investments means that the people who made the original ones can cash out”
I can remember an epiphany in my early teens: I suddenly realised that that was true. That was the whole point of having a stock exchange. Heavens, I wasn’t all that different from the comic-swapping we used to do on a Saturday morning when we were wee laddies.
I then felt a little embarrassed that it had taken so long for the penny to drop. My only excuse can be that I’m one quarter Irish.
@dearieme.
And therefore, when someone invests money on the stock market, there must be someone else receiving the money. The transaction has two sides. There’s no pile of unused value sitting around for Spud to get his hands on. It’s going around in the economy.
Don’t worry, Dearieme. You are still three-quarters human.
Oh God he’s on this topic again. Some reasons people don’t have savings are because of taxes, inflation, expensive energy and all the other things the policies he’s constantly argued for end up with.
Scrooge Mc Duck cartoons are not a documentary. And applying “second hand” to investments is a well-poisoning fallacy. Is recycling now a bad thing? I’ll stop doing it then.
Has he never heard of “Rights Issues”?
No, probably not – it wasn’t in my ‘O’ level Economics Course.
But for someone his age not to have heard of Building Societies is amazing/horrifying. They were a major feature of every High Street when he was young – saving used to buy houses: sometimes old sometimes new but every new house was financed directly or indirectly (if the buyer was an existing home-owner the end-of-the-chain first-time buyer was using savings in the building society). So all new private housing is financed by savings (does he prefer the fire-prone local authority tower blocks?)
If savings held in savings accounts in banks are economically unproductive, where does the interest the banks pay to the savers come from? The goodness of the bank’s heart?
I have three separate 1-year accounts with Atom Bank, each paying around 5% on maturity. IS atom Bank paying me that interest simply because it likes me, or because I’m worth it? And if so, where do they get that money from?
Wait, I get it. The bank makes up money, which it lends to economically active people, who pay it back with interest. Profit. Great.
So why does it take deposits on which it must pay interest? Why does it reduce its potential profit to do this, if those deposits are economically inactive? Does it need those deposits to back up the loans it creates? What happens if the loans go bad? Who has lost anything, if the bank made up that money in the first place?
Oh, I remember, the books have to balance. So the bank has to use the deposits to pay itself back the bad loan. But then, how do the depositors get reimbursed? It’s their money, not the bank’s. Where’s their repayment going to come from? Interest from new made-up loans? But how can those loans be made if the deposits backing them have been used up? And who is going to make fresh deposits now that the original depositors have lost their money?
Am I being extraordinarily dim somehow, or is Murphy?
@ Norman
Report to the Ministry of Truth re-education department at 10 am tomorrow morning
I really despise Murphy’s assumption that other folks’ savings are any of his fucking business.
“banks never lend deposits made by customers to those who ask for the loans (which I had to explain to him)”
This has got to be an imaginary conversation, because at that point any real person would either have walked away or decked him.
@john77
I quite like the old building society system. House price rises were limited by the savings available.
I just looked at house prices against average earnings. Houses were getting cheaper in those terms in a steady fall from the mid 1800s until the start of WW1. After that there’s a plateau punctuated by some peaks until roughly bank deregulation. Since when it’s been a steady climb. It’s back to where it was in 1850. It’s no wonder people can’t get on the housing ladder
Fundamentally, this is about him getting his hands on other peoples savings.
Either that or he doesn’t understand regular punters motivations at all. I have a pile of cash offsetting my mortgage and share market investments outside of my superannuation. I do this as a way of building for retirement and as a way to access liquidity when I need it (to purchase something, pay down debt or as an emergency fund if I lose my job).
If he doesn’t get why people do that then he’s stupider than I thought. It’s not that though, is it. It’s the first point I made.
@Geofffers
Yes, but it’s his business on behalf of those from who the saver has stolen , as if you have any sort of excess wealth it can ONLY have been stolen from somebody clearly not sufficiently intellectually (or morally) equipped to “resist”
I was always told that saving was virtuous, preparation for a rainy day, or delaying gratification – as well as common sense, avoiding borrowing at high rates of interest.
But then I’m a bigoted, racist dinosaur so I must be wrong.
TBH
You have it – although All the other comments pointing out the ‘conversation’ was made up and that he has no understanding of the subject matter in question are all valid and excellent.
Fundamentally he bases his assumptions on a misinterpretation of a 10 year old BOE paper. Anyone working in a bank of any size would know his contention that they need no deposits to issue loans is untrue. Their entire loan base isn’t always fully capitalised in some cases but that is a very different argument and not one he has the skill to make, or the inclination to offer.
But fundamentally it is exactly what TBH says- he feels those savings could be put to more productive use funding either ‘The Green New Deal’ or facilitating the ‘Taxing Wealth Report’ – to hell with you if you disagree. He is the living embodiment of the Iron Maiden Song ‘The Evil that men do’
What is this thing called “excess wealth”?
The squirrels and jays in my garden bury acorns to see them through the winter. Possibly more than they ‘need’. I’m watching them doing it. Are they excessively wealthy?
Farmers neither consume nor sell their entire annual crop: they retain some to plant so that they can have another crop next year. Are they excessively wealthy?
All other species die when they can no longer be productive, i.e. when they can no longer feed themselves. Being (perhaps uniquely) conscious and terrified of our own mortality, humans have evolved societies in which the elderly unproductive no longer die immediately they stop being able to feed themselves: instead, they can accrue savings with which to pay other people to feed them from their own productivity.
These savings are often called ‘pensions’ but can be other things such as investments you’ve made in other people’s productivity to be a source of income, or assets to be liquidated when you need tokens of value exchange.
Is the accrual of savings in this way – the accrual of the means to continue to live beyond the end of your personal productivity – “excess wealth”?
The man’s a cunt.
I save so I can buy things, like a yeserday when we needed a replacement washing machine, or a new car last month.
“Fuckin’ idiot.”
More like lying cunt – the chaps above have it: one of his imaginary friends again. The sort of person that might (genuinely) venture “private equity” as some sort of counter to an argument isn’t going to need (or put up with) Spud type nonsense being “explained” to them….