By using this site, you agree to our Privacy Policy and our Terms of Use. Close

Forums - General Discussion - Krugman: Spend Now, Save Later

HappySqurriel on 21 July 2010
numonex said:
mrstickball said:
numonex said:

Do you believe in trickle-down economics?

Well if you are a Boston Tea Party Republican then the answer would most likely be Yes! Tax rebates and tax cuts  for the wealthy will supposedly be spent on capital infrastructure and the equity market which will create more jobs for the working class and middle class.

What if the wealthy elites  kept their extra money in the bank and just sat back and did nothing?

In order for the government to justify more spending on infrastructure, They would have to increase tax rates. Capital threat by wealthy elites would set up shop overseas.

Either way you look at it reduce taxes too low or increase taxes too high, there is no real solution to a never ending problem. Catch 22. 

 

Here is a question for you, and only you, Numonex:

What happens when someone puts money in a bank. What happens to it? Please answer my question

The money saved in the bank accumulates interest but it contributes nothing towards the economy. GDP is all based around spending and investment. More consumer spending the better the economy because the money is cycled through the perpetual cash flow system. America's economy focuses mainly on consumer spending to drive its economy and the world economy. Equity markets report the earnings of the companies and rely heavily on consumer spending. 

Money invested in a bank account generally is used towards a banks capital requirements which tends to allow a bank to loan out (typically) 10 times as much money; and this money is typically used to purchase homes or consumer goods. For every dollar put into the bank it can have 10 times the impact on the economy as a dollar spent.



Around the Network
mrstickball on 21 July 2010
HappySqurriel said:
numonex said:
mrstickball said:
numonex said:

Do you believe in trickle-down economics?

Well if you are a Boston Tea Party Republican then the answer would most likely be Yes! Tax rebates and tax cuts  for the wealthy will supposedly be spent on capital infrastructure and the equity market which will create more jobs for the working class and middle class.

What if the wealthy elites  kept their extra money in the bank and just sat back and did nothing?

In order for the government to justify more spending on infrastructure, They would have to increase tax rates. Capital threat by wealthy elites would set up shop overseas.

Either way you look at it reduce taxes too low or increase taxes too high, there is no real solution to a never ending problem. Catch 22. 

 

Here is a question for you, and only you, Numonex:

What happens when someone puts money in a bank. What happens to it? Please answer my question

The money saved in the bank accumulates interest but it contributes nothing towards the economy. GDP is all based around spending and investment. More consumer spending the better the economy because the money is cycled through the perpetual cash flow system. America's economy focuses mainly on consumer spending to drive its economy and the world economy. Equity markets report the earnings of the companies and rely heavily on consumer spending. 

Money invested in a bank account generally is used towards a banks capital requirements which tends to allow a bank to loan out (typically) 10 times as much money; and this money is typically used to purchase homes or consumer goods. For every dollar put into the bank it can have 10 times the impact on the economy as a dollar spent.

Thank you.

When you put money in the bank, others use your money to get loans on cars, buy houses, start businesses and other such things. How else do you think someone earns interest?



Back from the dead, I'm afraid.

richardhutnik on 21 July 2010
numonex said:

Do you believe in trickle-down economics?

Well if you are a Boston Tea Party Republican then the answer would most likely be Yes! Tax rebates and tax cuts  for the wealthy will supposedly be spent on capital infrastructure and the equity market which will create more jobs for the working class and middle class.

What if the wealthy elites  kept their extra money in the bank and just sat back and did nothing?

In order for the government to justify more spending on infrastructure, They would have to increase tax rates. Capital threat by wealthy elites would set up shop overseas.

Either way you look at it reduce taxes too low or increase taxes too high, there is no real solution to a never ending problem. Catch 22. 

 

Money put into a bank isn't a problem.  The bank is then compelled to go out and lend the money and someone else creates new business with it.  A problem with tax cuts would  be when the money gets invested in factories in China, or offshore.  That money doesn't create jobs and build the economy in the United States, or whatever nation gave the tax cuts.



richardhutnik on 21 July 2010
HappySqurriel said:
numonex said:
mrstickball said:
numonex said:

Do you believe in trickle-down economics?

Well if you are a Boston Tea Party Republican then the answer would most likely be Yes! Tax rebates and tax cuts  for the wealthy will supposedly be spent on capital infrastructure and the equity market which will create more jobs for the working class and middle class.

What if the wealthy elites  kept their extra money in the bank and just sat back and did nothing?

In order for the government to justify more spending on infrastructure, They would have to increase tax rates. Capital threat by wealthy elites would set up shop overseas.

Either way you look at it reduce taxes too low or increase taxes too high, there is no real solution to a never ending problem. Catch 22. 

 

Here is a question for you, and only you, Numonex:

What happens when someone puts money in a bank. What happens to it? Please answer my question

The money saved in the bank accumulates interest but it contributes nothing towards the economy. GDP is all based around spending and investment. More consumer spending the better the economy because the money is cycled through the perpetual cash flow system. America's economy focuses mainly on consumer spending to drive its economy and the world economy. Equity markets report the earnings of the companies and rely heavily on consumer spending. 

Money invested in a bank account generally is used towards a banks capital requirements which tends to allow a bank to loan out (typically) 10 times as much money; and this money is typically used to purchase homes or consumer goods. For every dollar put into the bank it can have 10 times the impact on the economy as a dollar spent.

This falls apart when people are already maxed out creditwise.  If they can't reasonably take on more debt, then the money in the bank won't be lent out for that.  A problem with the economy now is that people are tapped out.  And, if they fear job loss, they are going to go into hoard mode.



Final-Fan on 22 July 2010
HappySqurriel said:
Money invested in a bank account generally is used towards a banks capital requirements which tends to allow a bank to loan out (typically) 10 times as much money; and this money is typically used to purchase homes or consumer goods. For every dollar put into the bank it can have 10 times the impact on the economy as a dollar spent.

I don't know why, but suddenly I remembered this post.  And it seems very strange to me.  You're saying that for every dollar a bank actually has, it's allowed to loan out ten dollars?  Banks just get to hand out imaginary money?  Basically print money to loan at interest? 

I'm far, far from an expert here, but I have to ask if you're 100% sure you don't mean they can loan out 90 cents of every dollar deposited, with ten cents laid aside for people who actually want to withdraw their money. 
http://en.wikipedia.org/wiki/Reserve_requirement



Tag (courtesy of fkusumot): "Please feel free -- nay, I encourage you -- to offer rebuttal."
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
My advice to fanboys: Brag about stuff that's true, not about stuff that's false. Predict stuff that's likely, not stuff that's unlikely. You will be happier, and we will be happier.

"Everyone is entitled to his own opinion, but not his own facts." - Sen. Pat Moynihan
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The old smileys: ; - ) : - ) : - ( : - P : - D : - # ( c ) ( k ) ( y ) If anyone knows the shortcut for , let me know!
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
I have the most epic death scene ever in VGChartz Mafia.  Thanks WordsofWisdom! 

Around the Network
Faxanadu on 22 July 2010


Any message from Faxanadu is written in good faith but shall neither be binding nor construed as constituting a commitment by Faxanadu except where provided for in a written agreement signed by an authorized representative of Faxanadu. This message is intended for the use of the forum members only.

The views expressed here may be personal and/or offensive and are not necessarily the views of Faxanadu.

numonex on 22 July 2010

Imagine the worse case scenario.....

Hand chopped off for stealing. Unemployment, disability and other welfare benefits stopped. Capital punishment brought back and enforced. Tax rates to fall to 10%. Tax money spent only on Defense Forces and Police. Middle Eastern nation style of government. Country policed by martial law.

The above would never happen in a Western world civilized country. Both main parties have different social and economic policies but they could be a lot worse.



HappySqurriel on 22 July 2010
Final-Fan said:
HappySqurriel said:
Money invested in a bank account generally is used towards a banks capital requirements which tends to allow a bank to loan out (typically) 10 times as much money; and this money is typically used to purchase homes or consumer goods. For every dollar put into the bank it can have 10 times the impact on the economy as a dollar spent.

I don't know why, but suddenly I remembered this post.  And it seems very strange to me.  You're saying that for every dollar a bank actually has, it's allowed to loan out ten dollars?  Banks just get to hand out imaginary money?  Basically print money to loan at interest? 

I'm far, far from an expert here, but I have to ask if you're 100% sure you don't mean they can loan out 90 cents of every dollar deposited, with ten cents laid aside for people who actually want to withdraw their money. 
http://en.wikipedia.org/wiki/Reserve_requirement


I think you’re missing how multipliers work in a fractional banking system. With the kinds of loans banks give out (home and car loans primarily), the vast majority of the money is simply a transfer of money from one bank-account to another; which means that the multiplyer acts at (near to) the maximum level. When you deposit $1 in the bank $0.90 is then lent out to purchase a home, after the sale of that home the $0.90 finds its way to a bank account and $0.81 can be lent out again, and this continues until you have $1 physically in the bank and $10 in mortgages.



TheRealMafoo on 22 July 2010
HappySqurriel said:
Final-Fan said:
HappySqurriel said:
Money invested in a bank account generally is used towards a banks capital requirements which tends to allow a bank to loan out (typically) 10 times as much money; and this money is typically used to purchase homes or consumer goods. For every dollar put into the bank it can have 10 times the impact on the economy as a dollar spent.

I don't know why, but suddenly I remembered this post.  And it seems very strange to me.  You're saying that for every dollar a bank actually has, it's allowed to loan out ten dollars?  Banks just get to hand out imaginary money?  Basically print money to loan at interest? 

I'm far, far from an expert here, but I have to ask if you're 100% sure you don't mean they can loan out 90 cents of every dollar deposited, with ten cents laid aside for people who actually want to withdraw their money. 
http://en.wikipedia.org/wiki/Reserve_requirement


I think you’re missing how multipliers work in a fractional banking system. With the kinds of loans banks give out (home and car loans primarily), the vast majority of the money is simply a transfer of money from one bank-account to another; which means that the multiplyer acts at (near to) the maximum level. When you deposit $1 in the bank $0.90 is then lent out to purchase a home, after the sale of that home the $0.90 finds its way to a bank account and $0.81 can be lent out again, and this continues until you have $1 physically in the bank and $10 in mortgages.


Not sure I agree here....

most people don't own a home, so when a house sells, that $0.81 is used to pay back thee $0.90 that was borrowed in the first place. Counting it against the $0.90 that was used to buy the house, and then the $0.81 feels like your counting it twice.

I mean if I loan you a dollar and you then pay me back, and then I loan someone else that dollar and they pay me back, it didn't act like two dollars, it still only had the purchase power of 1 dollar.



mrstickball on 22 July 2010
TheRealMafoo said:
HappySqurriel said:
Final-Fan said:
HappySqurriel said:
Money invested in a bank account generally is used towards a banks capital requirements which tends to allow a bank to loan out (typically) 10 times as much money; and this money is typically used to purchase homes or consumer goods. For every dollar put into the bank it can have 10 times the impact on the economy as a dollar spent.

I don't know why, but suddenly I remembered this post.  And it seems very strange to me.  You're saying that for every dollar a bank actually has, it's allowed to loan out ten dollars?  Banks just get to hand out imaginary money?  Basically print money to loan at interest? 

I'm far, far from an expert here, but I have to ask if you're 100% sure you don't mean they can loan out 90 cents of every dollar deposited, with ten cents laid aside for people who actually want to withdraw their money. 
http://en.wikipedia.org/wiki/Reserve_requirement


I think you’re missing how multipliers work in a fractional banking system. With the kinds of loans banks give out (home and car loans primarily), the vast majority of the money is simply a transfer of money from one bank-account to another; which means that the multiplyer acts at (near to) the maximum level. When you deposit $1 in the bank $0.90 is then lent out to purchase a home, after the sale of that home the $0.90 finds its way to a bank account and $0.81 can be lent out again, and this continues until you have $1 physically in the bank and $10 in mortgages.


Not sure I agree here....

most people don't own a home, so when a house sells, that $0.81 is used to pay back thee $0.90 that was borrowed in the first place. Counting it against the $0.90 that was used to buy the house, and then the $0.81 feels like your counting it twice.

I mean if I loan you a dollar and you then pay me back, and then I loan someone else that dollar and they pay me back, it didn't act like two dollars, it still only had the purchase power of 1 dollar.

I think the scenario HS lied out may be meant as a 'best case' scenario for the multiplication of money in the system. e.g. if I put $1 into savings, it may become $10 in mortgages, assuming that said banks all lend out perfectly. This may, or may not, be the case, depending on the state of the economy.

He is correct about it, though, because if you look at one of the causes of the great depression, when banks went under, so did their ability to lend, and the money supply was constrained by 33%, which caused massive problems when correlating with other things during the great depresion.

Here is good 'ol Milty Friedman on reserve banking, and the collapse of the banking system during the GD as being a primary cause of the GD:

http://www.youtube.com/watch?v=EY-HYUFlCPs

When you take away 33% of the banks, you took away 33% of the lending capacity, therefore 33% of the money supply.

Also, if you read the 'reserve requirement' entry on Wikipedia, it does explain how a $100 deposit can potentially become a maximum $1000 in borrowing.



Back from the dead, I'm afraid.