"Punish savers and make them spend money"

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csstudent's picture
csstudent
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Joined: Dec 22 2008
Posts: 48
"Punish savers and make them spend money"

I think this is one of the most unbelievable articles I have ever seen.  The title of the article is "Punish savers and make them spend their money."  I'm still absolutely shocked somebody would even suggest this.

http://www.timesonline.co.uk/tol/comment/columnists/anatole_kaletsky/article5469589.ece 

roswell_6's picture
roswell_6
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Joined: Nov 20 2008
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Re: "Punish savers and make them spend money"

In Belgium, there was a new law voted a few weeks ago that put an upper limit on interest rates that banks can offer on savings accounts! They gave the phony reason that interest rates offered by banks must stay in line with the rates of the ECB. It overlooks the fact that banks make money on the differential of interest rates (received minus paid).

So, savings rates are capped to 3% for now. And don't forget we pay 15% direct tax on savings interests...If that's not punishing savers, I don't know how to call it.

GDon's picture
GDon
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Re: "Punish savers and make them spend money"

This has been the monetary model in the US since 1913.

Since then, the FRN (Federal Reserve Note or debit note) or what we call the USD, has lost 99% of it's purchasing power.

Through intentional inflation / devaluation, this system insures that the populus is penalized for saving - i.e., the "purchasing power" or value of their FRN/USD "savings" are continually reduced over time.

This insures that they must take investment risk and/or spend into the economy, while their FRN's have their highest value. 

This also insures that there always exists a maximum level of debt, a guarantee of interest profits for the government-enforced monopoly of private banking, and in particular, for THE singular private Bank which issues the law-enforced debt currency of the nation - the Federal Reserve, issuing FRN's as the only "legal tender".

joemanc's picture
joemanc
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Posts: 834
Re: "Punish savers and make them spend money"

Too much spending and not saving is exactly what got us in this mess in the first place. And now he wants us to do more of the same? Just a bit too much Kool Aid for this writer.

 

"The definition of stupidity is doing the same thing over and over again and expecting different results." — Albert Einstein

RSLCOUNSEL's picture
RSLCOUNSEL
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Posts: 41
Re: "Punish savers and make them spend money"

OMG we cannot have people start saving because if they do the economic stimulation from consumer spending will not ingnite the economy.   Savings increased in the United States in 4Q08 and what happened?  It contributed to economic decline.   The Bush $168B stimulus package that gave people up to $600 were studied to actually go for savings or debt reduction by most Americans.    Summary:

(1) I don't credit spend = economic contraction

(2) I save more = economic contraction

(3) If I have "found" money (like a stimulus check) I do #1 or #2 above = economic contraction.

The credit and money bubble has burst and we are on our way down.   A soft landing is being orchestrated by the U.S. government in the form of printing money, dollar for dollar, in every case where there has been wealth destruction.

Several trillion dollars of wealth destruction whether on financial institution balance sheets, corporate balance sheets, state governments or the man on the street have occured very rapidly.   Everytime the government prints money to match each dollar of wealth destruction they maintain the status quo.  To print money > than wealth destruction would be inflationary.  To print less would be deflationary. 

Bottom line is that they are behind and must print more, as soon as possible, to zero out the current amount of wealth destruction that has occurred.  We can no longer count on the US consumer to spend money they don't have. 

Personally, I am going to spend some money.  I just love when the sales person crawls out the door following me when I turn down a sale because they wouldn't agree to the price I want to pay.  It is a buyers market for everything but DO NO MISS THE WINDOW...   Businesses have curtailed production and supplies will tighten and you will lose buying power.

 

bearing01's picture
bearing01
Status: Silver Member (Offline)
Joined: Sep 7 2008
Posts: 153
Re: "Punish savers and make them spend money"
Savings are good, the more the better.  Debt is good if you're making a leveraged investment that will pay for itself, say a reasonable sized house (to meet your needs) or a tractor to plow your field or a reasonably priced car to get to work.  Debt or squandered savings for the purpose of consumption is not good for the economy.  Don't believe me?  The USA was the planet's economic power house in the 50's while everyone saved and only one family member worked to support the family.  The credit card wasn't popular.  The US factory workers earned the highest wages in the world while they produced the cheapest products that the world could afford.  The USA was a creditor nation who lent money to other countries.  Yes it is good to spend to consume on a moderate basis, but the past 20 years of consumption in the USA has been rediculous and is now coming to an end. 
Savings do not hurt the economy, but rather it is in the best interest of both the individual and the nation to have savings / capital reserves available for investment.  Taking your money and sticking it in a mattress is bad.  But when it is in a bank the bank turns around and lends it out to businesses (for investment in production and employment) and to people to buy expensive consumer goods (like cars or houses).  So, your savings are really turned over for someone else to spend.  To add, in a fractional reserve banking system at 1/10, your $10 deposit becomes $100 in credit for someone else - which by the way is inflationary.  But still, if banks have depositors savings then that money can be lent out and should be lent at an interest rate determine by supply/demand for borrowing those savings.  Today the int rates are set by the Federal Reserve, who prints the difference in extra money required to support artifically low interest rates.
Because savings (in a bank) make capital available for businesses investments, the businesses can expand operations or buy more efficient machinery to either make more products available for consumption, make products better at the same cost, or make products cheaper.  All while those savers delay their spending so demand/prices for commodities don't rise. This means that in the future there will be more selection or cheaper products or better products that you can buy with the same number of dollars today.  This is true creation of wealth!  When people don't save where do banks get the money to lend out?  If there's no money to lend out then demand for loans exceed the money supply and this drives interest rates up.  If the higher rates don't get people to save more then the Fed Reserve will print money out of thin air (actually buy US treasuries from banks) to inject money into the banks to get them lending again at lower rates.  This type of cash injection is inflationary and the end result will be a weaker dollar and you will get less for your dollars in the future. 
It is this ability to save and availability of this investment capital and fluctuating real interest rates that self regulate / throttle an economy.  Businesses plans that are profitable based on such natural interest rates will prove to be strong businesses.  This is because the wealth/savings of future customers already exists to buy the future goods produced by the new venture (savers/banks get their money back as companies pay back their loans).  Today however, the gov't exercises the power to attempt to control the economy to always keep it expanding and never have recessions.  When there isn't enough capital in the form of savings to lend out, rather than let interest rates rise and to promote savings to generate investment capital, the gov't creates money to expand credit.  This allows the boom to continue (companies to remain profitable while living off cheap credit) rather than regulate itself at a moderate level.  They interfere and loosen up the money supply to get liquidity in the economy when the economy has had enough cheap money & debt.  Interest rates pinned down to artifically low levels are due to newly created money, which creates inflation.  The claim is that "any booming economy will have inflation".  To a certain extent yes this true because money may be changing hands quicker (money velocity), but it would me much less severe (barely noticable price rises)  if the Fed didn't inflate the money supply to support higher / rising levels of money velocity.  When the prices start to rise from inflation the Fed reduces the expansion of money by increasing interest rates.  This makes businesses that are barely profitable living off cheap credit and relying on ever-rising product prices to go bankrupt.  This causes boom/bust cycles.  It's like sqirting gasoline to keep the fire going for 20 seconds rather than adding a log and getting it to burn for an hour.
End the Fed

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