Note To Economists: Saving Doesn’t Create Savings

[Dovahkiin]

It sounds silly, but it's true.
Note To Economists: Saving Doesn't Create Savings - Evonomics

If you save more, if everybody collectively saves more, there are more savings, right? There’s more money that firms can borrow and invest to make us all more prosperous. Household saving “funds” business investment, so if we all save more, the world will be more productive and prosperous. You hear this all the time. And it makes sense, right?

Wrong. It’s hogwash. Incoherent codswollop. Gobbledegook faux-accounting-think. Bunkum. Think: fallacy of composition — believing something is true of the whole because it is true of the parts.

You may know the much-discussed paradox of thrift: If everybody saves more, there’s less spending, so less income, less aggregate demand. On the surface, at least, that seems rather straightforward. But the real paradox here lies in the plural: the stock of monetary “savings” that lurks, implicit, at the core of the paradox. If we save more, are there more savings?

Government deficit-spends money into existence. Treasury simply deposits dollars, created out of thin air, into private-sector checking accounts, either as transfers or in return for goods and services. This increases both private-sector balance-sheet assets, and private sector net worth — because no private-sector liabilities are created in the process. (Treasury then selling bonds, and the Fed buying them back, doesn’t directly affect private-sector assets or net worth. It simply swaps asset for asset, and alters the private sector’s portfolio mix, bonds versus checking-account deposits — though again with potential carry-on economic effects.)

2. Banks issue new loans, dollars that are also created ab nihilo. This loan issuance increases private-sector assets, but the act of lending/borrowing itself does not increase net worth, because borrowers simultaneously takes on liabilities equal to the new assets. New loans from banks only increase net worth if the leveraging later pays off (an economic effect), via mechanism #3.

3. As we create more stuff and decide that existing stuff is worth more, the financial system creates new financial instruments, and the existing-asset markets bid up prices of existing instruments (stock shares, deeds, etc.) — expanding the stock of claims to approximate the expanded stock of stuff. Market runups increase household balance-sheet assets, with no increase in household liabilities. So like government deficit spending but unlike bank lending, market runups increase household net worth. Voila, households have more money. This is arguably the dominant financial mechanism for “money printing.” (This reality highlights the pervasive “conservation of money” fallacy that still plagues even much “stock-flow consistent” thinking, a fallacy that’s beautifully explicated in this paper by Charlotte Bruun and Carsten Heyn-Johnsen. It also points out the deep conceptual problems of “income” measures that don’t include capital gains income — where “saving” doesn’t equal change in net worth.)

That Econ 101 circular-flow diagram might need some rethinking.

 

[Manonthestreet]

OMG we need to liquidate all IRA's and 401's to be really rich

 

[Dovahkiin]

OMG we need to liquidate all IRA's and 401's to be really rich

Spending causes savings. Your post is silly.

 

[Manonthestreet]

your double talk is silly

 

[Dovahkiin]

your double talk is silly

You clearly don't understand the fact that spending has to occur before saving can occur.

 

[Kosh]

OMG we need to liquidate all IRA's and 401's to be really rich

Spending causes savings. Your post is silly.

That sounds like far left religious talk..

Please show all the people that spent their way to prosperity while running up trillions in debt?

 

[Dovahkiin]

OMG we need to liquidate all IRA's and 401's to be really rich

Spending causes savings. Your post is silly.

That sounds like far left religious talk..

Please show all the people that spent their way to prosperity while running up trillions in debt?

You have to understand the economy as a whole.
The majority of people who are now successful went into debt to get to that point. Have you heard of the paradox of thrift?
If we all decide to save more, aggregate demand drops, sales go down, and less income.

 

[Kosh]

OMG we need to liquidate all IRA's and 401's to be really rich

Spending causes savings. Your post is silly.

That sounds like far left religious talk..

Please show all the people that spent their way to prosperity while running up trillions in debt?

You have to understand the economy as a whole.
The majority of people who are now successful went into debt to get to that point. Have you heard of the paradox of thrift?
If we all decide to save more, aggregate demand drops, sales go down, and less income.

You have proven you do not understand anything beyond the far left religious dogma..

You promote the government run everything, so how can one save if the is only one supplier?

 

[Dovahkiin]

OMG we need to liquidate all IRA's and 401's to be really rich

Spending causes savings. Your post is silly.

That sounds like far left religious talk..

Please show all the people that spent their way to prosperity while running up trillions in debt?

Debt is the engine of prosperity.

 

[Kosh]

OMG we need to liquidate all IRA's and 401's to be really rich

Spending causes savings. Your post is silly.

That sounds like far left religious talk..

Please show all the people that spent their way to prosperity while running up trillions in debt?

Debt is the engine of prosperity.

So that is a no, you can not provide any examples..

Just far left religious dogma!

 

[Dovahkiin]

OMG we need to liquidate all IRA's and 401's to be really rich

Spending causes savings. Your post is silly.

That sounds like far left religious talk..

Please show all the people that spent their way to prosperity while running up trillions in debt?

You have to understand the economy as a whole.
The majority of people who are now successful went into debt to get to that point. Have you heard of the paradox of thrift?
If we all decide to save more, aggregate demand drops, sales go down, and less income.

You have proven you do not understand anything beyond the far left religious dogma..

You promote the government run everything, so how can one save if the is only one supplier?

I don't want the government to run everything. People can only save thanks to the government running a net deficit.

 

[Dovahkiin]

OMG we need to liquidate all IRA's and 401's to be really rich

Spending causes savings. Your post is silly.

That sounds like far left religious talk..

Please show all the people that spent their way to prosperity while running up trillions in debt?

Debt is the engine of prosperity.

So that is a no, you can not provide any examples..

Just far left religious dogma!

Corporate bonds, mortgages, bank loans..

 

[Kosh]

OMG we need to liquidate all IRA's and 401's to be really rich

Spending causes savings. Your post is silly.

That sounds like far left religious talk..

Please show all the people that spent their way to prosperity while running up trillions in debt?

You have to understand the economy as a whole.
The majority of people who are now successful went into debt to get to that point. Have you heard of the paradox of thrift?
If we all decide to save more, aggregate demand drops, sales go down, and less income.

You have proven you do not understand anything beyond the far left religious dogma..

You promote the government run everything, so how can one save if the is only one supplier?

I don't want the government to run everything. People can only save thanks to the government running a net deficit.

What proof do you have? None!

It is all based off a dangerous religion, that is more dangerous than ISIS..

 

[Dovahkiin]

Spending causes savings. Your post is silly.

That sounds like far left religious talk..

Please show all the people that spent their way to prosperity while running up trillions in debt?

You have to understand the economy as a whole.
The majority of people who are now successful went into debt to get to that point. Have you heard of the paradox of thrift?
If we all decide to save more, aggregate demand drops, sales go down, and less income.

You have proven you do not understand anything beyond the far left religious dogma..

You promote the government run everything, so how can one save if the is only one supplier?

I don't want the government to run everything. People can only save thanks to the government running a net deficit.

What proof do you have? None!

It is all based off a dangerous religion, that is more dangerous than ISIS..

You are in over your head.

 

[Kosh]

OMG we need to liquidate all IRA's and 401's to be really rich

Spending causes savings. Your post is silly.

That sounds like far left religious talk..

Please show all the people that spent their way to prosperity while running up trillions in debt?

Debt is the engine of prosperity.

So that is a no, you can not provide any examples..

Just far left religious dogma!

Corporate bonds, mortgages, bank loans..

And you just proven my point..

Nothing but far left religious dogma..

 

[Kosh]

That sounds like far left religious talk..

Please show all the people that spent their way to prosperity while running up trillions in debt?

You have to understand the economy as a whole.
The majority of people who are now successful went into debt to get to that point. Have you heard of the paradox of thrift?
If we all decide to save more, aggregate demand drops, sales go down, and less income.

You have proven you do not understand anything beyond the far left religious dogma..

You promote the government run everything, so how can one save if the is only one supplier?

I don't want the government to run everything. People can only save thanks to the government running a net deficit.

What proof do you have? None!

It is all based off a dangerous religion, that is more dangerous than ISIS..

You are in over your head.

Another irony impaired post from a far left drone!

 

[Dovahkiin]

Spending causes savings. Your post is silly.

That sounds like far left religious talk..

Please show all the people that spent their way to prosperity while running up trillions in debt?

Debt is the engine of prosperity.

So that is a no, you can not provide any examples..

Just far left religious dogma!

Corporate bonds, mortgages, bank loans..

And you just proven my point..

Nothing but far left religious dogma..

 

[Kosh]

That sounds like far left religious talk..

Please show all the people that spent their way to prosperity while running up trillions in debt?

Debt is the engine of prosperity.

So that is a no, you can not provide any examples..

Just far left religious dogma!

Corporate bonds, mortgages, bank loans..

And you just proven my point..

Nothing but far left religious dogma..

You just proven you are here to push the far left religious agenda!

 

[Dovahkiin]

Debt is the engine of prosperity.

So that is a no, you can not provide any examples..

Just far left religious dogma!

Corporate bonds, mortgages, bank loans..

And you just proven my point..

Nothing but far left religious dogma..

You just proven you are here to push the far left religious agenda!

YEP. HURRRR.

 

[Missouri_Mike]

OMG we need to liquidate all IRA's and 401's to be really rich

Spending causes savings. Your post is silly.

That sounds like far left religious talk..

Please show all the people that spent their way to prosperity while running up trillions in debt?

Debt is the engine of prosperity.

You're clearly not a successful person if you believe this but feel free to borrow your way to untold fortune. It may happen, somehow.