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It's only a problem if you subscribe to (in my opinion, the flawed and incredibly destructive) modern economic theory which is largely a continuation of the Keynesianism of the mid-20th century. Ask any economist why deflation is a bad thing and they will generally tell you that it is because they want to avoid a deflationary spiral with collapsing prices and high unemployment, which is why they want to ensure that consumers mindlessly consume and ensure that prices are kept "stable" (in their opinion, stable prices mean a positive inflation rate of 2%, which in my humble opinion does not make sense in pure mathematical terms). However, there are two fundamental and overlooked errors in the assumptions that underlie this theory: a) there is an assumption that consumers/agents are homogenous in their preferences and that people would rather starve to death than give up the opportunity to spend their money when it is worth more in the future. No sane person is going to wait one year to wait out some insignificant appreciation in the value of the money. People will still need to consume food and many of them would prefer to buy things now than in the future (consumer time preference, i.e. the desire to want things now rather than later, is always positive). For some inexplicable reason, time preference is completely ignored in the foundations of the theories that underpin modern monetary policy. b) the second main assumption is that money saved is money that is unproductive. This is false: savings lead to investment in the economy as resources that would otherwise be consumed are redirected into lengthening production structures in the economy. Put simply, this means that if more people put money in the bank, the bank will have more money to lend out and interest rates would fall, allowing entrepreneurs and companies to invest in production structures which in the long-run will lead to higher quality goods and cheaper prices. Of course, in the current highly distorted economy, deflation is disastrous as companies which are addicted to debt will need to be liquidated as there is no longer a steady stream of money coming in through inflation. This will likely lead to a severe recession, but this is not a bad thing as in the long-run the economy is better off as inefficient businesses who are addicted to debt and cheap money will no longer be able to operate, and clever entrepreneurs will be able to take their place. It is savings that build up capital structures in the economy, not consumption which largely distorts and even destroys said structures, and the faster we stop this destructive inflationary monetary policy the faster we return to sustainable, fair, and real economic growth. |
This is not how lending works for banks in the western world. Banks do not lend out their customers savings.
Basically banks are legally allowed to create money out of thin air. They are only limited by their equity in how much money they can create as they have to reserve a certain amount of equity for each unit of created money.
https://en.wikipedia.org/wiki/Money_creation#Role_of_banks_i...