[ben_w]

1. Crudely speaking, money that stays in a savings account acts like money destroyed, i.e. deflation. Deflation encourages more people to do the same, because the effective savings interest rate is ≈ $nominal_interest + $inflation, leading to a spiral.

Except: money stuck in savings accounts also means the money isn’t spent on goods & services, so fewer jobs are supported, so productivity goes down, which is effectively +ve inflation even with the money supply perfectly fixed, but fewer jobs also encourages more savings and also triggers a spiral.

Which effect dominates (+ve or -ve inflation) depends on other factors, but both ways are a spiral of economic pain.

2. What? This is specifically about which is worse, how can you not make this type of comparison?

[ben_w]

And now it’s too late to edit, I see an error:

> $nominal_interest + $inflation

Should either be:

> $nominal_interest - $inflation

Or:

> $nominal_interest + $deflation