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by imtringued
1579 days ago
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Central banks don't control money. People who hold onto money control money since the central bank is forced to make as much money available to be lent out as much as is being saved because savings = investments must hold and allowing savings to go down to the level of investments is frowned upon (negative interest means savings exceed investment). |
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> People who hold onto money control money since the central bank is forced to make as much money available to be lent out as much as is being saved because savings = investments must hold and allowing savings to go down to the level of investments is frowned upon (negative interest means savings exceed investment).
Huh? Could you please explain?
First, not all saving happen as loans.
When someone harvests wood from her property and burns the wood in her fireplace, that's consumption. If she uses the wood to build a shed, that's investment. (No market involved in this example.)
Similarly, when I invest in a startup vs when I buy food, the amount of money needed for either activity is basically the same. One is saving/investment, the other is consumption.
When people save money in the bank, the bank typically turns around and loans that money out (or invests it in other ways). The money doesn't just pile up at the bank.
Now you are right that people often hold on to cash and that banks keep a certain amount of reserves around. Some amount because of regulatory requirements, some because it makes business sense. (You can clearly see the latter in countries that have no regulatory reserve requirements for banks.)
Also keep in mind that saving and investment are increasingly global phenomena: people from one part of the world can invest in other parts of the world. Eg Chinese people buying American stocks does lower the real cost of capital for American companies.
Inflation is a local phenomenon. Eg Japanese deflation and Zimbabwean hyperinflation cause neither deflation nor hyperinflation in Switzerland.