| >Saving/Hoarding: Keeping money/cash under the mattress - nobody else has the ability to "spend" the money in the mean time. Also called "sinking funds" by Keynes. This is money kept in a bank deposit. The important point is that you can, at any time, choose to "stop saving" the money and spend it. i.e. you keep the right to spend the money at any time. Nobody else can make use of it. It effectively is out of circulation until you choose to spend it. One of the big problem with Keynes. Money stuffed in a mattress = hoarding. Money in a bank deposit = still in circulation, able to be lent by the bank. There is a massive difference. Other people can make use of funds deposited in accounts. This is why banks take in deposits, to lend it out at a higher rate and pocket the spread. I would also quibble with your definition of investment. Investment should be classified as spending in the expectation of a financial return (ie, not the joy of owning a new shirt, but actual cash returned on cash outlaid). You can say 'a fixed term' but that is a nebulous concept. 24 hours is a fixed term, so is a week, so is a year, so is 30 years. Lending someone money overnight so they can arbitrage some goods by moving them physically from one location to another one is just as much investment as sinking the money into a toll road for 50 years. The definition has to be on the intention rather than the time horizon, otherwise you're just being arbitrary to support an argument. >(according to the economists that I agree with anyway) Highly likely you agree with Krugman. I think he speaks out of his hat. We'll leave it at that. |
Only because of fractional reserve banking. Absent fractional reserve banking, if I 'lend' something to another party but reserve the right to demand it back at any time, then there is simply no way that they can "use" what I have lent them. They can't use the money while still honouring my right to demand the money back at any time.
So "money" which can be demanded back at any time has he same status as money kept under the mattress - it can't be profitably "used" by anyone.
The important point about "investment" is that the money trully is "tied up" - if only for a day. The shorter the term, the more like "cash" it is.
> Highly likely you agree with Krugman. I think he speaks out of his hat. We'll leave it at that.
You're right I do agree with Krugman (for the most part). I've been reading his blog since 2007 and you know what, he's been right in his predictions pretty much the whole time!
If you think Krugman is speaking out of his hat, who do you recommend instead?