What's the point in saving anymore?

who_ru

http://www.independent.ie/business/personal-finance/pensions/pensioners-will-escape-new-tax-hit-on-savings-3332384.html


the above article is an eye opener for those with any savings or thinking of becoming a saver.

apart from paying a s**t load in tax, from 2014 onwards you will have the privilege of paying a whooping 37% tax on the interest from your savings.

i mean didn't the fact that nobody saved anything encourage the whole SSIA thing in the first place, and no when people are trying to economise, save for the future.....house deposit maybe.....holiday next year.....new car...etc etc the shower in Govt decides to hammer any saving culture.

mike65

The level of savings in ireland is actually quite high if I remember correctly, with about something like one hundred billion sorted away in savings accounts of one sort or another.

ongarite

I presume its to get people to start spending money again instead of hoarding it as has been happening since 2008.
I would guess that the Government has an idea of how much money is tucked away in saving accounts across all the Irish owned banks and the figure is probably quite huge, last estimate I can see is €200 billion from 2010.

We're talking economics 101 here. During a downturn, savings are bad because it means people are not spending in the economy. Also, People are inclined to save because of financial fears for the future during a downturn, hence the disincentive applied.


Why do you feel so strongly about something you know so little about?

yesman2000

People are saving approx. 12-14% of their income (on average, of course) at the moment compared to 1-2% in the boom. This is reducing consumption in the economy. Therefore, it makes perfect sense for the government to increase DIRT. It brings in revenue for them and it's also indirectly incentives to spend more. All going well this will be corrected when (if) things recover.

AlekSmart

who_ru wrote: »

http://www.independent.ie/business/personal-finance/pensions/pensioners-will-escape-new-tax-hit-on-savings-3332384.html


The above article is an eye opener for those with any savings or thinking of becoming a saver.

Apart from paying a s**t load in tax, from 2014 onwards you will have the privilege of paying a whooping 37% tax on the interest from your savings.

I mean didn't the fact that nobody saved anything encourage the whole SSIA thing in the first place, and no when people are trying to economise, save for the future.....house deposit maybe.....holiday next year.....new car...etc etc the shower in Govt decides to hammer any saving culture.

Ah yes....The McCreevy moment.

The SSIA stunt,still resonates with me as one of the defining moments in the story of how Ireland ended up as it is.

I believe there is the makings of a real Pot-Boiler if somebody can start to research the SSIA,s history from the first Blinding Flash of Light somewhere in deepest darkest Kildare to it,s eventual end in Brian Lenihans sitting room.

ardmacha

The SSIA stunt,still resonates with me as one of the defining moments in the story of how Ireland ended up as it is.

The SSIA had the basis of a good idea. However, the funds were released at the election which made it a stunt. Imagine if it had been continued until 2008 when things began to slow, the government could have stopped paying the bonuses, reducing expenditure and people would have had a useful nest egg.

strandroad

yesman2000 wrote: »

People are saving approx. 12-14% of their income (on average, of course) at the moment compared to 1-2% in the boom. This is reducing consumption in the economy. Therefore, it makes perfect sense for the government to increase DIRT. It brings in revenue for them and it's also indirectly incentives to spend more. All going well this will be corrected when (if) things recover.

Unless the money flies out of the country first. I have access to overseas bank account - as do many other people - and with savings interest rates going down then 37% of that taken it makes no sense to keep them here.

Draco

mhge wrote: »

Unless the money flies out of the country first. I have access to overseas bank account - as do many other people - and with savings interest rates going down then 37% of that taken it makes no sense to keep them here.

Just because it's offshore doesn't mean you avoid DIRT. Never hear of Ansbacher? Unless the offshore account is giving you much higher interest rates it has no real benefit over one in Ireland.

strandroad

Draco wrote: »

Just because it's offshore doesn't mean you avoid DIRT. Never hear of Ansbacher? Unless the offshore account is giving you much higher interest rates it has no real benefit over one in Ireland.

They do typically, just checked this week and I'm tempted. I am aware of DIRT but if they encourage me to take it where I get better returns I will prop up foreign deposit books and having it there I may decide to spend it elsewhere too.

antoobrien

ardmacha wrote: »

The SSIA had the basis of a good idea. However, the funds were released at the election which made it a stunt.

I'd be inclined to say that MCCreevy wasn't that far sighted except he did restrict access to NPRF for current spending only on pensions and only from 2025.


They were released a in the year up to the election (depending on when you opened it), so the stunt wasn't the timing around the subsequent election but rather what 5 years of savings was used for in 2006 & 2007.

It ended up helping to extend the housing boom by another year or so as people had 30k to put into a deposit. I remember the calls at the time to invest it in pensions (cant remember if there were any schemes announced).

ardmacha wrote: »

Imagine if it had been continued until 2008 when things began to slow, the government could have stopped paying the bonuses, reducing expenditure and people would have had a useful nest egg.

Things began to slow before 2008, recession was called in 2008 that meant that there were two consecutive quarters of negative growth.

It was estimated that the SSIAs would dump about €14bn into the economy in a single year, so had this pool not been used until 2008 it's almost certain that we would have seen the highs in spending and taxes received recorded for the previous 2/3 years. The cutting of the tax free bonuses would have been the least of the worries of many people holding SSIAs.

johnnyskeleton

Rojomcdojo wrote: »

We're talking economics 101 here. During a downturn, savings are bad because it means people are not spending in the economy. Also, People are inclined to save because of financial fears for the future during a downturn, hence the disincentive applied.


Why do you feel so strongly about something you know so little about?

When a significant factor in a country's woes is a severely undercapitalized banking system, discouraging people to keep their money in those banks sounds like a terrific economic policy. We should also make it illegal to invest your money in start ups or other wealth generating capital investments so that people go to brown Thomas and buy Italian handbags or buy new German cars from a real entrepreneur. That's the sure fire way to kick start the economy.

MagicMarker

If I had thousands in savings, taxing me on the interest is hardly going to make me go and spend it all. That sounds like a particularly stupid reason to spend all my savings.

If I had millions in savings, taxing me on the interest is definitely not going to make me go and spend it all, it will more than likely make me move my savings to somewhere that won't tax me.

yesman2000

Ireland already has one of the highest interest rate on deposit accounts, it's one of the main reasons why Irish banks are losing so much money. Where else would there be an incentive to go inside the eurozone- Nowhere. That's why they can keep increasing DIRT. If you want to search for a better yield you'll have to change currencies, with so many transaction costs and foreign exchange risks included in this exercise it'll probably won't be worth the hassle except if you're talking a few million.


Real question to be answered; Has anyone here removed money from Irish Bank Accounts because the 3% increase on a very small number. I don't think so.

Mr. teddywinkles

yesman2000 wrote: »

Ireland already has one of the highest interest rate on deposit accounts, it's one of the main reasons why Irish banks are losing so much money. Where else would there be an incentive to go inside the eurozone- Nowhere. That's why they can keep increasing DIRT. If you want to search for a better yield you'll have to change currencies, with so many transaction costs and foreign exchange risks included in this exercise it'll probably won't be worth the hassle except if you're talking a few million.


Real question to be answered; Has anyone here removed money from Irish Bank Accounts because the 3% increase on a very small number. I don't think so.

So 1.5% is totally over the top is it. Do you know what banks are offering?
And this is short term saving. Long term about 3% if that.
37% DIRT is scandlous.
Cause spending like mad helped this country so much before.

yesman2000

Mr. teddywinkles wrote: »

So 1.5% is totally over the top is it. Do you know what banks are offering?
And this is short term saving. Long term about 3% if that.
37% DIRT is scandlous.
Cause spending like mad helped this country so much before.

Your understanding of economics is very limited. The main contributing factor to the mess we are in is the sharp decline in consumption, arguably the most important component of GDP. How to you think a recovery can start without spending? What do you think would happen if we save even more than we currently are saving ? To say that spending too much contributed to the recession is true is one respect, to say that if start we "spending like mad" now is going to cause things to get worse is just idiotic. Why are small businesses closing down on a daily basis up and down the country: because consumption has fallen off a cliff. Consumption can be assumed to be the inverse of saving. If you're not saving you're spending and vice versa. If people start spending growth is stimulated, triggering a multiplier effect. World wide interest rates are on the floor so there few options else where.

johnnyskeleton

johnnyskeleton wrote: »

When a significant factor in a country's woes is a severely undercapitalized banking system, discouraging people to keep their money in those banks sounds like a terrific economic policy. We should also make it illegal to invest your money in start ups or other wealth generating capital investments so that people go to brown Thomas and buy Italian handbags or buy new German cars from a real entrepreneur. That's the sure fire way to kick start the economy.

Are you seriously trying to make out that i said that? Exaggerate much? Or what's your deal?

Mr. teddywinkles

yesman2000 wrote: »

Your understanding of economics is very limited. The main contributing factor to the mess we are in is the sharp decline in consumption, arguably the most important component of GDP. How to you think a recovery can start without spending? What do you think would happen if we save even more than we currently are saving ? To say that spending too much contributed to the recession is true is one respect, to say that if start we "spending like mad" now is going to cause things to get worse is just idiotic. Why are small businesses closing down on a daily basis up and down the country: because consumption has fallen off a cliff. Consumption can be assumed to be the inverse of saving. If you're not saving you're spending and vice versa. If people start spending growth is stimulated, triggering a multiplier effect. World wide interest rates are on the floor so there few options else where.

I understand your view but no im sorry not without correction .
My personal view is that I saved my ass off during the boom and before it to buy a place for myself.
While my mates spent frivolously around me I saved what I could.
While my mates bought big I saved and now are debt ridden while I have an opportunity of being nearly potentially mortgage free due to drop in house prices.
Sounds like braggen buts its testament to a f**ked up view by other people on spending habits.
Things still are not corrected.
Yes you need stimulation of the economy through spending but not government forced intervention.
Why do you think the Germans have money to fund everything.
Sounds like a complete generalisation but they save and for a better word of it are tight out and invest their money wisely.
Small businesses are closing down because a bag of potatoe wedges cost e3.70 in centra, a f**kin toffee slice in costas cost e3.50 yet the place was full the other day when I was in it. Grant it probably priced just to pay the rent on the place.
Im sorry if I come across an arrogant d**k but its true.
Consumption is good yes but realist comsumption with real prices with real money.
The government are scaring people with increased taxes yet expect people to spend their savings. Good tactic :mad:

The understanding of economics in this thread has officially nose-dived. I would wager, Mr. teddywinkles, that you very seldom leave Ireland - if ever.

So we all save as prudently as you, where does that leave the economy? How does your ideal economy function? It sounds awfully like you have a concrete stance on an issue you know nothing about. Like certain others in this thread.

creedp

mhge wrote: »

They do typically, just checked this week and I'm tempted. I am aware of DIRT but if they encourage me to take it where I get better returns I will prop up foreign deposit books and having it there I may decide to spend it elsewhere too.

My young fella is always issuing ultimatums like that .. yesterday evening he stated that he was just about to do something good when I said he had to go to bed so now he won't

strandroad

creedp wrote: »

My young fella is always issuing ultimatums like that .. yesterday evening he stated that he was just about to do something good when I said he had to go to bed so now he won't

What's your point? Do you question that people have other options than to start spending on demand? We are not going back to the level of spending we used to have and it's not a bad thing if people think more in terms of financial cushion these days.

I knew a guy who used to buy his daughter every single present she had on her list for Christmas (she was four) and splash on everyone else. One year they needed both cars to transport all their presents going to their family for Christmas. The child would get so much stuff from everyone that the routine was to designate some of the presents for charity straightaway to teach her to share and the rest was to be kept in the press and released in weekly batches.

Since then he lost his job and while he got another one pretty quickly they had a wake up call and are now big savers. The child now gets a few favourites off the top of her list and the rest of the family all have a Kris Kindle. Do you think that if saving is made unattractive for them they will start spending on piles of stuff again, or buy a new car just because they can? They are far more likely to optimise their savings and if it means putting them into other financial products or exporting them so be it. I am too lazy to move mine now, but with the offers I get and with the policy the government enforces it is making more and more sense. Two years ago we wouldn't even research it, these days it's a lunch conversation topic at work.

mhge

mhge wrote: »

these days it's a lunch conversation topic at work.

I'd say those conversations are enlightening experiences.... :rolleyes:

strandroad

Rojomcdojo wrote: »

I'd say those conversations are enlightening experiences.... :rolleyes:

You guys seem to be very skeptical with regard to this point of view. But tell me how they can make me spend if I have a modest, comfortable lifestyle I'm happy with and I appreciate having savings to fall back on should anything happen?

I understand how fueling demand is important for the economy. On the individual level, however, I don't see how they can make me spend more if I don't feel any need to. And yes, having external options is a factor.

It's not just about spending, it's about a specific sort of economically inefficient saving that is great in smallish quantities, but unnessessary in the volume we have right now, which is a result of the economic climate we all face today. The government are simply encouraging less savings in order to boost cash flow around the economy.

ballyharpat

I have to agree with MHGE on this, I feel that the government makes it difficult to accumulate savings, when I lived in the USA, I invested in stocks and paid tax over there. THe trading charges were lower and the CGT was lower, when the option is available to invest in stocks, I would rather do it from the USA or another foreign country where I pay less tax, but still declare my income. When I make more money, I have more to spend, if I had been investing here, my fees for trading would have eaten up my profit on any investments made, why would I bother saving/investing?
Had I not saved, I would have been back in this country without a pot to piss in or a window to throw it out of and I would have, like so many others, looked to the government to put a roof over my head and feed me.

But as a saver you are merely one cog in the machine. There are and always will be die hard savers, and die hard spenders - the vast majority of people are somewhere in the middle. These are the cogs that need oiling, so to speak.

thebman

I usually save 50% of my wage. This attacking savers thing really annoys me tbh.

If you want to encourage people to spend, you need to satisfy their basic needs, one of which is safety and at the moment, nobody feels safe in their jobs do they won't spend.

Doesn't matter how much you tax savings, people would rather have that safety net in troubled times.

ballyharpat

I see your point, but I think if we could get more of the spenders to the middle and more of the savers to the middle, it would benefit the country as a whole, I don't believe that penalizing savers is helpful

strandroad

Rojomcdojo wrote: »

But as a saver you are merely one cog in the machine. There are and always will be die hard savers, and die hard spenders - the vast majority of people are somewhere in the middle. These are the cogs that need oiling, so to speak.

I get your point, but I don't think it's how it works on psychological level. People "in the middle" are saving not because the rates are so attractive; they are putting money away because they have been exposed to or witnessed unemployment, debt traps etc. and to somehow cushion themselves is more important than to spend on non-essentials.

It is a change of attitude of sorts and I don't see how manipulating the rates can trump this need; unless they go down to negative values so that you will be paying the bank to store your savings, akin to renting a safe, and there are regulation in place to prevent capital movement.

Duggys Housemate

The government should exempt the first, what, 10K on earnings. That would generally shut people up. It is good to tax unearned income. No point of just taxing labour.

ardmacha

Taxing interest without adjusting for inflation is entirely unjust. But as noted by several posters the easiest way to get people spending is to reduce uncertainty so that they are less concerned about the future.

Mr. teddywinkles

Rojomcdojo wrote: »

The understanding of economics in this thread has officially nose-dived. I would wager, Mr. teddywinkles, that you very seldom leave Ireland - if ever.

So we all save as prudently as you, where does that leave the economy? How does your ideal economy function? It sounds awfully like you have a concrete stance on an issue you know nothing about. Like certain others in this thread.

So the government says implement protocol SPEND and everyone must comply.
Prudent saver yes but I still spend money here too and pay tax.
The money Iv saved will be spent but at my discretion and used to give me more bang for my buck which of course I will pay further tax on.

johnnyskeleton

Rojomcdojo wrote: »

Are you seriously trying to make out that i said that? Exaggerate much? Or what's your deal?

You said that during a downturn, savings are bad for the economy. You cited this as economics 101 when in reality it's pork barrel politics 101.

big_joe_joyce

mike65 wrote: »

The level of savings in ireland is actually quite high if I remember correctly, with about something like one hundred billion sorted away in savings accounts of one sort or another.

savings rates are also very high

savers in american banks get less than 1% , our banks need deposits and are willing to pay for them

BOHtox

Paradox of thrift. The government are trying to get people spending

who_ru

BOHtox wrote: »

Paradox of thrift. The government are trying to get people spending

Given the cost of living that's unlikely to happen. Probably see increases in health insurance in the new year, ironically the same govt has reduced disposable incomes year on year yet want to see more spending. Plus very few under 40s actually have savings, so that leaves the older demographic who traditionally don't tend to 'consume' as much as their younger counterparts. Facts are unemployment is static, growth minimal and under those circumstances disincentives to saving are unlikely to get people spending more.

hmmm

I doubt there's any grand strategy behind this, it's simply a method of extracting taxes from anyone with assets. Try and do the right thing in this country and you're going to be caught between our mediocre politicians who cannot live within a budget and a begrudging electorate who see everyone else's money as fair game.

Duggys Housemate

johnnyskeleton wrote: »

You said that during a downturn, savings are bad for the economy. You cited this as economics 101 when in reality it's pork barrel politics 101.

Standard economics.

Standard keynesian economics anyway.

I am reading a couple of interesting articles explaining that while it might sound true for a very simple economy, the fact that we are at more complex levels of production, where there are different levels of processes involved, punches a hole in that idea. It also means there can be no accumulation of capital if it's all on such short term spending and never saving.
There is fundamentally everything wrong with Keynes’ proposition when we place ourselves in a complex economy. Keynes’ fallacious argument roots from the basic lack of understanding of the `structure of production’ which is very complex in a division-of-labor society. Any product we use in today’s extremely complex economy is provided after complex levels of processes which happen at different points of time, and at different pace. This is called the economy’s `inter-temporal
structure of production’. So there is essentially a time lag involved in the production process. This basic understanding can travel us long forward in understanding the economy and refuting arguments of economists like Keynes.
http://www.reasonforliberty.com/economics/are-savings-bad-for-the-economy.html

Another article along the same lines, an interesting read:
http://mises.org/daily/710

Duggys Housemate

bluewolf wrote: »

Standard keynesian economics anyway.

I am reading a couple of interesting articles explaining that while it might sound true for a very simple economy, the fact that we are at more complex levels of production, where there are different levels of processes involved, punches a hole in that idea. It also means there can be no accumulation of capital if it's all on such short term spending and never saving.
There is fundamentally everything wrong with Keynes’ proposition when we place ourselves in a complex economy. Keynes’ fallacious argument roots from the basic lack of understanding of the `structure of production’ which is very complex in a division-of-labor society. Any product we use in today’s extremely complex economy is provided after complex levels of processes which happen at different points of time, and at different pace. This is called the economy’s `inter-temporal
structure of production’. So there is essentially a time lag involved in the production process. This basic understanding can travel us long forward in understanding the economy and refuting arguments of economists like Keynes.
http://www.reasonforliberty.com/economics/are-savings-bad-for-the-economy.html

Another article along the same lines, an interesting read:
http://mises.org/daily/710

What are you trying to "refute" here ( not that buzz words about inter-temporal blah is going to refute anything). The paradox of thrift is hardly just Keynsian - if people don't spend anything companies don't sell and go out of business, their workers are unemployed and don't spend and so on. Until nobody is employed.

The only argument that might make sense on an Irish scale is that austerity here has less impact because we are export driven although it is collapsing the demes tic economy.

KyussBishop

bluewolf wrote: »

Standard keynesian economics anyway.

I am reading a couple of interesting articles explaining that while it might sound true for a very simple economy, the fact that we are at more complex levels of production, where there are different levels of processes involved, punches a hole in that idea. It also means there can be no accumulation of capital if it's all on such short term spending and never saving.
There is fundamentally everything wrong with Keynes’ proposition when we place ourselves in a complex economy. Keynes’ fallacious argument roots from the basic lack of understanding of the `structure of production’ which is very complex in a division-of-labor society. Any product we use in today’s extremely complex economy is provided after complex levels of processes which happen at different points of time, and at different pace. This is called the economy’s `inter-temporal
structure of production’. So there is essentially a time lag involved in the production process. This basic understanding can travel us long forward in understanding the economy and refuting arguments of economists like Keynes.
http://www.reasonforliberty.com/economics/are-savings-bad-for-the-economy.html

Another article along the same lines, an interesting read:
http://mises.org/daily/710

The trouble with those articles (and all this is a comment on the articles, not attacking you), is that savings do not save real productive assets for the future, they defer production of real assets into the future; so this means production must slow down in the present, for savings to increase.

Savings can not signal industry to prepare for future production, because how would industry know what consumers will want to buy? (i.e. how would industry know what capital goods to acquire, to meet future consumer demand?)

Rates on loans aught to not be linked to the level of savings either, they should be set to stop excess credit causing bubbles, which will not directly correlate with savings.


Also, a lot of the emphasis on capital goods there is either for ramping up production or for improving the efficiency of existing production; this fails on a few points:
1: You want the efficiency of production to be at a maximum anyway, so a decrease in demand and increase in savings aren't going to trigger big investments in efficiency
2: Nobody knows what goods future savings might be preparing for, so there is no way for any particular industry to know it needs to increase productive capability for the future
3: The reduction in demand in the present means there is already excess capacity for production to meet future demands; there would be nothing to say that demand will be even higher for a particular product in the future, so there is no way to tell if investments in increased productivity is warranted.


In particular, this bit of the second article is all wrong:

Once a producer has exchanged his goods for money, he has in fact begun saving. When a baker sells his bread for $1 to a shoemaker, he has supplied the shoemaker with his saved ( i.e., unconsumed) bread. The supplied bread will sustain the shoemaker and allow him to continue making shoes. Note that money received by the baker is fully supported by his production. Being the medium of exchange, money will enable the baker to secure goods and services some time in the future, whenever he requires them.

Money is not like physical bread, because you can't save real assets/production by saving money, you can only spur more production in the future with the money.
It is also not necessarily true that saving allows securing of goods in the future, at the same price, because if everyone saves today, and then all at once in the future try to spend their savings on a particular product, there will be too much money chasing that product, causing its price to inflate; that is a good example of how money does not save actual real production, and is not comparable to saving real commodities.


Also, another bit which is very wrong; so wrong in fact, that it borders on being malicious i.e. deliberately false, so I'd be very skeptical of that source of information in the future.
I'm breaking it into several quotes to tackle it one bit at a time, because it is subtle in how it obfuscates and tries to deceive the reader:

It doesn’t follow, however, that one can lift economic growth and effective real aggregate spending via the printing presses.

This bit is asserted, and following arguments trying to back it are fallacious.

When money is printed—that is, created "out of thin air" by the central bank—it sets in motion an exchange of nothing for money and then money for something.

This states that nothing is exchanged for money, and then money exchanged for something, but the below quote goes beyond this and states 'printed money = nothing'; very big fallacious step.

Money is never 'nothing', money is societies debt to the person/group holding it; if government prints money, it can be (and is) directly used to fund production, either through paying for labour (public services), or buying private goods, such as e.g. buying stockpiled stone from a quarry.

An exchange of nothing for something amounts to consumption that is not supported by production.

'Nothing' here is not nothing, it is money; this goes beyond the quote before this, and makes the false equivalence that 'printed money = nothing', which is a fallacious and deceptive step.

Exchanging money for something, does not amount to consumption that is not supported by production; money allows production to happen in the first place, and is used to fund future production, unless people want to trade by barter.
Real wealth is created by actual goods in the economy, money is just the lubricant which eases the exchange of real goods.

Because every activity has to be funded, it follows that an increase in consumption that is not supported by production must divert funding from wealth-generating activities.

This statement is built upon the false premises of the above quotes, the term "wealth-generating activities" is also deliberately obfuscatory; a good example of nonsense used to obfuscate/confuse a reader, to try and make them give up parsing it, and just accept the conclusion.

It's basically saying, when you unparse the garbage, that an increase in printed money in the economy, diverts funds from "wealth-generating activities", without even attempting to explain how, or precisely what that's even supposed to mean.

This, in turn, diminishes the flow of real savings to the producers of wealth, which weakens the flow of production, which sets in motion an economic recession.

The term "wealth producers" is also deliberately obfuscatory, there is no explanation of how the "flow of real savings" is diminished (it is only asserted, nothing about savings has been said so far), and that is used as a false premise to say the flow of production is weakened (again without explaining how the savings link is supposed to cause that), causing a recession.

That last point, when you unparse the whole argument of the above quotes, means the author is equating printing money with economic recessions.


It's worth repeating: If the source of that information, the mises.org website, puts out such false information without correcting it, then can that be a credible source of information?
That affects the credibility of that website as a whole, and warrants extremely high skepticism of their writing; if false and deliberately deceptive information like that is read regularly from a website (even if it's just in bits and pieces), and goes unchallenged, it will sink in over time for the reader, through repetition, which poisons knowledge with falsehoods.

Whenever an article is throwing large amounts of obfuscated terms/words at you, and is trying to confuse the reader like that, that's a huge warning sign that the author is trying to deceive.


Another problem with the second article, is it says capital comes into existence by saving, but this is not true with the public sector because that is directly funded by government spending.

In the private sector, saying capital comes into existence by saving, is only true in that money usually goes through banks before being reinvested (it doesn't even have to do that), but then banks are able to lend out money in excess of deposits/savings, so what they can lend out is not restricted one-on-one with savings.


A good way to illustrate the difference (which is also a good thinking exercise for dispelling a lot of other economic myths): If you replaced private banks with a public bank, loans from that would not be savings-constrained in any way, they would only be constrained by wanting to avoid excess credit (due to bubbles/instability) and inflation, since government is the fiat issuer of money and can issue as much as it wants within those constraints.


I spent a lot more time on that second article than I thought I would (and there are a lot more areas where it has issues, which I haven't addressed), so excuse the size of the post.

SupaNova2

KyussBishop wrote: »

The trouble with those articles (and all this is a comment on the articles, not attacking you), is that savings do not save real productive assets for the future, they defer production of real assets into the future; so this means production must slow down in the present, for savings to increase.

Savings is a deference of consumption(not production) to the future. But yes this will lead to a slowdown of some industries. If everyone reduces their consumption of mobile phones, production of mobile phones will fall which is desirable, why produce what people don't want to consume?

Savings can not signal industry to prepare for future production, because how would industry know what consumers will want to buy? (i.e. how would industry know what capital goods to acquire, to meet future consumer demand?)

It is up to entrepreneurs to anticipate what people want in the future. If people reduce consumption of phones it is up to entrepreneurs to make use of the freed up resources to produce something they do want.

Rates on loans aught to not be linked to the level of savings either, they should be set to stop excess credit causing bubbles, which will not directly correlate with savings.

Actually if credit had a more direct link to savings that would keep credit under much stricter conditions, and limit the scale of bubbles.

yesman2000

Mr. teddywinkles wrote: »

I understand your view but no im sorry not without correction .
My personal view is that I saved my ass off during the boom and before it to buy a place for myself.
While my mates spent frivolously around me I saved what I could.
While my mates bought big I saved and now are debt ridden while I have an opportunity of being nearly potentially mortgage free due to drop in house prices.
Sounds like braggen buts its testament to a f**ked up view by other people on spending habits.
Things still are not corrected.
Yes you need stimulation of the economy through spending but not government forced intervention.
Why do you think the Germans have money to fund everything.
Sounds like a complete generalisation but they save and for a better word of it are tight out and invest their money wisely.
Small businesses are closing down because a bag of potatoe wedges cost e3.70 in centra, a f**kin toffee slice in costas cost e3.50 yet the place was full the other day when I was in it. Grant it probably priced just to pay the rent on the place.
Im sorry if I come across an arrogant d**k but its true.
Consumption is good yes but realist comsumption with real prices with real money.
The government are scaring people with increased taxes yet expect people to spend their savings. Good tactic :mad:

Well done on your foresight to save during the boom, few else had this. However, we are not in the boom any more so this economic stance needs to be changed. I'll give an extreme example to outline my point of view (and that of basic economics). If people spend nothing in the next year there will be no economy, businesses will not function as they will not sell anything, we will all lose our jobs as a results, there's no demand as all our money is locked away in nice little saving schemes, the government would not be able to pay anyone, run the health service, invest in any public works etc. as they have no revenue streams- there's no vat because nothing is sold, there's income or corporation tax either.
Flip this on it's head, if we all buy and new car the motor industry booms, all the people in the motor industry see their incomes rise so they decide they'd like a new suite of furniture. The furniture industry starts to picks up. These people see their incomes rise so they go out every weekend for a meal. And so the multiplier continues. The economy starts to grow because of consumption. If you're not saving you're consuming and vice versa.

The government should only implement a saving incentive scheme(e.g reduction on DIRT) when the economy is overheating and there's a bubble- this will deflate the economy and return it to normal levels which are sustainable. Obviously this was not implemented during the boom. On a side note if we had control over out own interest rates, and not the ECB, we could have cranked up interest rates during the boom creating an incentive to save. This would also decrease demand for loans, as it's more expensive to borrow, which would have reduced the property boom. All hindsight though.

SupaNova2

yesman2000 wrote: »

Well done on your foresight to save during the boom, few else had this. However, we are not in the boom any more so this economic stance needs to be changed. I'll give an extreme example to outline my point of view (and that of basic economics). If people spend nothing in the next year there will be no economy, businesses will not function as they will not sell anything, we will all lose our jobs as a results, there's no demand as all our money is locked away in nice little saving schemes, the government would not be able to pay anyone, run the health service, invest in any public works etc. as they have no revenue streams- there's no vat because nothing is sold, there's income or corporation tax either.

But people never spend nothing for a year, that would equate to mass suicide by starvation. But yes I agree that if people spent nothing there would be no economy.

To pull something from an article linked by bluewolf.
"At any point in time, the amount of goods and services available are finite. This is not so with regard to people’s demand, which tends to be unlimited. Most people want as many things as they can think of. What thwarts their demand is the availability of means. Hence, there can never be a problem with demand as such, but with the means to accommodate demand."

I would love to buy a lot of things, I just don’t have the means to acquire them. I would love a nice new house, to take a few months off to travel, to buy an xbox 360 and hook it up to a home cinema, laser eye surgery. I could make a list of demands pages long. The problem is not animal spirits, I'm not spooked I just don't have the means.

yesman2000

SupaNova2 wrote: »

But people never spend nothing for a year, that would equate to mass suicide by starvation.

And that's why the word extreme was used

johnnyskeleton

johnnyskeleton wrote: »

You said that during a downturn, savings are bad for the economy. You cited this as economics 101 when in reality it's pork barrel politics 101.

Wrong.

SupaNova2

yesman2000 wrote: »

And that's why the word extreme was used

But no-one has ever argued the extreme, but that some saving is desirable. We could easily shoot down the other extreme . The other extreme is saving is a drain, the lower people's propensity to save and the higher the multiplier the better. You have a real life example of what happens when people's propensity to save goes to zero, a hyperinflation, and the result, economic devastation.

Duggys Housemate

SupaNova2 wrote: »

Savings is a deference of consumption(not production) to the future. But yes this will lead to a slowdown of some industries. If everyone reduces their consumption of mobile phones, production of mobile phones will fall which is desirable, why produce what people don't want to consume?



It is up to entrepreneurs to anticipate what people want in the future. If people reduce consumption of phones it is up to entrepreneurs to make use of the freed up resources to produce something they do want.



Actually if credit had a more direct link to savings that would keep credit under much stricter conditions, and limit the scale of bubbles.

"freed up resources?". What do you mean. If people stopped buying mobile phones those companies will go out of business, software devs will go out of business , and the world economy would contract or slow down with the effects of the negative multiplier effects The extra savings will not be useful to entrepreneurs because the economy would be contracting. banks won't loan.

This isn't just a paradox of thrift, it's also the paradox of low wages.

Duggys Housemate

SupaNova2 wrote: »

But no-one has ever argued the extreme, but that some saving is desirable. We could easily shoot down the other extreme . The other extreme is saving is a drain, the lower people's propensity to save and the higher the multiplier the better. You have a real life example of what happens when people's propensity to save goes to zero, a hyperinflation, and the result, economic devastation.

Hyperinflation caused by saving?

SupaNova2

Duggys Housemate wrote: »

"freed up resources?".

Freed-up labour, freed up premises, and whatever else.

SupaNova2

Duggys Housemate wrote: »

Hyperinflation caused by saving?

Eh caused by no saving.