Comments about ‘Letter: Institutions can entice borrowers to start saving more’

"in theory"

Your theory doesn't match reality, Jeff. You forgot to factor in competition among financial institutions. Suppose Bank A decides to loan money out at 10%, and pay 6% interest on savings accounts, while Bank B loans money at 5% and pays 1% on savings, thus each bank has a 4% spread. Who is going to borrow money from Bank A? Nobody. Without borrowers, Bank A cannot make money on its nonexistent loans, yet it still has to pay its depositors 6% interest. So it goes out of business, and the people who want to save have to look elsewhere.

Try again.

Yeah, that's exactly what our economy needs. More money sitting on the sideline. We're in a demand side recession. Spending is good.

Jeff, you have just described a paradox of capitalism. Raise loan rates and consumer spending falls off the face of the earth. No spending and we will never see the manufacturing sector come back. No manufacturing sector, few good paying jobs and then no possible saving at any interest rate. Ah, those banks have got us figured out, haven't they?

Money saved in banks does not "sit on the sidelines." That's true only if that money isn't puy to good use by the bank. Money put in a mattress sits on the sidelines. There's a whole world of difference. Money saved in banks is NOT removed from the economy,

The fundamental problem with the economy isn't that there isn't enough savings. Quite the opposite, actually. In aggregate, people are more inclined to save than to borrow. It is this macro-economic reality that has driven down interest rates, created weak demand for goods and services, and high unempoloyment rates.

The reason most people don't see this is because it is the "rich" who control most of the money and are the big savers. If they put their trillions into savings accounts to live off of 6% interest, other people will need to borrow trillions who can and will pay more than 6% in interest on their debt.

The problem is, the rich can't find enough credit-worthy people to loan their money to. So the real problem isn't low interest rates, it's that too much money is controlled by too few people. We need a stronger middle-class.