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