But you should state the answer directly rather than assuming it under a layer of indirection.
Most wealthy individuals aren't holding cash, they put the money in a savings account or investment that has a return. This money appears to be held to most people, but even money in a savings account makes its way back into the economy by affecting the reserve requirements of banks. Its a proportional effect, because reserve requirements are greater than 0% but lower than 100%, but it still contributes.
If they actually are hoarding, the question is why and in the past that is usually because savings returns and investment returns are expected to be negative. In which case, thats the problem to solve.
I wonder if it's something like... the average individual spends half of whatever cash they have available every year... but the average business that takes investment lets 6 to 12 months of it sit in accounts. I realize the bank would then loan against the money in those accounts, but is it "turtles all the way down"?
I'll have to refresh my understanding of fractional reserve banking, but I don't think a loan from Bank A being put into Bank B and so on can lead to infinite money supply. If I remember correctly it somehow leads to some multiple of the input money being generated. Here's a Wikipedia article about it:
https://en.wikipedia.org/wiki/Money_multiplier#Reserves_firs...
At some point all the institutions sitting on their money eventually does result in that money being sat on, and not being circulated through the economy.
Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits. (...)
Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.
Not necessarily true, given what the yields on savings accounts have been recently. Yes, a completely rational actor will invest capital in whatever market is currently generating the highest rate of return. But people are not rational actors. More specifically, people tend to be extremely loss averse - they will go to far greater lengths to avoid a result of -$1 than they will go to achieve a result of +$1, even though the delta (a dollar either way) is exactly the same for both situations. This loss aversion only gets worse when you scale up the numbers to -$1,000,000 and +$1,000,000.
This is why higher levels of inequality are correlated with lower growth. Capital owning rentiers are entirely happy with a 2% (or less) rate of return, so long as the risk of a negative rate of return is negligible. Meanwhile entrepreneurs who can generate much higher rates of return (but with a correspondingly higher probability of negative returns) are starved for capital.
In corporate finance and equities analysis, the term "cash equivalents" includes very liquid short-term investments like US treasuries, CDs and money-market accounts.
> If they actually are hoarding, the question is why and in the past that is usually because savings returns and investment returns are expected to be negative. In which case, thats the problem to solve.
Er, no. The question is why companies -- which traditionally need to borrow money to operate -- are keeping large amounts of savings (earning positive but still very small returns) instead of increasing their capital expenditures by building factories, or writing more software, etc.