Some explanations as per Ray Dalio https://www.youtube.com/watch?v=PHe0bXAIuk0
Dane here. We're fine. It's not affecting consumers directly. The negative rates are locking at zero or close to zero. Government has talked about intervening if it would go negative, which I would tend to believe. I honestly don't know the exact consequences of what would happen in any case. I feel motivated to buy a new apartment because of the low rates, so I'm guessing it's working as it should. But that's all just anecdotal.
Would that be your first apartment? It seems to me that the programs of low interest rates are motivating the wrong people - people who already have significant assets and can borrow against them to buy another/several properties.
They can also convert bank deposits into 'yellowstuff' and put that in a vault, or safe at home. However, the mining inflation rate in 'yellowstuff', plus fees for storage, come to a depreciation of about 1.5%. So if the WoC is successful, and NIRP policies demand less than about -1.5% interest rate, then there has to be a War on Yellowstuff too.
It's a fantastic video for explanation for how the economy actually works.
Based on this distinction lies the distinction between the policy proposals advocated by Liberals and Conservatives, Democrats and Republicans. Irrespective of which of the above statements "Savings drive the economy" vs "Spending drives the economy" sounds right to you, it's important for people to understand that this distinction exists on a fundamental level in economics (and in today's political climate, even more important than holding an opinion on which two statements are right, it's important to understand that the difference exists).
Does a similar video exist from the "Savings drive the economy" point of view?
While Friedman is often portrayed as a 'synthesis' or mid-point between the philosophies of Keynes or Hayek on a linear plot, I found him to be closer to Hayek philosophically.
https://www.youtube.com/watch?v=te-xwqKApAE
But as I said, everybody has an opinion on "savings vs spending" (just look at the responses to my original comment), and it's such a clear classification that at that end of the day you can divide every individual on one or the other side of this debate.
Savings vs Spending is actually more accurately defined under "Say's Law". Whether you believe Say's law to be true or not. Keep in mind, pro-spending side defines Say's law different than pro-savings side (it's like pro-choice vs pro-life).
The economic ideas which fall under "Savings drives the economic growth" are:
Free Market policies, deregulation, privatization, reduced govt spending, (most) Republican/Conservative economic policies, anti-war, lower taxation, global trade, anti-protectionism, "Work and jobs will always exist".
The economic ideas which fall under "Spending drives the economic growth" are:
Increased govt spending (includes war spending), regulated markets, nationalized industries, UBI, Welfare, "machines will do everything one day", higher taxation, (most) Democratic/Liberal economic policies, higher spending on education, universal healthcare, infrastructure spending.
Funniest part about economics is that if you try to look at "evidence" then you'd find both the side being able to present the same events as an evidence of their theory being right. New Deal is simultaneously an example of how govt spending got us out of recession and how it dragged the recession to 10+ years.
EDIT: Also important to point out that Austrian school economics are against manipulation of monetary policy. They argue that interest rates, credit and savings ought to be driven by market factors rather than the government. It's not so much "debt is bad", but rather "artificially driving up debt by manipulating monetary policy is bad".
Keynesians would say the government should employ policies to increase overall consumption in the economy (aggregate demand).
Austians would say government shouldn't do either, but rather allow the free market to find the correct balance between consumption and investment. They are particularly against monetary policy because it increases overall investment in an economy (aggregate supply). The problem is that artificially high rates of investment inevitably lead to businesses offering goods and services that cannot be sold profitably (malinvestment).
That's why Austrians believe that artificially low interest rates cause business cycles.
A bank is not constrained by savings to lean. When a bank lean money is creating that money as a liability for the borrower and a asset for itself.
There's a difference in the velocity of money in the domestic economy; it’s not fundamentally tied to savings vs. spending, but is correlated to it.
But due to international demand - especially on Japanese production) - in the 80s and early 90s, those nations didn't spend on infrastructural improvements (factories running at 95-100% capacity (sometimes bursting even higher), so when they inevitably had to spend on capital improvement (expansion, new tooling, etc), they had to take production lines offline, which led to production drops, which led to their economy crashing.
"Spend" and "save" (where "save" is a mix of capital investment and so-call "rainy day funds", and "spend" is consumerism) are far too often viewed as independent factors, when they rely on each other being in balance to keep the economy working well.
When an economy spends everything it has (or more - which happens with credit that is too easy to come by), and forgets to plan ahead, it crashes in predictable cycles.
When an economy saves "too much", it never grows (or crashes due to having too much capital investment and not enough demand).
The US' coming out of the Great Depression - largely due to WWII production - was a giant case study on this: factories, production lines, and employable people were massively under utilized, so when demand was created (by gearing up for war), all those people and production factors were "available" to be used. In other words, they had been "saved" (from the economy's point of view) for a decade instead of "spent" (again, from the economy's point of view).
This is part of why there is a "healthy unemployment" value that economists toss around ... generally in the range of 4-6%. Those "saved" resources (human capital, in this case) are available to be "spent" when needed.
If you run at an unemployment level (regardless of whether that "employment" is production capacity, personnel, funding, etc), that is too low OR too high, you run into boom-bust cycles.
That's what central banks try to regulate (albeit not very well, when viewed in the long term).
> If you run at an unemployment level (regardless of whether that "employment" is production capacity, personnel, funding, etc), that is too low OR too high, you run into boom-bust cycles.
I don't think this is a good summary of the theory - it's recognised that reaching the limits of capacity causes inflation, but no mainstream economist would refer to unemployment as a form of saving. Labour is a "wasting" good; you either spend a day or waste a day, you can't save up time while unemployed and spend it later.
Economists prefer a minimum level of unemployment because it effectively prevents labour organisation being used to drive up wages.
Except human capital is, from the economy's point of view, like money in your bank account: if you have none to spare, you cannot absorb increases in demand (to personalize it, say you have $100 per month for gasoline - if the price doubles, you can buy half as much for the same money .. you have no cushion to absorb that change).
Just about every economist I've read over the last 20+ years (ranging from the 1700s to now) agrees there, more or less - regardless of the school they adhere to: if you're operating with no margin of error, you experience the booms and busts less well than if you have a margin.
Unemployment is a form of margin in this context. Say there's 100,000 employable people, but 5,000 of them are unemployed. When demand for labor spikes by anything less than 6%, there is an "instant" buffer to bring onboard while new employable labor is "spun-up" (via training, growing old enough to work, etc).
>Economists prefer a minimum level of unemployment because it effectively prevents labour organisation being used to drive up wages.
Pretty sure you have that backwards: the lower the unemployment, the more wages are likely to rise. If your unemployment is too high, wages will fall (or remain stagnant).
It's "bad" because there's no buffer to absorb increase in demand of production and service creation
I don't think either the Keynesians or the Austrians can really claim a victory in those examples because external factors played a large role.