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Comment by spking | Hacker News Reader

That sounds overly simplistic. There are many savers who currently rent, and through sacrifice/discipline scrape an extra thousand or two per month in an effort to save for a down payment on a house. That is not "hoarding", that is capital that will be deployed in the "real" economy, just not right this instant.

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Nobody says you have to buy the house right now, but in the meantime you have the choice between keeping it as cash in a bank account or stock in a brokerage account. A disincentive to hoard currency in the midst of turmoil is not a bad thing.

So you would have the disciplined saver risk their capital in equities that are highly volatile and dropping precipitously?

Somebody has to if you want companies to be able to raise capital and carry on forming new businesses and employing people etc. It's your choice whether you prefer that or the moths and rust.

Hard times aren't as safe as good times, all around.

Sure, I think I understand the spirit of your point and agree that a healthy economy relies upon capital circulating through the system. That said, there is a wide spectrum of people with different financial situations and risk appetites. There are lots of institutional and individual investors who are in a better position to take on the risk of putting their low-yield savings into equities and accept significant volatility. The small-time saver who is desperately trying to break out of the rent cycle is probably not going to have the stomach for that, and I don't think that is the cohort that is going to impede the free flow of capital into and out of the stock market anyway.

Small time savers don't get higher interest rates on their savings accounts than institutional investors. If you give high guaranteed interest rates on savings accounts during turmoil, all the money goes there, which is problematic.

Investors get paid to take risks. The less risk you want, the less you get paid, and there is a point at which you're taking so little risk that you get paid less than you lose to moths and rust. During hard times, the level of risk required to get a positive return is higher.

I'm not sure I follow your argument. Don't most savers put their money in banks who then have to redeploy it to make a profit? In fact, isn't it more useful to have banks utilize this capital instead of a crowds of ordinary people moving small sums? Banks aggregating wealth to be redeployed seems more efficient.

The Fed just cut the banks' reserve requirements to zero, which means they don't require any deposits in order to make loans anymore. They have no use for your money. That's why you may have to pay them to hold it for you.

My understanding of the reserve requirements were that they set how much of the total amount deposited the banks had to hold on to at any given time. Setting the requirement to zero means that banks can deploy all of the capital they have in loans. If anything, shouldn't this be the other way around? They want more deposits because they can use the full amount instead of say 90%(holding on to a 10% reserve) or whatever the number was and make more money while paying savers the same amount. Or are you relating this to interest rates going to zero which seems like a better point for why banks wouldn't need deposits? Though the amount of interest savers get from banks is close to zero anyways right? So it still seems to me that banks want as many people deposited with them as possible since they can now use all of the money given to them.

Suppose you take your $5000 in cash into the bank and deposit it. They put the cash in their vault and credit your account with $5000. Now they have 100% reserves.

Alice, Bob and Carol come into the bank and each take out a $5000 loan. The bank credits each of their accounts with $5000, but there is still only $5000 in their vault, so now they have 25% reserves. As long as the reserve requirement is below 25%, this is fine. If the reserve requirement was 30%, they couldn't make that many loans.

With a 0% reserve requirement, they could loan your $5000 to a million different people and have 0.000001% reserves and still be allowed because 0.000001% is more than 0%. They could send you away and the bank manager could deposit a dollar and they could make unlimited loans from it. They have no use for your money.

Ah, so reading up on this, it really is unintuitive. I guess the only worry then is if this will bite tax payers. Thanks for the expanation

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