The emphasis on assets for retirement locks a lot of money up in an unproductive musical-chairs of asset transfership. For example let's say I have a pay-day and want to spend $100 on buying stock. When I buy that stock I'm purchasing it directly from someone else who now has $100 instead of the stock. They can spend that money on goods and services, but in my opinion there is a far greater chance that they will reinvest that money in some other asset. If the actual assets in the market don't change, I think you can say that my investment increased the total sum of costs of all assets. I'm not 100% sure this is solid logic but it's some rough reasoning.
The problem is that at any given time more people are buying new assets instead of selling them off. This is because you can make money on purchased assets through rentiership (dividends, renting, or collateral for a leveraged investment that pays dividends/can be rented), and also because people are cautious and save more than they need, since asset prices are unstable.
I have two personal pet theories (is that really a common idiom in english ? I like it !) on that topic.
1. since we now focus on low inflation, people have little incentive to spend/invest their money, they can just hoard cash for a long time with no risk of losing money.
2. The low imposition rate since Reagan accelerate the concentration of capital, and rich people buy assets with their money, not consuption goods.
And yes, it is somewhat common! I think your second point is definitely part of the problem. As to your first, I think that looking at inflation in these terms requires looking at interest rates as well. When both inflation and interest rates are low, hoarding cash is highly incentivized. If inflation is low and interest is high, there is a large opportunity cost to holding cash rather than collecting interest via a mechanism directly tied to the cash (e.g. a bond). If both inflation and interest are high, it would probably be optimal to invest in assets that won't have their underlying value erode as they do with bonds.
There is no indirect means to receive money, except for profit, and that it is not related to stock.
Profit is ultimately the primary means for company cash liquidity, held as retained earnings, after the company has survived its initial years of inception and growth.
Dividends enable the company to go public. The secondary market makes the stock liquid, which is convenient but not mandatory.
...or simply a way to deflate the housing market, such as public housing and urban renewal projects.
I don't understand why a small issue that's easily solved and a very basic strategy all over the world is somehow interpreted as a insurmountable problem that means the entire economical system is broken.
? I don't know how the Kroner works, but usually a central bank issues currency into the market in exchange for some kind of asset - this is the primary mechanism for controlling interest rates.
Yes, more credit is created through fractional reserver, but this is taken into account.
There is no such thing as fractionnal reserve credit in 2017, bank don't need reserve to lend, they need reserve to hold bank accounts for their customers.
The fact banks can lend out more than they have in deposits means there is 'fractional reserve credit', or 'fractional lending' currently, in 2017.
Most of the credit in the world is created this way, actually.
It's why you've heard the term 'reserve ratios' etc..
[1] https://www.investopedia.com/articles/investing/022416/why-b...
And the following passage doesn't make much sense: "When a bank makes a loan, there are two corresponding entries that are made on its balance sheet, one on the assets side and one on the liabilities side."
If you take a loan to buy a house, it will not be a new deposit at your bank. It will be a new deposit at the seller's bank. And against that new deposit, that bank can extend new loans. Etc. http://thenextturn.com/wp-content/uploads/2015/04/Fractional...
Of course when you are just getting the loan it will appear as a deposit at your bank. But this is not to balance the loan. The loan is coming from a reduction in reserves. This temporary deposit (on the liabilities side) will increase the reserves temporarily (on the assets side), but only until you take the money out to do whatever you asked the money for.
Definitely banks do not lend out more than they have in deposits (ignoring other forms of financing for banks, of course).
Technically, you are correct - they don't lend out more than what is deposited, but what is deposited is 'created' (or at least deposited and lent money against those deposits are both considered 'in circulation') by they or other banks, ergo, banks end up lending out considerably more money than is created from the central bank.
Personnally, I'd rather give the money to the governement like we did in the keynesian golden age, because it fuels the development of infrastructures, housing and social security. And at our point in history, it could be used to transition to a sustainable society. But that's because I don't trust the market on this, I'm kind of a socialist.
> am sure it would do more for the economy than just pushing banks to lend more money.
This is such a failure (esp. in the EU) I don't see how I could disagree with you on this.
Share market jumped, retailers rolled out significant sales. People bought TVs.
It's more likely that negative interest rates will be passed onto consumer bank accounts by elmininating cash.
The present primary reliance on fractional reserve monetary is not a carved-in-stone requirement of financial systems, only the present norm.
If you're interested in ideas and thoughts on money, I'd suggest William Stanley Jevons writing as a starting point for modern views. A. Mitchell Innis's "What is Money?" (1913) is not entirely mainstream, but strikes me as among the more insightful enquiries I've read:
https://www.community-exchange.org/docs/what%20is%20money.ht...
I'd stumbled across that here: http://neweconomicperspectives.org/2013/09/money-created-ove...
Their is no fractionnal reserve banking in the modern world anymore. And circa 2007, virtually nothing prevented the infinit expansion of credit, with the result we all know.
If you want to learn more about these topics, the keen-krugman debate (more of a controversy than a civil debate) a few years ago was really enlightening.
The St. Louis Fed tends to have the largest set of articles on economic policy, generally.
Here are 632 results for "fractional reserve":
https://encrypted.google.com/search?hl=en&q=site%3Astlouisfe...
And limiting to 2010 and subesequently, 27. None declaring the concept dead.
https://encrypted.google.com/search?q=site%3Astlouisfed.org+...
The second paper on the page is from 1968 …
In the US, there is no limit anymore on how much credit you can lend given the amount of reserve you have, the reserve requirement is on deposit not credit lent.
Thank you.
http://saifedean.com/Saifedean%20Ammous%20The%20Bitcoin%20St...
A slowdown a la Thiel due to fundamentally flawed monetary policies.
Gold standard failed, no matter what libertarians like to fantasize about it.
It's not a malice vs idiocy situation, actually there is a third explaination : economy needs a growing money supply to work properly (and the money creation need to compensate the economic growth AND the reduction of money velocity[1]). But since the late seventies, money creation is only possible through the banking system via credit. That's why central banks reduces interest rates to stimulate economy, because you need to create money to enable economic growth. To get out of the rising housing prices trap, we need another money creation mechanism, but many people are affraid of the old ones (state-controlled monetary creation) and a lot of people (bankers, homeowners) have a lot to lose if we changed the system.
[1]: this is the failure of the monetarist view from the seventies, which predicted a constant money velocity, in fact we've had a declining one for the last four decades.