Thanks to our central banks, any deflation pressure is seen as a license to print more money, which is a tax on non-circulating savings. To avoid this, holders of cash do their best to invest as much as possible.
Investment is emphatically not economically equivalent to spending. It's a lot like spinning your cash around in place so everyone knows you can still spend it. It does not create jobs or help the middle class; only actual spending does that.
This is a little strong, isn't it? Investment can certainly lead to job creation for the middle and working classes, if that investment is going into enterprises that need more labor and have the potential for growth. Whether there is much potential for growth after decades of regressive tax policies and hoarding by the upper and ruling classes, with everyone else living paycheck to paycheck, is quite debatable (my money is on 'no'), as is how much new labor is actually needed in the first place. But private investment can certainly create jobs and economic growth.
You're wrong in your theory that accumulated wealth does nothing. In a QE world, the very rich don't sit on cash - that would mean losing money through currency decreases.
There is no such thing as 'wasted capital' - rich people store their wealth in a variety of vehicles - whether in banks (where it is re-lent out for many uses), public stock ( where it is used for company investment and operations), and private investment, such as investing in pre-IPOD start ups and private equity.
Even Apples massive cash hoard is put to good use, somewhere.
What there is a shortage of, is productive investments where lots of capital can be deployed to get a healthy return. This is a function of multiple problems, of which uncertainty is one.
It's a very cartoonish model to imagine a daddy warbucks with a big pile of cash saying 'I just don't have time to spend this'. In actual fact, there would be a team of investment managers saying 'we can't find any good places to invest, so we're letting the bank invest it for us, for the time being'.
The answer to Japan's problems is cutting government spending and debt. This has always been the answer, this will always be the answer, whether you're an individual with 20k in debt or a country with 200b in debt. The key is to realise that there is no magic Keynes multiplier.
Correct, but they still don't spend money. The very wealthy are known to hoard money, it doesn't matter in which "vehicle" they store their money in.
>There is no such thing as 'wasted capital' - rich people store their wealth in a variety of vehicles - whether in banks (where it is re-lent out for many uses), public stock ( where it is used for company investment and operations), and private investment, such as investing in pre-IPOD start ups and private equity.
It's not wasted capital, but it doesn't stimulate the economy either. They are not contributing to investment, in the real economic sense.
>Even Apples massive cash hoard is put to good use, somewhere.
Wrong.
>It's a very cartoonish model to imagine a daddy warbucks with a big pile of cash saying 'I just don't have time to spend this'. In actual fact, there would be a team of investment managers saying 'we can't find any good places to invest, so we're letting the bank invest it for us, for the time being'.
It's still not real investment. I think you don't understand what the "I" component in GDP is. [0]
[0] http://en.wikipedia.org/wiki/Gross_private_domestic_investme...
>The answer to Japan's problems is cutting government spending and debt. This has always been the answer, this will always be the answer, whether you're an individual with 20k in debt or a country with 200b in debt. The key is to realise that there is no magic Keynes multiplier.
Wrong again. Greece cut their government spending a lot, they don't seem to be in great shape. The reality of the matter (while counterintuitive) is that deficit spending helps stimulate the economy. As long as Japan wants to devalue their currency, government spending is the last option left to stimulate their economy.
If they store it in a bank, it boosts the lending capabilities of that bank.
If they buy stocks, it provides financing for public companies.
Even if the rich hide their cash under a mattress for a long time, they provide a purchasing power boost to other consumers by reducing the freely available supply of currency.
Saying that the parent is wrong about Apple's cash, does not actually prove they're wrong. "Wrong." is not an argument.
There's practically nothing a rich person can do with their hoard to harm the economy, other than to take that capital out of the domestic economy or invest into a ponzi scheme or asset bubble.
Since QE increases the value of the stock market at the expense of a currency's value, it is actually eating away at the wealth and savings of individuals and redistributing it to stockholders. These stockholders tend to already be quite wealthy themselves.
Herein lies the problem. Very wealthy individuals tend to spend a much smaller fraction of their accumulated wealth than members of the middle class. Take that as you may, but at some point these massive stockpiles of capital grow so large that they can't possibly be entirely spent. As the stockpile languishes, it becomes wasted capital: money that has essentially fallen out of circulation within the economy.
Another way to think of it is that one person can only do so many things at once, which means there is an upper limit to how much capital a single person can put to good use. When you go from many people with moderate amounts of wealth, to a few people with lots of wealth, you severely limit the amount of creative work that capital can be used for.
...or at least that's my armchair understanding of things.