Deficit Owls | Investment Creates Saving, NOT The Other Way Around @deficitowls5296 | Uploaded October 2016 | Updated October 2024, 7 hours ago.
Warren Mosler, one of the founder of Modern Money Theory, discussing the relationship between savings and investment. The commonly-held belief is that savings fuels investment. For instance, the bank takes in your money and loans it out to other people, therefore it's necessary for people to save in order to have investment in the economy. This is actually completely wrong. It not only is incorrect on the mechanics of banking, it isn't paying attention to the rest of the balance sheets.
Investment (in monetary terms) is better defined as the act of creating assets. This does not require any savings in advance. For instance, if I decide I would like to build a factory, then I can create bonds (investment). These bonds, my IOUs, aren't widely accepted for payment, so I can sell them to you in exchange for cash, which is widely accepted. Notice what happened: the act of my creating and selling a bond didn't reduce your savings, it just changed their form (from cash to bonds). Meanwhile, I have savings that I didn't have before (the cash) which I can then swap for other assets (like factory equipment.) The investment created the savings.
People think that if we encourage more savings, there'll be more funds for investment. This is wrong. In part because banks don't lend out your money. Banks lend by creating their own IOUs, which are widely accepted for payment. For instance, if I would like to take a loan to buy factory equipment, I will sell my IOU to the bank, who will purchase it with their own IOU by *simply crediting my account* with funds out of thin air. (See more about that here: youtube.com/watch?v=G7-j3kDvB04&t=16s)
(And furthermore, the rate at which individuals save their income actually in no way affects the total amount of deposits that banks hold. This is because if you're not saving your money, then you're buying something, which means you're transferring your dollars to somebody else's account. So they stay in the banking system. Buying stuff does not reduce the amount of savings in the economy, just shifts it around. )
Read Mosler's book "The Seven Deadly Innocent Frauds of Economic Policy" for free online: moslereconomics.com/wp-content/powerpoints/7DIF.pdf
Watch the whole video here: youtube.com/watch?v=v14iP_qnlgU&t=1956s
Follow Deficit Owls on Facebook and Twitter:
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Warren Mosler, one of the founder of Modern Money Theory, discussing the relationship between savings and investment. The commonly-held belief is that savings fuels investment. For instance, the bank takes in your money and loans it out to other people, therefore it's necessary for people to save in order to have investment in the economy. This is actually completely wrong. It not only is incorrect on the mechanics of banking, it isn't paying attention to the rest of the balance sheets.
Investment (in monetary terms) is better defined as the act of creating assets. This does not require any savings in advance. For instance, if I decide I would like to build a factory, then I can create bonds (investment). These bonds, my IOUs, aren't widely accepted for payment, so I can sell them to you in exchange for cash, which is widely accepted. Notice what happened: the act of my creating and selling a bond didn't reduce your savings, it just changed their form (from cash to bonds). Meanwhile, I have savings that I didn't have before (the cash) which I can then swap for other assets (like factory equipment.) The investment created the savings.
People think that if we encourage more savings, there'll be more funds for investment. This is wrong. In part because banks don't lend out your money. Banks lend by creating their own IOUs, which are widely accepted for payment. For instance, if I would like to take a loan to buy factory equipment, I will sell my IOU to the bank, who will purchase it with their own IOU by *simply crediting my account* with funds out of thin air. (See more about that here: youtube.com/watch?v=G7-j3kDvB04&t=16s)
(And furthermore, the rate at which individuals save their income actually in no way affects the total amount of deposits that banks hold. This is because if you're not saving your money, then you're buying something, which means you're transferring your dollars to somebody else's account. So they stay in the banking system. Buying stuff does not reduce the amount of savings in the economy, just shifts it around. )
Read Mosler's book "The Seven Deadly Innocent Frauds of Economic Policy" for free online: moslereconomics.com/wp-content/powerpoints/7DIF.pdf
Watch the whole video here: youtube.com/watch?v=v14iP_qnlgU&t=1956s
Follow Deficit Owls on Facebook and Twitter:
facebook.com/DeficitOwls
twitter.com/DeficitOwls
