Interest is whatever amount of money, the ban gives you as a token of gratitude for letting them invest your money for them.
NEGATIVE interest is the fine the junta condems on you, for tecrime of, ont doing what the glorios leader wants you to. Or rather, for existing. (How that differs from the first crime, I do not know.)
The Keynesian fallacy that spending borrowed money is a good way to get out of an economic slump keeps being proposed by Keynesians.
But it makes me wonder: what do we do about the slump caused by the borrowing (and having to pay back the interest& the principal)? It might be better to prevent the slump in the first place, so stop messing with the currency supply. Devaluating it, in order to pay back the borrowed money.
Instead of roads to nowhere https://ludwigvanel.wordpress.com/2017/11/09/lessons-in-economics-from-pop-culture/, Paul Krugman has proposed to veign alarm of an alien invasion, to stimulate spending on weapons of destruction (whether mass, or individual). While it may be true that such spending gets the economy out of a slump for the time being, it sets up the following slump. By requiring that a government steals more money (raises taxes) and spends less.
The latter is a good thing, of course, but only if preceded by less taxation.
What is wrong with “defense” spending? (Apart from it always being offensive spending) The fact that destructive spending always ends up costing money, and not yielding income. Aka it is unproductive. Meaning all the money spent on it, has now disappeared from the wealth ever available on earth.
When those roads / space ships / weapons have been built, nothing can be built with them, only unbuilt (destroyed). A road that goes from somewhere to somewhere else can serve to transport goods or people between the places. A gun can only be used to steal stuff from someone, this someone will either:
steal from someone else in a spread-the-poverty kind of system, or:
retalliate, making everyone worse off.
Basically, what Paul Krugman is saying in that column, is, that it’s silly to rely on government for social services for the elderly. But instead of yanking the problem out by the root, and letting citizens arrange their own entitlements, Krugman calls for desperate patching of the demographic problems, by inviting more people into the country. I’m not opposed to people moving into an area (even if that area is in a different city, or even country), but Krugman’s approach is just to push the problem forward, causing future generations to having to handle their own (much worse?) demographic issues. This demonstrates the problem innate to Krugman’s economical theory: Keynesianism, which does the exqct same thing, but not with people, but with the economy (so: yes, with people).
Surely, there’s an easy argument to be made for curing the problem right now and removing government from this equation (statelessness would be ideal, but simply banning government from this role will perform miracles)
Fractional reserve banking is what enables banks to pay #interest to the saver. It also makes banks susceptible to #collapse from a #bank #run.
If one wishes (nearly) 100% assured safety, only deposit one’s money in a bank that does not lend out at an interest rate, so a bank that only engages in the traditional role of warehousing. You pay a modest fee, but are assured that your money is there (bar events such as robbery, bankruptcy, earthquake, war…)
How could banks earn enough money to pay you(!) a fee for storing your money with them (the exact inverse)? Why, through
of course! By not keeping all the deposited money in reserve, but lending out a #fraction the bank earns #interest #payments, which are used to pay the worker’s salaries, saver’s interest mortgages on the bank-building, purchases of bank-safes, etc. This lending out of money to borrowers, makes investments possible (like the aforementioned mortgage on the bank-building, or mortgages for factory- or office-buildings), and thus economic growth. Regrettably, it also makes possible a bank run, where savers want to get back more money than the bank currently holds (some of which is loaned out to borrowers).
Citizens that are concerned about “greedy banks” or bank-runs might choose to keep their money in a bank, that only stores the money for a fee and doesn’t lend it to borrowers. Such banks no longer exist, one could easily purchase a safe and start advertising about your run-proof money-storage.
Except in today’s world, ever fewer payments are done in cash (#gold bullion), but rather electronically, so your money safe would likely remain quite empty & pristine.
One could engage in a different strategy, and take #CryptoCurrencies like #BitCoin or one of the many derivatives. So long as there is an internet (and you didn’t lose your password), you have access to your balance.
I had a question about this difference between Austrian and Keynesian economics:
According to Austrian teaching, saving money, not spending (Keynes) it, leads to increased wealth.
Fine: but money spent will end up as savings in shop-employees (& owners) bankaccounts, so this savings accumulation follows a (wealth increasing) financial transaction.
Makes you woder how the Austrians are right, and the Keynesians are not? Since the Austrians forego a financial transaction, it may seem as if Keynes was right here.
So Ibasked this question in the facebook group “Praxeological science”. The answer I got was very helpful in recognizing the short-coming in my own reasoning. Namely, that the shopkeeper turns into a consumer, and the following shopkeepers also follow this same cycle.
Now, when the interest rate is very low, there’s not much point in saving, so the consumer will simply re-spend the money quickly. Thereby turning the shopkeeper into a future consumer with that money.
He will very likely (at least, if the Keynesians get their way) also not save, but spend. This way money is forever in transit, meaning banks have no idea of the size of the supply of money they can lend out. Money may be in checking accounts in banks (maybe even the same bank), but checking accounts don’t have the most stable balance: they exist for money to be drawn out of frequently, savings accounts yield interest, because the money in them can be lent out with much more comfort: their balances are much more stable/predictable.
Also, the Austrians do not forego a financial transaction, rather they defer (postpone) a consumer transaction to gain a producer one. So suddenly, the Austrian schol is up one transaction!