Savings are dead money
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- เผยแพร่เมื่อ 15 มิ.ย. 2024
- Savings do not create economic wealth. They have a use in terms of financial security, but they rarely create useful economic activity. So why does the government spend £70 billion or more a year subsidising them?
ABOUT RICHARD MURPHY
Richard Murphy is Professor of Accounting Practice at Sheffield University Management School. He is director of Tax Research LLP and the author of the Funding the Future blog. His best known book is ‘The Joy of Tax’.
This video was edited by Thomas Murphy.
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The only reason people buy shares is because they want to retire and they can't any other way because of inflation created by the government, it has nothing to do with helping the economy. People and pensions and insurance companies were forced into buying shares because of the inflation created by the government created fiat money system post WW1. Shares and property are the tools used to prevent long term savings losing their value and thus allowing for retirement of some kind.
I have a pension.
I'm not sure people are bothered about the effect on the economy when considering savings or investments.
Problem with that is, they should be. Because if too many people save and nobody's spending, there's less money in the economy and our incomes decline. That in turn gives us less money to spend and it becomes a viscous cycle. If too many people save, we can't all prosper as a society
@@FreeBrunoPowroznik This is nonsense. The banks lend the money back out and it gets recycled into the economy. The velocity of moeny circulation may be a bit lower. But this "savings do nothing" thing is a basic economic fallacy. The "professor" is an idiot.
@@FreeBrunoPowroznik what are you talking about, it's not 1865, we aren't on a gold standard, everyone can vote. We live in a total administrative state powered by democracy, fiat money and the debt and inflation it enables. We have the debt to prove it, even dogs and cats can get credit cards and mortgages. As soon as there is even a hint that people might be changing their time preference the state rides to the rescue with monetary and/or fiscal stimulus. If there is a shortage of dollars outside the US to fund dollar debt the fed just opens swaps and repos with foreign central banks to prop everything up. If people still refuse to borrow and spend they are given the punishment beating of negative real interest rates. Please point to this economy that is running out of money?
@@aac74 I'm talking about the real world, not the idealised western economic utopia in your imagination. Here in the UK, businesses are closing left right and centre. The high streets are dying. Shops closing everywhere. My own business is suffering just as bad as in the recession in 2008/9/10. People don't want to borrow, because they aren't confident they can pay it back. Not everyone is in denial about economic downturn like you.
@@FreeBrunoPowroznik just because the money isn't ending up with you doesn't mean global m2 isn't rising at 12% a year! You need a different business model to capture reality rather than flog a dead horse. Do you have any bitcoin?
I understand the argument and it is quite correct - technically. However, the purpose of my savings/investments is not to create economic activity that will almost certainly be of no benefit to me, but to protect at least some of my resources from the government. If my taxes pay for what I need, thats fine. If I have to sort it out for myself then Im not paying twice.
I don't think he's criticizing savers, he's criticizing the amount of money the government spends incentivising savers
@@Wulfuswulferson well on that, since after 2010 the government offered interest rate we’re so low that it never did incentivise savers. That economical model has resulted in real loss of value of the money.
@@greatdaraThe government doesn't set the interest rate (official), the BoE does and inflation will always be above the national interest rate otherwise banks would lose money which isn't allowed to happen in our system. So savers are always losing money against inflation, but loaing less than if they didn't have it in a bank account
@@greatdara and it's not the interest rate incentives that Richard was talking about, he's talking about tax breaks for savers (eg an ISA) which are unrelated to interest
Imagine that eh 🤦♂️ we have to protect ourselves from the government policy 😳
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I know nothing about investment and I'm keen on getting started. What are the strategies?
I operate a wide- range of Investments with help from My Financial Adviser. My advice is to get a professional who will help you, plan and enhance your management skills. For the record, working with Stacey Macken, has been an amazing experience.
Honestly, I'm surprised that this mrs Stacey Macken is mentioned here, came across a testimony about her from one of the beneficiaries on the CNBC news, she seems to be doing extremely well.
Under the terms of a Rights Issue, M&S issued to qualifying shareholders new ordinary shares 2019…5 years is not that long ago..
To answer your last question is because banks have a “special” relationship with their respective regulator and government…it makes YOUR money worth less, but not worthless…every second your money is worth less…but not worthless.
I thought we had to shrink the economy to sustainable levels due to the environment and climate catastrophe ?
The Climate "catastrophe" is just an invention to justify tithes from the faithful.
I often wonder why we couldn't hypothetically have a 'food, clothing, and shelter' economy run by robots, and everybody becomes a life coach, a field with rising supply to meet rising demand. Services are being provided. Money is changing hands. The economy is growing rapidly, but there's no additional climate impact. Not all growth is bad?
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It would be interesting to hear a better alternative (to cash savings or shares and the like).
This misses several points. If i want to buy something expensive i have to save for it and it's better to save and buy it in one than it is to get a loan.
Not if you're a business.
Loan interest is tax deductible.
New assets get capital allowances. Double bubble.
I think he means lifelong savings
He addressed that at the very beginning of the video.
That’s only you then.
He said "there's nothing useful about saved money"
Really? @@kaieden
Saving at interest (if you're fortunate enough to be able to) is a personal hedge against inflation, a place to store surplus wealth that's not needed or cannot be immediately utilized and a rainy day source of funds in an emergency.
It is not 'dead money' per se.
'Saving' at interest effectively encourages you to lock or indeed does lock money your money away (for a term) removing it from the active money supply which I'm sure figures in government's monetary supply and inflation calculations.
Little wonder that interest on 'pure liquidity' current accounts nowadays is practically negligible even in this higher interest environment.
But . . .but . . . The fact that shares can be traded is what makes people make the initial investment in the first place, it's not just the dividend.
Hi Richard Murphy, thank you for this, I have been aware for many years that commercial trading in existing shares does not produce any new investment and calling them second-hand is correct.
The fact that this constant churning of existing funds is considered to be a significant factor in a country's economy is ridiculous, as indeed is the idea that all the 'investment' in existing property and the so called 'hospitality' industry is productive in terms of new wealth.
There are so many ways in which the distinctions and definitions in personal and community finance are obscured, blurred and muddled that the only appropriate term I can come up with is 'systemic corruption''
Very fortunately I have had now many decades of just working for a living, mostly in the construction industry, all without ever making any profit but just enough to live in in reasonable comfort, what I have actually earned which is entirely mine and un-transferable is a body of work the product of which I have been paid for but the work itself is mine and mine alone making me one of the wealthiest people I know!.
Cheers, Richard.
An interesting point which I appreciate. I hope you have a little bit left to keep you going but doing worthwhile work is very satisfying.
I'm confused by what you say at 3:05. Correct me if I'm wrong, but in fractional reserve banking the bank does indeed lend out your deposited money?
When a bank makes a loan it creates an asset (the loan) and a liability (cash in the borrowers account). The cash adds to the money supply and so banks are said to create money "out of thin air". Deposits are not needed as this stage. When the cash is spent, most of it will eventually be deposited with other banks by the recipients. The bank making the loan will need to settle its net obligations to other banks at the end of the day. It will do this using its reserves at the central bank. However, deposits received by the first bank reduce its net obligation to other banks (deposits come from other banks). So if a bank receives deposits equal to withdrawals, it's net obligations to other banks will be zero. Therefore, banks don't lend out deposited money, but require deposits to cover obligations to other banks resulting from the loans they made. Bank can, of course, also borrow money to cover these obligations.
This is an outdated theory when you save the bank doesnt just stuff money in a vault it loans it out when you buy shares 2nd hand you are compensating the original investor. This was not the case in Kenyes ( the first major proponent) of the idea at this time most working and even middle class people had no bank accounts.
Interesting.
I guess encouraging savings is a yool to teduce demand, if thats required (not when Inflation is 2%).
- pension funds, guess reduces govt spending in longer term...
- but will reduce gdp if it just sits there...
- active investment into real stuff would be better, new real stuff?
Thoughts? Anyone?
An important and profound video.
Depositing money in a commercial bank is giving money to them for them to use, gamble, give as bonuses, whatever.
It legally becomes their money and you get an IOU.
With no guarantee except the max £85000 Government one.
You do get free banking services which cost the bank to provide
"Depositing money in a commercial bank is giving money to them for them to use, gamble, give as bonuses, whatever"
They can't use the money at all for anything. It's like leaving a message with them. It's just a bunch of numbers in an electronic account that is frozen.
Don’t banks use deposits to leverage the amount of money they can loan out? Banks wouldn’t pay interest on savings if there was nothing they could gain from it. They use savings to justify the amount of money they create; at least that’s how I’ve believed fractional reserve lending works…
In Spain the economy works for people. In UK people work for the economy. Which is one reason people are happier in Spain. 🎉🎉🎉
In Spain, people don't work, which is why the EU has been forced to send Spain 163 billion euros to keep Spain from defaulting.
Savings are a way of storing wealth that can be used later to exchange for something you need. Savings can be in the form of anything e.g. even tins of baked beans or petrol ... but it's best if it lasts along time, doesn't degrade, is divisible so you can spend a little at a time and easy /cheap to store. . So savings in the form of cash is ideal but doesn't produce an income so over time loses it's value against inflation. Hence the need to have savings in the form of shares that provide an income that hopefully keeps up with inflation.
So saying savings are "delayed" consumption .. not immediate consumption and hence do not prompt any production or consumption at the time of saving but do allow for production/consumption some time later. Nothing wrong with that right?
But, people with no savings, pension etc. are more likely to cost the government later down the line? E.g. if they claim pension credit, or suffer an income shock and have to claim benefits. The math here seems incomplete - shouldn’t the cost of encouraging savings be weighed against the projected costs of that proportion of people (who take up the support) not having those savings, or not being able to save to the same level?
Well, yes, Richard, why are we doing it? And your answer is . . . ? Also, what would we rather be doing, once we realise the limitations you list? Buying NEW shares in companies? And how about building societies (some of which are not now banks pretending to be building societies); is saving with them different?
Secondhand shares sums up what many wrongly believe to be new investment. And for some magical reason, PE ratios have been going sky high in recent times. Could that have something to do with new liquidity (money creation QE) swilling around the financial system…
I am no professor, but this seems like misinformation on what banks do with savings. If the banks kept all my savings ready for me to access at a moment’s notice, then runs on banks would surely not be possible. Is the current banking model not (simplistically) illustrated by the Savings & Loan in that most uplifting of films Its A Wonderful Life? I live within my means and save to ensure my future self can pay bills and enjoy life, even if I were to lose my job or retire. I can’t rely on the state or other people to fund that for me. I do appreciate that for savings to have any purpose, there has to be a balancing group of people who choose to live beyond their means (but that includes mortgages for buying a home).
Banks can run out of liquid assets and which they need to hold under Basel 3 regulations and if they make bad loans they can also loose their capital and if they don't maintain their deposits then they can also run out of reserves in their exchange settlement accounts in the central bank.
Banks are NOT "Savings and Loans" institutions.
No, it's not like 'It's A Wonderful Life.' Jimmy Stewart was dealing with cash. And they loaned other people's savings.
Today it's all electronic. Think of the numbers as points. When someone gets a mortgage, the bank awards them points by typing numbers into their account.
Your savings points remain in your account until you withdraw some - or add more.
We benefit ourselves with increased annual income when we put our money into interest bearing savings accounts or CDs. It increases our purchasing power. I hope that clears it up for you.
Bank invests my money somewhere else or lends for value creation
I wouldn't say the money I save is dead - it's just accumulating so as I can buy big ticket items. Maybe I'm a fool for having savings, the value of which is constantly declining, when I could have a loan. However, being risk averse, I'd rather spend money that I definitely have than bet on being able to earn it in the future.
That's not very helpful for us. How do we secure our wealth and build our properity personally?
I suppose you think the government does a better job with my money than I do 🙄
Depends - who are you?
I know a miser, short hands, deep pockets.
Why didn't Ernst & Young vet their "Senior European Partner", a Desmond in physics is not exactly very difficult is it?
Love the content but the text on screen mistake at @ 4:11 ought to have been “ISAs” not “ISIS”
Bit of a cliffhanger there, are you going to suggest green bonds as an alternative? Also I think the subtitles at 4:11 should read "pension funds and ISAs"...
No, he probably meant Isis. 😆
So where shall I put my money then?
It is a (strawman) argument based on the premise that any subsidy must provide a direct economic good.
There is no need for a subsidy if people will save or invest anyway.
The basis for subsidizing (not taxing) savings or pension investments in the UK is a combination convenience, a popular policy, and encouraging middle income ppl to save and avoid being dependent on the pension in retirement. It is probably middle class welfare.
Here in Australia, we have similar arguments around superannuation savings as it is taxed at a lower rate.
So who is paying for your heat source pump 😂😂
If no one bought 'second hand shares' as you call it, then no one would invest in a company in the first place.
Unless you are a market maker, everyone has to buy shares on the secondary market. That's how the market is set up.
The point is that there is no new investment into the economy.
@@charliemoore2551 The person who sold his shares might be investing in a start up?
@@charliemoore2551 The investment and value has already been created. Do you expect it to be created twice?
@@xtc2v Of course not. That's the point!
Fractional lending
File under "not even wrong". This guy - a professor apparently - claims that banks "do nothing" with deposits. It appears that he's not familiar with fractional reserve banking.
Different people have different needs. So some will save more. And some invest more. Banks take savings and lend the money out to other people or companies who can use it for investment,. Likewise, if you buy "secondhand shares" (you are actually buying an asset - a share in the company and its future profits) you are freeing up the seller to invest the money in something else.
He seems to look at every transaction in isolation without seeing the connections.
Why would government like its citizens to save and be financially less dependent on the state ? For one thing, if people have their own savings, it lowers the welfare bill and makes the economy more resilient.
The whole argument is flawed. Just a man desperately pushing an agenda.
He believes in modern monitory theory which says fractional reserve banking is a myth along with the idea that taxes pay for stuff
Only lowers welfare if it's means tested
Finally someone who's starting to see through this B.S ! Just don't expect a reply; I've pointed out where he's wrong before and never get a reply, at least not from him. His acolytes though...
@@keithparker1346 Most UK welfare is means tested against savings !
@@FreeBrunoPowroznik he claims in one video that taxes don't pay for stuff and in the next video that taxes DO pay for stuff. He seems to hold several contradictory opinions at the same time. A bit like tossing a coin and saying "heads" and "tails" at the same time. He's bound to be right 50% of the time.
Despite being a proud lefty, the only sensible thing for those of us lucky enough to have surplus income is to invest it in something that gives us more than a 15% return every year to offset inflation & debasement of fiat currency.
You can do that if you’re lucky/ clever with stocks, but crypto done right knocks everything else out of the park. Can’t go wrong with Bitcoin, Solana & Etherium in that order.
I haven't had such a good laugh in ages, I just had to subscribe.... 👏
Um, it's just not factually true that a bank does nothing with your money that is sitting in the bank's account. Our system has a thing called fractional reserve banking, look it up. At any given time, no bank physically has all the money their customers keep in various accounts. If every customer of a bank tried to withdraw their money at the same time, they couldn't. That's because of fractional reserve banking.
BoE says otherwise:
'Two misconceptions about money creation.The vast majority of money held by the public takes the form of bank deposits. But where the stock of bank deposits comes from is often misunderstood. One common misconception is that banks act simply as intermediaries, lending out the deposits that savers place with them. In this view deposits are typically ‘created’ by the saving decisions of households, and banks then ‘lend out’ those existing deposits to borrowers, for example to companies looking to finance investment or individuals wanting to purchase houses.
In fact, when households choose to save more money in bank accounts, those deposits come simply at the expense of deposits that would have otherwise gone to companies in
payment for goods and services. Saving does not by itself increase the deposits or ‘funds available’ for banks to lend. Indeed, viewing banks simply as intermediaries ignores the fact that, in reality in the modern economy, commercial banks are the creators of deposit money. This article explains how, rather than banks lending out deposits that are placed with them, the act of lending creates deposits - the reverse of the sequence typically described in textbooks'.
www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy
@@duncanpoundcake If that were true then Central Banks and governments would not be worried about the CET1 ratio.
@@stephen2203 If you disagree, take it up with the Michael McLeay, Amar Radia and Ryland Thomas of the Bank’s Monetary Analysis Directorate.
I like having savings, it gives me security. I’m retired so apart from receiving the state pension, I’m dependent on my own resources. If I die, my daughter & granddaughters get the benefits. They probably will spend the money. Good luck to them.
Same here mick.
There would be no fractional reserve banking if the banks had no liquidity to start with
There is no fractional reserve banking. It's a lie we are told.
Haven't watched it yet-but all I remember about saving is-if everyone saved the economy would collapse-another big issue with saving is interest rate apartheid-the poor pound is treated unfairly
Savings bugger up the liquidity of an economy if there's too much
@@keithparker1346So does extreme inequality.
Where is the £70B subsidy? Think I've missed something. Owning a real world asset - real money, shares inc - is not analogous to a fiat money account balance anyway - they have a separate intrinsic value.
“Real money”? What is that?
@@RogerRoving - That's a big question. I just meant non-fiat -- high purity coinage was the historical example.
Economically illiterate and wrong on many points. Particularly about banks using deposits to lend… if course they do. Just one more- an attractive investment by making the company successful reflects in the price and affects the price the company pays for finance.
Is this guy trolling now? I thought there was a wealth of legislation requiring certain reserve ratios now? And is this an argument against fractional reserve banking? Also has anyone heard of what an IPO is? Also share buy backs? This one is a doozey, I really hope people are taking this as inspiration to investigate further on their own.
Absolute rubbish! Trading in "secondhand" shares creates a liquid market, which in turn makes it much easier for companies to issue shares in the first place. Few people would buy "new" shares if there wasn't a secondhand market. A vibrant market for shares therefore does help the economy.
Depositing money with a bank does facilitate bank lending. Although new money is created when bank loans are made, deposits are needed to cover the banks obligations to other banks when the loan is used and the money is redeposited with other banks. Without deposits (or loans from other banks), banks would soon run down their reserves. Banks do not need to retain 100% of deposited cash in order to meet the liability to the depositor, just as those receiving a bank loan don't need to leave the money in their account because they owe it to the bank! They just need to meet their liabilities as they fall due.
This channel is gold! Other ones I prefer are Nationalization doesn't cost the tax payer anything. Finally someone who explains the government's black magic
You might like them. Unfortunately they are utter BOLOX. Don’t listen to him.
He is not giving informed economic education. He is giving jaded left wing prejudice. Following such ideology would put you, me and the country in a financial mess
You forget share trading creates massive taxes for the Government to waste
Share trading is mostly a way of shunting wealth produced by the real economy into the pockets of rentiers and arbitrageurs. But I'm always amused when this argument is used by people who reject it as part of the reason for paying more to public sector workers like doctors or firefighters - who do provide real value
@@charliemoore2551 are you referring to the civil service and NHS where after record investment productivity remains lower _
All taxes are wasted. Tax money is destroyed.
@@WarrenPeaceOG Utter poppycock. Taxes are a means of re-redistribution of and accounting for wealth. To say they are "wasted" is simply neoliberal - or bollocks as we say in the real world.
Not sure about the merits of the forced karaoke subtitles that I can't turn off. Particularly when you've got people sending money to ISIS.
Crap. The money is all lent out by banks, where its productively used.
The money that banks rent out does not come from savers! FFS, are there people who still think this??? It is new money created with a button push.
@@charliemoore2551 You don't get it. You clearly do not understand capital adequacy.
@@charliemoore2551 Or accountancy for that matter.
@@adenwellsmith6908 I fully understand the concept. It was the myth that was busted when Bear Stearns went down and all the other banks had to be rescued by government.
@@adenwellsmith6908banks have to have 4-6% capitalisation so when they make loans where does the other 94% come from? It's created with a button push
Excuse me? Who is putting money into ISIS?!
😂ISA'S
Richard Murphy make another wrong statement that is misleading misinformation.
.
Savings are not dead money. They are money saved which people have earned from providing a service for others to buy.
Savings are the necessary product for investements to be made. Without savings in one form or another there could be no investment at all. Not by government and not by anyone.
Economic illiteracy. New investment doesn't come from savings. It comes from new money created by the Bank of England.
@@charliemoore2551 Or it comes from credit issued by private banks, typically in the form of mortgages
@@WarrenPeaceOG Private banks are licensed to issue new money by the Bank of England. It is the BoE which creates it.
This is all very well and good but l, you're missing the point that your savings/investments get lent out it interest to another member of society for them to spend which in turn does create work and productivity, capitalism anyone?
Under your mattress, yes, unproductive and eroded by inflation.
In placed a bank or invested, that's mortgages, personal loans, and consumer credit.
Those things do drive the economy.
It's wiser and more sustainable to sit on the principle that is your savings and spend the interest payments the bank gives you.
Than to hand over the lot and have nothing.😂 not sure what the point was here.
You’re making the category error of thinking that money in a bank account has a real existence, and that it can be lent out to someone else.
@RogerRoving do you understand fractional reserve banking?
All money is fiction but also all money is debt. (Like a ruler but instead measuring length we are measuring each entities obligations to each other).
You're paid interest on you savings as compensation for going without and as a supplement against inflation. compound interest is the only hedge most ordinary people have against the government idiotically devaluing the currency through money creation.
As a result of you saving they might not directly lend out every or the exact penny of your deposit. But money is fungible and deposits count as an asset on financial institutions balance sheet which they can then lend out as a multiple.
The bank manages this as most people are too under capitalised to lend money out directly, and besides you would need millions set aside for the bank of England to grant you a banking licence so you can lend using the fractional reserve system, which you would need to protect you from customer defaults otherwise you could run out of cash very quickly.
Not withstanding the GFC (where liabilities were packaged as assets) this system has served is very well.
(Apologies didn't realise I would have to explain in such excruciating detail)
I've worked in the field of credit for 6 years, it's not Witchcraft. People have been banking like this centuries.
I expect this ‘campaigning political economist’ must be super rich, because he knows so much…..Oh but wait! 😆
This is financial "gobbledegook." Common among socialists.
Nobody invests in the UK because you cant get a decent return on your money, that wont change until investors see profits and that looks a long way off with Labour about to get in
Yeah! If only we were run like Argentina! eh?
@@charliemoore2551 we will be when Labour get in
@@garyb455 Er, no. Rachel Reeves is a long way to the right but even she's not that stupid. Liz Truss wanted to do what Milei's doing but the banks stopped her in the nick of time. A future Tory government led by the likes of Braverman or Farage might go that way though.
Deceptive and wrong as usual.
Please elaborate, thank you.
@@greatdara Richard deliberately used an example where money stays within one bank. Because if the money came from another bank then he'd have to admit that the receiving bank gained some central bank money, which could support its lending.