How so?



How so?

I am not talking about hoarding money and never spending it. I'm just saying maintain a certain balance, and spend anything above that balance.

I would agree that hoarding and never spending is rather pointless. Unless it's for retirement, it makes no sense to keep money tied up for long periods of time.



Agreed, but I would say they are exceptional cases due to their sheer cost. Nobody wants to remain without a house until they retire.

In addition, buying a house is even more unique, since it involves buying land as well as the structure. Land always keeps some value, and it's not unusual for it to become more valuable, which can lead to a profit in the long run. Land doesn't wear out like most of the products we buy.

Prior to 1945 most people did buy their homes outright and without a mortgage. (Notice I said most not all).

Land fluctuates in value just like any other commodity; a significant portion of the increase in value (the last boom exempted) is primarily inflation value (about 20% of the total value increase). And the remaining 80% is demand value. Now over the last forty plus years demand for land has increased dramatically due to the availability of mortgages and the increase in population. However in areas that saw a decrease in population you also saw a corresponding decrease in values as well.

Case in point: Camden New Jersey, in the late 1960’s you could buy a three bedroom house on a modest plot of land for about $10,000. In 1980 the same home sold for $6,000 and in 1990 the same home cost $6,000 by 2004 the same home sold for $60,000 and now in 2008 that very same home is now less than $30,000.
I should note that Camden is one of the poorest cities in all of North America, its economic decline began in the late 1960’s and there has been no increase in demand in the city for housing in the last forty years. In fact the population of the city has declined. The surrounding areas however saw increases in value during some years (1889 for example of as much as 60% in one year).

So the statement of “land always holds some of its value” is not entirely correct, after accounting for inflation, property taxes ext, there are cases where you end up with a negative wealth gain from the ownership of real estate even if the dollar price of the land does not decrease. (the equivalnet of wearing out)

SpacePony: Thanks for the clarification.

If I'm reading the Wikipedia correctly, in 1945 the great depression was over, and the nation was recovering. So this is when our economy was doing pretty well.

So, in light of what you've said, it does appear that Carbon016 may be mistaken, and that we experienced this trend towards constant debt only recently. It's not intrinsically part of our economy by default, and our economy has done very well during times when people were saving instead of going into debt.

CobraA1. When I say "normal citizens", I mean people who do not invest in anything. Then there are the people who do invest.

Now, the problem today is that in the last 20 years, the normal american citizen has started spending all the money that they earn, and yes in many cases they go into a lot of debt. But debt is not the biggest problem here.

The biggest problem is that many investors today are investing their money based on how much their investment will gain in value. And how much their investments gain in value depends on how much the normal citizens spend.

Forget about numbers, it is irrelevant at this point. What is relevant is the concept of "Change or Trend". If suddenly all the citizens start saving most of their money, they are not going to keep buying, thus demand would lower, thus prices would lower, thus the Trend would change drastically. The investor would see this slowed growth and decided not to invest while the economy is changing so much and on a downward slope, because their investment would not gain as much value as before, or it might actually lose value, depending on the individual case.

This would create a shock in the stock market, it will cause many people to start panicking and many investors will take their money and save it until the citizens start spending again and they see a positive (for the investors) Trend. Which in turn will not happen if investors do not invest their money.

In summary, if normal citizens start saving a lot, then investors stop investing a lot, and the US economy collapse.

The US economy depends on its citizens spending a lot. Now Debt is another issue, and another story for another day.

This is entirely true, but only if you limit the scope of the change to single person:
If everyone else continues their current habits and I save, I can, as you say, achieve a higher cash flow.

But now consider the case that everyone starts saving. That means right now everyone spends less. But since everyone's income (including interest) comes from someone else spending, all incomes go down, since less money is being spent.

So now I see wages decreasing, and that gets me worried for the future, so I save more. But everyone sees the same thing, and everyone spends less. Then, again, everyone's income goes down. Then they spend less. And so on.

Now nobody is spending money, so factories shut down, business lay of workers, etc. And this, of course, makes everything worse.

And Boom! Economic crash.

I understand you logic but if I may point out an alternative scenario.

When people save they are spending less, however their income will go up as a result, not down. They will receive interest on the money saved.

Now a company borrows money to expand and make more efficient their operations, they can afford to do this because, with the amount of savings that is going, on interest rates are lower and better repayment options open up because lending institutions can afford to absorb more potential risk then they could otherwise due to the fact that they have actual cash reserves on hand to cover any potential losses.

This company now can make its widgets for less, so now they can pay a higher wage to employees to reduce training cost and lost productivity due to employee turnover, and also sell the product at a lower cost. Now the employee can enjoy a higher standard of living because they are deriving income from the interest from their savings and they are now making a better wage.

Now more factories open up as more capital becomes available to fill the creative void of ideas in the market place, wages continue to climb and productivity continues until BOOM ECONOMIC PROSPERITY!  

As I've said, I'm not asking people to hoard most of their money. I'm just asking people to maintain a positive balance and to have a small portion of money set aside for a rainy day or retirement.

I do not think that saving a small percentage of income and getting out of debt would hurt us, even if we're talking about most of the nation. Maybe it will hurt a small bit in the short term, but in the long run it's better for our country to remain in the green.

In fact, what will hurt us is if people start going into bankruptcy in record numbers and stop spending altogether simply because they max out their credit cards and can't get a loan. Debt is not an endless supply of money.



People are already starting to do that. The enormous debts people have decreases their spending power. We may be looking at a credit crises in addition to a housing crises in the near future. That will crash the economy a lot worse than people spending slightly less and remaining in the green.



How exactly does having lots of money in interest going to creditors allow anybody to spend more money?

I'd much rather have a smaller paycheck from real money than a larger paycheck from IOUs. Because if those people with the IOUs don't give back what they owe, my company may be forced to cut my paycheck drastically, and may even start laying people off.



. . . and when citizens start spending money they don't have, you have the very dangerous situation of what happens when a citizen finds out they've taken so much from their future that they can't afford the present.

A person only makes a finite amount of money during their lifetime. Debt is taking money from the future and spending it today. The problem is, people have no idea how much money they will make in the future, and may reach the point where they've spent all of their future money. Usually their credit is killed long before that point, but it's not a good idea to ask people to spend money they'll make in a future that can't be predicted.

Keep in mind: Nobody truly makes money except the treasury department of the nation. All we are doing is redistributing it. Personally, I'd rather distribute my money to companies that I believe could help me, rather than to MasterCard or Visa.

In fact, what happens if we fall into a depression due to increased saving and decreased spending?

Well, guess what - we still have money to spend, because we've saved! That lower paycheck isn't quite as important, because we can always draw from the bank account if we can't afford something. We can continue spending during a depression.

The whole point of having some savings is to be able to smooth out the depressions of the economy that occasionally happen.

Again, not hoarding: Just keeping a positive balance so we can better handle the occasional fluctuations in economics.

Oh a point on the definition of a recession and a depression

If it is happening to you, it is a recession
If it is happening to me it is a depression

First I want to say that fundamentally I agree with you: a little fiscal responsibility would certainly do us good. I just wanted to make the (incredibly oversimplified) point that our economy runs on money spent.


True but (at least in the short term) not particularly relevant, since money not spent doesn't do anyone any good.


You a right of course: One of the assumptions I made was that money in the bank is like money buried in a field. Which is nonsense, and the investment factor serves as a counterbalance to some of what I said.


Haha... keep dreaming; more like now they don't need so many workers and can lay some off. But I concede some of that investment goes back to the workers.


But the "crisis" results from people being unable to go into debt(and then spend). Thus general saving will cause this crisis just as effectively as loss of available credit.


What exactly do you think those creditors do with the money?


But that is all money is in the first place: it's just an IOU that can't be redeemed for anything. Increasing debt all around doesn't hurt the economy.


That is exactly the point! The more the money get circulated, the more the economy is stimulated.


Why? MasterCard and Visa don't bury your money in the ground any more than say, Stardock.


So now my overall point. This seems to be more or less what both of you are saying.
The more we spend (and less we save) the more the economy is stimulated.
The more we save (and less we spend) the more he economy is "relaxed".
Let's consider the extremes first:
1. Incredible spending and massive debt
This will drive the economy up to incredible, but unsustainable, levels. Everyone will be rich until something happens to break the cycle, when everything will crash down into abject poverty. (Think 1920's)
2. Massive saving and limited spending
No demand means no production. Economy crawls along with massive unemployment.

Since neither is a particularly desirable scenario, the "ideal" economy lies somewhere in between.
In general, the more spending, the larger the economy, but also the more volatile. This means greater fluctuations in prosperity.
More savings reduce volatility, but also decrease prosperity in general.
What the ideal balance is is one of the fundamental questions of economics, and I don't think anyone will ever agree.

I do agree however, that the current level of spending in the United States is to great, and it may be about to bite us.




Haha... yeah, and if it is happening to him, it's just a market fluctuation.

ignore this

Thanks for the correction - looks like I'm going to have to pull out my accounting book to ensure the correct usage of terms. I'll do my best to be more careful.



Of course it's nonsense. It's an extremely liquid asset. It can be easily withdrawn and spent!

Again, I'm not advocating purposeless hoarding. I agree that stopping all spending just to hoard it without any purpose is silly. I would never advocate piling up money just for the sake of piling up money.

When I save (be it actual cash or through a bank), I generally do so for a purpose: There is something I want to eventually spend it on. It can be a computer component, it can be retirement, it can even be an unforeseen emergency. Yes, I do eventually spend most of the money I save.

One of the nice things about a bank account is that the money isn't siphoned off somewhere else from your point of view, and it won't present you with the danger of a debt spiral as long as you maintain a positive balance. Overall, it's a lot less stressful than maintaining debt.



Exactly: When you go far enough into debt, you lose your ability to spend!! That's pretty contradictory to your objective of keeping the money flowing and keeping people spending.

I want to keep money moving just as much as you do - and going into debt will not accomplish that. Going into debt is not equivalent to spending more.

Having a debt simply says you might perform the second half of a transaction in the future. The cash hasn't flowed yet, but might flow in the future.

Problem is, the cash part of the transaction is becoming more unreliable. The money isn't actually flowing in all cases, because the creditors are demanding that the money flow faster than people can sustain.

Cash and bank accounts are extremely liquid assets, and can be used more effectively for performing transactions than debt can. You just have to be patient enough for it to collect the money before you spend it. You're still forced to maintain a sustainable cash flow rate, but without the much higher stress of debt.

Sure, you don't get the instant gratification - but frankly, it's the instant gratification that is causing people stress, because people are attempting to maintain more expenses than they have income. Money isn't magic - you can't sustain larger expenses forever!

Debt does not increase cash flow. It simply delays transactions and allows unsustainable expense rates for the individual.



They give me pieces of plastic that cause millions of people stress, they give me frequent flier miles I'll never spend, they pay their employees, and a few other things.

One thing is for sure: They don't make great games like Galactic Civilizations.

The whole point is that I prefer to control where my money goes, and if I'm siphoning off money to a creditor, it's not going where I want it to go.

Again, I'm not advocating hoarding. I'm simply saying that the entire transaction should take place immediately using cash on hand or an available bank account.

In addition, what do you think my bank does with the money? Do you think that compound interest is magical and creates itself? Nope. Even though you don't see it, the money is actually being used by the bank. The loan somebody else takes out for a car or house is paying that interest in my account.



It can be redeemed for goods and services .

In fact, you should be informed that banks are required, by law, to save some cash. That's what FDIC insurance is all about. The economy can fall to pieces and you can still withdraw money from your bank up to the insured amount with zero fear of losing it. Interestingly enough, this has been in place for a long time and hasn't killed our economy.

In conclusion: You can use cash or a bank account for spending, just as you can a credit card. It's not any different, except the credit card leads to a lot more stress.

In fact, my bank offers a "check card," and I can use it just like a credit card. It has all of the benefits of being able to spend my money instantly, but without any of the stress of remaining in debt. I am absolutely no less liquid with my bank account than I am with my credit card.

"This planet has -- or rather had -- a problem, which was this: most of the people living on it were unhappy for pretty much of the time. Many solutions were suggested for this problem, but most of these were largely concerned with the movements of small green pieces of paper, which is odd because on the whole it wasn't the small green pieces of paper that were unhappy." --Douglass Adams

@nfelddav

Please, when quoting someone use the entire sentence not just part of it, you sliced my sentence right in the middle and completely changed the meaning of it and made it imply something that was not stated



this makes it sound like I am saying companies will suddenly change the way they behave where as what was said was



This is a practice that many companies do now, so no ha ha sure they will magical thinking is involved; it is a currently existing practice that would not go away.

So in the future please make sure you use the entire sentence in a quote so as not to deliberately alter the meaning and end up with something that was never said.
I make enough stupid remarks on my own without assistance from others..

To turn this discussion round on its head a little bit...

Can someone clarify how exactly is the US a superpower at the moment?

I personally believe it never was, and never will be a superpower, but will reserve what evidence I have until some people have responded first.

Well, during the cold war, there were two superpowers, the USA and the Soviet Union. Each one of us built up enormous supplies of both nuclear and conventional weapons, and there is no question we had the largest militaries in the world. The Soviet Union eventually collapsed, leaving the USA as the remaining superpower.

Each one of us had large enough nuclear supplies to wipe the world out several times over. I'm pretty sure we still have some of those supplies from the cold war. Theoretically, we still have the power to lay enormous destruction if desired.

The USA certainly has an extremely effective military. The fight against Saddam was very swift, and his military crumbled against US forces. While we currently have some troubles against unconventional forces, there is no question that we are very effective against another conventional military.

We have over the last 50 years had the largest industrial base in the world. Our industrial base was larger than the rest of the worlds combined at one point.
We had a military that was perceived as unbeatable.
We had an economy that was so well developed compared to the rest of the world that we had at our disposal the highest standard of living ever obtained by any country in history.

So by the definition of a super power, we were the bomb!
–noun

1. An extremely powerful nation, esp. one capable of influencing international events and the acts and policies of less powerful nations.
2. Power greater in scope or magnitude than that which is considered natural or has previously existed.

Dictionary.com Unabridged (v 1.1)

Based on the Random House Unabridged Dictionary, © Random House, Inc. 2006.


Let’s Look at the first definition



Can you deny that we have or have had the capability to influence international events AND (not or but and) influence the policies of other countries?

And by the second definition



I don’t think anyone has ever argued that the United States did not have the largest and most powerful economy in all recorded history.

So, by the definition given in the dictionary we are a superpower. (other dictionaries give similar definitions as well).

Oh and as to your statement about us having never been one... Growl, snarl, growl.. ggeerr...

SO THERE!!!!!