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Old 03-20-2013, 08:46 PM   #61
rapier7
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I think there are more than enough strong arguments that a dollar spent on a consumable has a far greater impact on the economy compared to investing that same dollar in a target retirement date mutual fund that owns a basket of stocks that are owned by a bank. In addition to that, a majority of economists are pretty much in agreement that increased savings usually equals slower growth of GDP.
Where the hell did you hear that economists think increased savings means slower GDP growth? China has one of the highest savings rates in the world and has been growing at 8%+ for over 30 years, which is literally the fastest any economy has grown for that period of time.

GDP is C+I+G+dX and I is investment. Ultimately, there is no economic growth without savings, because if we consume everything we produce, there is nothing left to grow the future economy with. Our economy would look like a vastly different place if the rich spent all their money instead of saving it, and it would likely crowd out lower income spending.

Governments like stimulus because it gives the biggest short term GDP boost and politicians can only think in terms of the next election cycle. Economists who like government will advocate boosting spending as a palliative measure, but even they ultimately concede that spending can't sustain an economy. Investment does.

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Also, when you buy a mutual fund or a direct stock very seldom does that money go directly to the company. For example, if you go out and buy a share of Apple, you're not buying that stock FROM apple....aka, you're not giving money to them.
Depends. Companies can and sometimes do offer equity after the IPO. Currently, our tax code favors companies taking on debt to finance their operations instead of issuing equity, so the vast majority of times companies will instead raise money in the bond market instead of the stock market.

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Yes, it is, but that's how our economy works. The trick is finding the equilibrium.
The ideal savings rate for this country is far higher than our national savings rate.
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Old 03-20-2013, 08:56 PM   #62
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Originally Posted by rapier7 View Post
Where the hell did you hear that economists think increased savings means slower GDP growth? China has one of the highest savings rates in the world and has been growing at 8%+ for over 30 years, which is literally the fastest any economy has grown for that period of time.

GDP is C+I+G+dX and I is investment. Ultimately, there is no economic growth without savings, because if we consume everything we produce, there is nothing left to grow the future economy with. Our economy would look like a vastly different place if the rich spent all their money instead of saving it, and it would likely crowd out lower income spending.

Governments like stimulus because it gives the biggest short term GDP boost and politicians can only think in terms of the next election cycle. Economists who like government will advocate boosting spending as a palliative measure, but even they ultimately concede that spending can't sustain an economy. Investment does.

Do you know what is included in the "I" portion of the GDP formula? It's not people adding to their 401k's and it's not people adding to their money market accounts.

Comparing China's economy to ours currently in reference to savings makes little to no sense since we're in entirely different phases of growth. Of course their savings rate is high and of course their economy is sky rocketing....they are just barely on the cusp of moving from an emerging market to a developed market. We haven't been an emerging market in a century.

Something that hasn't been mentioned yet is long term vs. short term effects of savings. In the short term it's going to be a drag on the economy, but in the future it could prove to be beneficial. Like I said before, it is all about finding an equilibrium.

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Depends. Companies can and sometimes do offer equity after the IPO. Currently, our tax code favors companies taking on debt to finance their operations instead of issuing equity, so the vast majority of times companies will instead raise money in the bond market instead of the stock market.
Obviously it depends, hence why I wrote my statement as such. A large majority of the time a security purchase is not going to the company.
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Last edited by evolved; 03-20-2013 at 09:17 PM.
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Old 03-20-2013, 09:21 PM   #63
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Originally Posted by rapier7 View Post
Where the hell did you hear that economists think increased savings means slower GDP growth? China has one of the highest savings rates in the world and has been growing at 8%+ for over 30 years, which is literally the fastest any economy has grown for that period of time.

GDP is C+I+G+dX and I is investment. Ultimately, there is no economic growth without savings, because if we consume everything we produce, there is nothing left to grow the future economy with. Our economy would look like a vastly different place if the rich spent all their money instead of saving it, and it would likely crowd out lower income spending.

Governments like stimulus because it gives the biggest short term GDP boost and politicians can only think in terms of the next election cycle. Economists who like government will advocate boosting spending as a palliative measure, but even they ultimately concede that spending can't sustain an economy. Investment does.


Depends. Companies can and sometimes do offer equity after the IPO. Currently, our tax code favors companies taking on debt to finance their operations instead of issuing equity, so the vast majority of times companies will instead raise money in the bond market instead of the stock market.


The ideal savings rate for this country is far higher than our national savings rate.
It doesn't necessarily directly affect GDP. However, Investment is inversely correlated with interest rate. So, if more people are saving, there's an increase in interest rates, that ends in a decrease in income.
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Old 03-20-2013, 10:23 PM   #64
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Do you know what is included in the "I" portion of the GDP formula? It's not people adding to their 401k's and it's not people adding to their money market accounts.
Of course it is. Where do you think businesses raise the cash needed to replenish inventories and make capital expenditures? Why do companies go public? Why do companies sell commercial paper? The institutions and mechanisms that facilitate capital expenditures are just as important to the macroeconomy.

I'm getting the impression that you think the activity on the stock market (or money markets, or the bond market) is just a vehicle for personal investment. Please disabuse me of this notion.

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Comparing China's economy to ours currently in reference to savings makes little to no sense since we're in entirely different phases of growth. Of course their savings rate is high and of course their economy is sky rocketing....they are just barely on the cusp of moving from an emerging market to a developed market. We haven't been an emerging market in a century.
Ah yes but if you want to compare China's economy to say, Mexico or Brazil or India or South Africa, it's not even close. There has never been an economy that's grown as fast for as long as China has ever. The Chinese can grow as fast as they can because they save so much money. That money is then used by the state in capital expenditures. Oftentimes in grossly inefficient investments, but they're growing nonetheless.

Private consumption does not drive real economic growth. Otherwise we would have had an advanced economy 5000 years sooner than we did. It is only when we save the fruits of our labor to create more fruit do we get actual, honest to goodness growth.

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Something that hasn't been mentioned yet is long term vs. short term effects of savings. In the short term it's going to be a drag on the economy, but in the future it could prove to be beneficial. Like I said before, it is all about finding an equilibrium.
Okay, so would you say that, in our particular case, equilibrium is higher or lower than our current savings rate?

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It doesn't necessarily directly affect GDP. However, Investment is inversely correlated with interest rate. So, if more people are saving, there's an increase in interest rates, that ends in a decrease in income.
None of the things you said are true.
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Old 03-20-2013, 11:12 PM   #65
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Yes, it is, but that's how our economy works. The trick is finding the equilibrium.
No, the trick (as championed by Collins) is to keep people spending and not saving because of the instant GDP benefits. At the same time, those people did not save for the future and guess who's there to take care of them?

BIG GOVERNMENT

You see, people who are responsible and plan for the future don't need it. The "trick" is getting more and more people dependent on government. Once you're hooked, you're voting for bigger government for life out of necessity. Hence, you get the 'don't touch my medicare' conservatives and most poor democrat voters.

The 'trick' is to make them need government. There is no turning back. Self-reliant and responsible people are the antithesis of big government and its biggest enemy and threat.
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Old 03-20-2013, 11:30 PM   #66
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It is wholly irresponsible to encourage people to go out and purchase things they cannot afford just so people are buying sh#t
It has also been government policy for most of the last 30+ years.
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Old 03-21-2013, 08:06 AM   #67
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Of course it is. Where do you think businesses raise the cash needed to replenish inventories and make capital expenditures? Why do companies go public? Why do companies sell commercial paper? The institutions and mechanisms that facilitate capital expenditures are just as important to the macroeconomy.

I'm getting the impression that you think the activity on the stock market (or money markets, or the bond market) is just a vehicle for personal investment. Please disabuse me of this notion.
No, it's not. The I in the GDP formula refers to investments made by businesses to add equipment, replenish inventory, build plants, etc. When one buys shares in a company, and the company uses the money received to buy plant, equipment, etc., the amount will be counted toward GDP when the company spends the money on those things; to also count it when one gives it to the company would be to count two times an amount that only corresponds to one group of products. Buying bonds or stocks is a swapping of deeds, a transfer of claims on future production, not directly an expenditure on products in most cases. This is outside of the IPO market and other initial offerings.

Again, this is not a knock against saving or investing in any way shape or form. Like AoG said above, if people don't save now they will be on the government dole later. The main point that I am making is that while saving/investing is extremely important, it has the potential to cause short term decreases in overall GDP when compared to consumer spending.




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Okay, so would you say that, in our particular case, equilibrium is higher or lower than our current savings rate?
I would advocate for people to slowly increase their savings rate for the above reason.
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