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The reason that there's a naturally negative interest rate isn't because "people are getting better at saving". The reason there's a naturally negative interest rate is because over half of the American population owns less than nothing; they have more debts than assets. Investors simply own too much wealth, and the general public owns too little. The economy is so lopsided that investment is yielding a negative rate of return, because the wealthy invest the majority of their money while the poor have to spend it just to survive, and a lesser and lesser proportion of wealth belongs to the poor.



Money doesn't have high velocity in the upper echelons of society compared to in the bottom half. One dollar will pass through many hands if paid to a person in the lower half of our economy, while in the top 10% this same dollar barely makes it into one other person's hands, let alone multiple.

The economically disadvantaged chunk of society has grown as middle wage jobs have disappeared, while their wages have effectively dropped. This is terrible for economic growth IMO.


Another request if you have a paper or other source; not because I doubt it though! I'm interested in how velocity of money would properly be modeled and observed as a function of the Lorenz curve.

I'm pretty amateur when it comes to math, but I'm working on it.


Do you have a source for your money velocity claim? Intuition implies it would be the opposite


Huh? Give 10 bucks to Bill Gates and 10 bucks to the homeless person that you just saw and tell me who would spend it immediately?


How so? It checks with my intuition quite fine. Do you mean as a total volume of dollars earned?


Wealthy people are likely to invest any cash received immediately which would be invested or loaned out to businesses that purchase things and pay salaries.

They don't take their extra $100K and stick it under a mattress.


Investment is a problematic word because it has so many subtly different meanings.

Let's say you "invest" in the stock market. Does that actually cause any business to "invest" more? The answer is likely no. It'll drive up the stock prices of the company whose shares you buy, yes, but companies don't tend to make investment decisions based on their share price.

Conversely, companies do make investment decisions based on the demand for their products, so giving money to poor people who immediately spend it is likely to cause more (real world) investment than giving it to rich people who merely "invest" it.


Even if you transferred the money directly into the bank account of those corporations they would just merely pay it out as a dividend or give the CEO a bonus. What then? "Invest" again?

A corporation doesn't need a third factory if no one is buying their products. Because of deflation it may even want to get rid of it's second factory.


It’s like that comic with the dog holding the ball going “no take, only throw!”

“No purchase, only invest!”

At the end of the day the economy only works because it’s extracting profit from consumers, if the profit you’re extracting is money you lent them in the first place...where is the profit coming from? Hence the negative interest rates: you NEED them to take on more debt so they can even buy things from you to begin with. It’s the market itself saying “you need to give them more money”.


the trend is for corporations to keep large cash reserves, essentially they are "extreme hoarders" in the financial sense. it comes with all the negatives that physical hoarding comes with


over half of the American population owns less than nothing

Median net worth is $97k, and between 80 and 90 percent of households are above zero: https://dqydj.com/net-worth-brackets-wealth-brackets-one-per...


I'm basing that claim on this: https://www.peoplespolicyproject.org/2019/06/14/top-1-up-21-...

https://www.federalreserve.gov/releases/z1/dataviz/dfa/

>To derive this, I initially take the nominal net worth aggregates for each wealth group that are provided by the Federal Reserve and subtract out consumer durables. Consumer durables are things like cars and fridges that many academics who work on wealth distributions do not consider wealth. The average person in the top 1 percent owns around 32x as many consumer durables (in dollar terms) as the average person in the bottom 50 percent owns. So the subtraction of them reduces the inequality between the top 1 percent and bottom 50 percent.

From there, I adjust the 1989 figures to 2018 dollars using the CPI-U-RS price index. This is what the Federal Reserve also does to adjust wealth figures over time in its Survey of Consumer Finances reports.

What the final product reveals is a 2018 where the top 1 percent owns nearly $30 trillion of assets while the bottom half owns less than nothing, meaning they have more debts than they have assets. This follows from 30 years in which the top 1 percent massively grew their net worth while the bottom half saw a slight decline in its net worth.


> What the final product reveals is a 2018 where the top 1 percent owns nearly $30 trillion of assets while the bottom half owns less than nothing, meaning they have more debts than they have assets.

Does the bottom half own less than nothing when summed, or does every person in the bottom half own less than nothing?


Doesn't seem reasonable to suggest that someone who just bought $10K in durable consumer good for cash has a negative net worth.


Say someone buys a used car for $10K. Typically that is their only car, that they use work. They can't sell it because then they'd lose their job and probably be unable to buy food etc. So where is the cash value?

IMO "net worth" is kind of fuzzy, e.g. people have organs that could be sold for profit but those aren't included in calculations. I'd rather look at income minus expenses.


One can argue that owning a car saves you from the expense of buying a car. After your asset expires you have another $10k bill at the end. If your car is a super reliable prius and lasts twice as long as your old car then it may haved saved you money by reducing your transportation expenses.


Cars are liabilities. Almost invariably they will break down and require repairs, which are generally expensive. The moment you buy a car you are losing money on it. You’re losing it slower than if you had thrown the money off of a bridge, but it’s not an investment. Any money saved by making a good vehicle purchase is more of a discount on a cost you’re paying anyway.




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