I feel sorry for people who have money tied up in poorly-performing financial products from which they can’t escape, but I have no patience with the likes of this lot – saveoursavers.co.uk – who seem to think that they have a God-given right to an income from money that’s lying idle in a bank account.

Most of us who were born in the middle of the last century were brought up to believe that saving money is a virtue, but I’ve discovered that what we think of as “saving” is actually nothing more than hoarding: removing money from the productive economy and leaving it to stagnate.

If hoarding money had no effect on the rest of the economy then we could leave the hoarders to stew in their own juice, but hoarded money is money that’s not working. Our economy needs money to be available for buying and selling stuff. A shortage of working money in the economy is one of the main ingredients of recession.

Almost all of the money (c.97%) that we need to make the economy work comes into existence when banks make loans. So most of our money is matched by an equal amount of debt:

WORKING MONEY = BORROWED MONEY + DEBT

Loan repayments make both money and debt disappear, so we constantly have to take new loans to keep enough money in the economy for buying and selling stuff.

But the amount of working money in the economy is also being reduced by “savers” hoarding it away:

WORKING MONEY = BORROWED MONEY minus HOARDED MONEY + DEBT

When the economy is functioning normally we replace the working money that’s being lost to hoarding by taking out more loans.

The cumulative effect of this is:

CONSTANT AMOUNT OF WORKING MONEY =  EVER-INCREASING HOARDS OF STAGNANT MONEY + EVER-INCREASING DEBT

If the banks are reluctant to make new loans into the economy, as is currently the case, then we have to rely on the hoarders to take their money out of the bank and put it to work.

The hoarders will tell you that their “savings” are used by banks to issue loans and are therefore already at work in the economy, but this is nonsense. Banks create the money for loans out of thin air. Hoarders’ money just sits there doing nothing for the working economy.*

If “savers” want to get a bigger rate of return on their spare money they should take it out of the bank and put it to work, spending it on something in the real economy that’s likely to turn a profit. It’s called “investing”, something that our economy desperately needs right now.

A big part of the problem is that our culture is wedded to the myth that money equals wealth. We think that money in the bank means we’re rich. In truth, money in the bank is money wasted. 

This should be obvious to the “savers” whose piles of rotting cash are losing value by the day. But somehow they don’t see it.

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* The only reason that banks pay interest on hoarded money (deposits in savings accounts) is that the deposits are a cheap way of funding the reserves that they need for balancing their books at the end of each day. At the moment banks can borrow from each other very cheaply so they don’t really need the savers’ hoards, hence the low returns on hoarded money.