Just giving people money turns out to be the most effective way to end poverty.

[Essence]

Excellent! That established, I think I see the 'way out' for your side of the argument: money is fungible. Which means any one dollar is exactly like any other dollar; there's no meaningful way to say "that $50 that you deposited didn't actually get lent out; the bank created new money instead" unless the bank is lending out more money than it's taking in -- and even then, it's only the difference that's clearly newly created.

Dunno what that means in the long run, but it's there.

[cometbah]

Question:

Banks, in their attempts to generate profit, would lower interest rates when the demand for loans is low.

Prospective borrowers will borrow money if the interest rate is lower than the prospective profit generated by investing this money.

The only situation in which 'handing out money' becomes a necessary mechanism for putting money back into the market, then, is when people refuse to borrow even at 0% interest.

Is this correct?

[farscape]

Are you trying to tell me that Bill Gates doesn't have millions of dollars in various bank accounts?

[edit]In fact, I'm going to challenge you. Find a citation that backs up your argument. I don't doubt that it's out there, but I've actually never seen any hard evidence that rich people invest the majority of their money. It's an assumption we all make, but it's one that gets spouted by Fox News on a daily basis, which innately makes it something I'm inclined to doubt.[/edit]

Challenge accepted 

http://www.gurufocus.com/StockBuy.php?GuruName=Bill+Gates
http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=100912
http://www.forbes.com/sites/gurufocus/2013/02/14/latest-picks-from-bill-gates-foundation-buys-ko-pg-wmt-sells-costco-csx/
http://techcrunch.com/2014/01/10/bill-gates-not-the-next-ceo-of-microsoft-but-his-vc-investments-are-picking-up/

So based on the above info, he has significant amount of stock shares in:
McDonald's, Exxon Mobil, Caterpillar, Wal-Mart, Berkshire Hathaway, Coca-Cola, Procter & Gamble, Cascade Investment, Willis Group Holdings PLC, Signet Jewelers Ltd, Autoliv, Inc., Orbotech, Ltd., sells Costco Wholesale Corporation, CSX Corp, Expeditors International of Washington, Inc., Cemex, S.A.B. de C.V., Comcast Corp, The Greater China Fund

As of 12/31/2012, Bill & Melinda Gates Foundation Trust owns 26 stocks with a total value of $16.8 billion.

"Last year, Gates was involved in at least six new and follow-on investments in venture-backed companies, including a commitment to the energy storage technology developer Aquion, in a financing which wrapped up earlier this year. That’s up from four new and follow-on commitments in 2012"

"Rounding out some of the newest investments in the portfolio of the man from Medina, Wash. are three healthcare investments focused on computational drug design and targeted cancer therapies: Nimbus Discovery and its development partner Schrodinger Inc. are both focused on computational drug design, while Foundation Medicine develops diagnostic tests based on gene sequencing to identify personalized cancer therapies for patients."

EDIT: I forgot to mention his biggest "investment" Microsoft Corp. where he still has a very significant ownership %, so most of his "wealth" is still in the form of MSFT shares, the above mentioned other investments are from money he earned as salary and made by selling some of his MSFT shares to diversify his portfolio in case MSFT goes down.

He is still the largest single shareholder of MSFT:
http://finance.yahoo.com/q/mh?s=MSFT+Major+Holders
According to the Feb 18, 2014 statement, his shares in MSFT are worth ~$13.6 Billion.

If you add up the above mentioned $16.8 billion in other big companies plus MSFT, thats $30.5 Billion and we don't know the figure of all the smaller start-up investments mentioned in the other article, but its already clear that the majority of his "wealth"

[Jyiber]

I'm  at a impasse... Can't decide if I want to argue about politics of economics or headbutt a wall for an hour.
Both are equal good uses of time.

[OldTrees]

The following hypothetical example might be relevant:
Person A deposits $100,000 in Bank B.*
Bank B wants to invest/lend out money. They now have $100,000 more. However they are required to reserve 10% and they don't always succeed in finding opportunities to lend out 90%.
Bank B invests/lends out $50,000.*

The M1-M3 money supply has been increased ($100,000 => $150,000).
$50,000 of that is directly contributing to the Velocity of Money while $100,000 of it is accruing a low bank account interest.


*Actual quantities depend on reality.

[Essence]

Question:

Banks, in their attempts to generate profit, would lower interest rates when the demand for loans is low.

Not necessarily. Banks only make money if the interest rates they make by lending money out is greater than the interest rate they pay on the inter-bank loans that all banks constantly make to each other for the purpose of funding large loan requests. So there is a cap on the lending rate that is meaningfully(?) greater than zero: it's called the Federal Funds Rate.  So there's actually never a situation where the banks are able to present a 0% rate to consumers, so there will always be at least some interest rate that will make some percentage of the market refuse to borrow money.

The 'trap' occurs when demand is so low that it's riskier to go into business (i.e. borrow money at just-above-the-Federal-Funds-Rate) than it is to simply invest your money in low-risk, low-yield financial instruments. When putting your money in a Certificate of Deposit at 2% interest genuinely seems like it's going to be in your better long-term interest than starting a business is, there is no borrowing. And the reason that you ever reach that economic state is because there's simply not enough money in the hands of the spending classes to buy your business' products. Which is precisely the state when redistribution of wealth actually literally does help everybody improve their lives.




Farscape, that was impressive and wonderful and I totally +repped you for that. However, there's nothing about adding up numbers that reach 50% of the man's estimated net worth that tells us how much of the other half is in bank accounts vs. various organizations. When you have 77 billion dollars, is it really unreasonable to believe that 1% of that might be sitting in a bank somewhere?



Jyiber: Thank you for wasting our time as well as your own.


OldTrees: I can't decide what point you're trying to make. Because I like my own point of view, I interpret that as meaning "A net $50,000 has been removed from the Velocity of Money," but I'm curious to know how you interpret your own numbers.
 

[ARTHANASIOS]

Okay, Essence. Seriously dude, you can keep your views as much as you like but can you be a liiiiittle more polite please?
You have such a cocky pasive-aggressive attitute during the whole conversation.
 -1 from me dude, sorry (glad you can't actually give negative reputation to people)...

[OldTrees]

OldTrees: I can't decide what point you're trying to make. Because I like my own point of view, I interpret that as meaning "A net $50,000 has been removed from the Velocity of Money," but I'm curious to know how you interpret your own numbers.

Clarifying examples don't make points. Instead they try to draw people away from the filters of "point of view".

I would interpret the example as:
Putting money in a bank tends to increase the money supply and change the velocity of money.

The increase in money supply is dependent on there being a demand for loans. (Reasonable to assume but has decreasing returns and an eventual limit).

The velocity of money is decreased by the decrease in liquid capital however the holder of the money has changed so different spending habits may lead to further decreasing, countering the decrease or even an increasing the velocity of money. Though in the abstract case it would tend to decrease the velocity of money.

So in general putting money in a bank tends to increase the money supply and tends to decrease the velocity of money.

[Essence]

Clarifying examples don't make points. Instead they try to draw people away from the filters of "point of view".

Ah, OK!  I'm not used to people coming into a two-sided discussion and not picking a side.

I would interpret the example as:
Putting money in a bank tends to increase the money supply and change [my words: decrease] the velocity of money.

I think that that's a perfect explanation. So the question I have is, given the state of the economy today, which is of greater concern -- the money supply of the velocity of money? From where I'm sitting, we need a lot more velocity, supply be damned. And unfortunately, it's a pretty easily-provable fact that giving the wealthy more money is going to result less velocity than putting that money in the hands of the spending classes. Unfortunately, there's not currently any incentive strong enough to convince corporations to increase the pay they give to their workers, which means the solution is going to have to come from the privatepublic sector, whether it's increased minimum wages, increased security-net programs, or outright redistribution of wealth in the form of the basic wage.



[edit]ARTHANASIOS, I don't want you feel like I'm ignoring you -- I just don't have anything to say in response. I acknowledge your complaint; it's not the first one I've received. I'm honestly not sure that it's important enough to me to change my posting style. I guess I'm kind of a dick.[/edit]

[OldTrees]

Clarifying examples don't make points. Instead they try to draw people away from the filters of "point of view".

Ah, OK!  I'm not used to people coming into a two-sided discussion and not picking a side.

It has been awhile since we crossed paths in one of these threads.


Sidenote: I think you have a typo (private instead of public) somewhere in your post. (This assumption is based on the context)

[Essence]

Sure enough -- thanks for the catch.

[cometbah]

I see. Thank you for the explanation.

Second question:

What advantages, if any, does the 'free money program' have over other means of income redistribution (e.g. a welfare program), other than saving cost for the implementation of such programs by the government?