Hoarding Money

[Travis Retriever]

What are the economic effects of people hoarding money?  For example, if I take my paycheck, cash it, and stuff the money under my mattress and forget about it.

I ask because so many people act as if this a horrible thing for the economy.  But can the people mouthing off produce even ONE real solid case of this actually resulting in economic collapse?

Hell, I wouldn't be surprised if people doing that 'en mass to be a boon to the economy.

[MrBogosity]

Investment, at a very basic level, is deferred wealth. When you take your paycheck and do anything other than use it to buy something--in other words, consume the wealth--you're technically investing. And you'll only do that if you think you'll be better off in the long run.

So the only reason you'd do that in the first place is if you think there's a time in the future where you'll need that money, and it'll be safer there than in the banks or in some form of investment. In the meantime, the wealth of everyone else will increase slightly because that money isn't being circulated.

In short, it's like investing a tiny amount into every person and business in the country!

[Travis Retriever]

Awesome.

Sounds like a much better outcome than the "sky is falling" outcry of idiots like Krugman who seem to be only one small step from saying we should just outlaw deferred consumption outright (I mean, we already have the federal reserve printing money like mad; gov't forcing us to buy auto and now even health insurance, etc, so it is really that big a stretch for them?).

[evensgrey]

Awesome.

Sounds like a much better outcome than the "sky is falling" outcry of idiots like Krugman who seem to be only one small step from saying we should just outlaw deferred consumption outright (I mean, we already have the federal reserve printing money like mad; gov't forcing us to buy auto and now even health insurance, etc, so it is really that big a stretch for them?).

There are countries that do this, at least to a point.  For instance, South Korea allows temporary workers to only take a certain percentage of their income out of the country again (which I learned about when I investigated going there to teach English, back in 1997, about 6 weeks before their economy came apart from several decades of bad accounting practices).  Sri Lanka does (or at least did, in the recent past) have limits on how much money you could legally take with you when you left the country, EVEN IF YOU WERE EMIGRATING.  OF course, those countries that have tried to prevent investment returns (and liquidated capital) from leaving have faced the predictable result that there is absolutely no new capital brought in and the capital-control measures inevitably do the exact opposite of what those who enacted them claimed they would do.

I've seen people babble about "liquidity traps" and "excessive saving" (which is usually people trying to pay off the mountain of debt they've accumulated, rather than saving, but that's another matter) but there's no such thing as excessive saving, there's only malinvestment (which equates to the stored wealth being put in the wrong place).  A "liquidity trap" is strictly an artifact of fiat money systems that have reached the lower bound of interest rates (0% or very slightly above, since the entire fiat money system would instantly collapse if interest rates went negative).  It's impossible for this effect to occur in a commodity-based monetary system (since you can neither enter the conditions under which a "liquidity trap" would occur, nor perform the actions that would cause it to appear).