If you are being paid interest on your money, why would you spend it?

[Elwar]

If your current money is in a bank gaining interest, why would you ever spend your money? Is this a flaw in fiat? Everyone is hoarding their money to get interest on their money so nobody is spending their money. Should we penalize money that has been sitting in the bank too long?

If nobody spends their money fiat will become useless. What are some ways we can get people to spend fiat instead of hoarding it for the interest?

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[maaku]

Cute, but interest (if you even have that anymore) is much less than inflation.

[01BTC10]

Make inflation higher than interest rate.

[foggyb]

If your current money is in a bank gaining interest, why would you ever spend your money? Is this a flaw in fiat? Everyone is hoarding their money to get interest on their money so nobody is spending their money. Should we penalize money that has been sitting in the bank too long?

If nobody spends their money fiat will become useless. What are some ways we can get people to spend fiat instead of hoarding it for the interest?

As stated above, inflation is more than the interest.

Even if it weren't, people will still spend money because ultimately it costs money to live.

BTW interest rates were up to 15 or 18% 30 years ago, and fiat didn't fail then. Interest rates are 1-4% these days.

Penalizing idle fiat would not solve anything and cause a shift to gold, property & other hard assets. It might even cause a failure of fiat, and drive society towards a search for new ways to store wealth, perhaps in some form of stateless digital currency.

[BitPappa]

If I had a safe, longterm interest-bearing investment (perhaps a government bond that was earning 10% right now, that was purchased when that was the going rate), I certainly would not want to cash in the bond, I'd use other money and maximize the appreciating investment. And yes, interest rate vs. inflation rate (as well as what other investment options there are) are pretty huge parts of the equation to consider.

In the world of Bitcoin, I don't own much, and I surely don't want my net BTC to go down much, because I do have hopes it will be worth much more in the future. I want to keep what I think will appreciate (BTC), and spend what I don't think will appreciate (USD). If you can poke any holes in that logic, I'm all ears. Maybe if I owned hundreds or thousands of BTC, or if I had more value in BTC than in USD, I might feel different about my net BTC going down.

I'm trying to use/spend Bitcoin a bit, to understand BTC commerce better, one of many ways I'm attempting to immerse myself in Bitcoin. But overall, at least in the near term, I want my net BTC to go up, and I'm okay if that's at the expense of my net USD going down.

I don't think this means Bitcoin will fail, as some argue. I think it means it will appreciate longterm while simultaneously being used as the backbone to many amazing things we have yet to see or dream of...

[maaku]

BTW interest rates were up to 15 or 18% 30 years ago, and fiat didn't fail then. Interest rates are 1-4% these days.

Uh, do you remember the circumstances under which that happened? Word-wide economic recession, IIRC.

[01BTC10]

BTW interest rates were up to 15 or 18% 30 years ago, and fiat didn't fail then. Interest rates are 1-4% these days.

Uh, do you remember the circumstances under which that happened? Word-wide economic recession, IIRC.

High interest rate are typically a way for the central bank to slow down production/consumption and fight inflation.

[Stephen Gornick]

If nobody spends their money fiat will become useless.

Why do you believe that introducing artificial incentives (e.g., "penalizing money that has been sitting in the bank too long") is preferable to just letting fiat money becoming worthless (if that truly is the outcome due to a decline of spending)?   Better yet, who elected you (or anyone else) to decide for me what I should be doing with my money?

Keep yer grubby mitts off of other people's property.

[Lethn]

Everyone is hoarding their money to get interest on their money so nobody is spending their money. Should we penalize money that has been sitting in the bank too long?

I seriously want to know where you guys are getting your information about Bitcoin from, do you actually have proof of this? Or are you just regurgitating what you've learnt in schools about economics? I'm getting tired of having to argue with people about this now.

[DeathAndTaxes]

Cute, but interest (if you even have that anymore) is much less than inflation.

Well due to effects of QE that is true but over any longer period of time interest yields tend to be higher than inflation.  The FED currently is trying to force people to spend by making it punitive to hang on to cash.

[odolvlobo]

Money only has value when it is spent. It doesn't make sense to keep your money in the bank forever. If the money is never spent, it is effectively worthless.

[BitPappa]

Money only has value when it is spent. It doesn't make sense to keep your money in the bank forever. If the money is never spent, it is effectively worthless.

Yeah, but holding an appreciating currency for awhile, and spending it later (when it has more value), seems logical to me.

[BitcoinAshley]

Guys, calm down, Elwar is being sarcastic, he's obviously playing on the whole "Deflationary currencies are doomed because no one spends money that will be worth more in the future" concept by applying it to fiat money and showing how it doesn't hold water.

I don't see how inflation is particularly relevant. Most people in my country have no idea what the inflation rate is, and if they do, have no idea that it actually has a real effect on the money in their savings account. To them, the money in their savings account IS increasing every quarter, and they think they are making money by keeping it in savings. They really don't understand that they are just losing a little less than they would lose if it were held in cash or in a checking account. Yet, despite the perception that the are gaining money by hoarding it, they still spend the money, or at least they did, until recession hit a couple years back.

Also, "real inflation" in many areas may be higher than interest rates, but the officially reported inflation figures tend to be either very close to interest rates or below them. So for the 1% of people who actually understand that inflation rates reflect on the real, immediate purchasing power of their dollar, only 1% of those are smart enough to not believe the official figures and realize that they are much higher than reported for anyone that spends more than 5% of their income on food and energy I mean really, is it so hard to include, like, a weighted long-term moving average of food and energy indexes rather than skipping them altogether because we don't want the plebs to worry "volatility"

Negative interest rates are a real and looming phenomenon. People will be very interested in spending that money! Saving money shouldn't be penalized; saving money shouldn't be discouraged with stupid alt-coin concepts that mimic failed neo-keynesian policies. Thank the lord I still have my bitcoins, litecoins, namecoins, gold, silver, etc. No negative interest/super-inflated dollar or freicoin demurrage bullshit is going to disincentivize me from being a responsible consumer and saving money for future debt-free large purchases, rainy day, medical expenses, etc.

It's like we are trying to FORCE people to live paycheck to paycheck! Lol.

[foggyb]

People who save are home-grown terrorists.

[jml]

If your current money is in a bank gaining interest, why would you ever spend your money? Is this a flaw in fiat? Everyone is hoarding their money to get interest on their money so nobody is spending their money. Should we penalize money that has been sitting in the bank too long?

If nobody spends their money fiat will become useless. What are some ways we can get people to spend fiat instead of hoarding it for the interest?

First, I don't trust banks. I spend my money on long term investments such as mining rigs which itself have liquidity in the even I want to sell. These mining rigs are providing me the interest via bitcoin mining which its possibility may or may not devalue, though trends indicate that it is a strong currency.

Second, I have lost faith in fiat currencies in learning how money is made.

Third, banks interest rates are so low, that saving is not an option for me. The money stored in your bank will devalue over time because of inflation.

 I believe that by stating that fiat money will devalue over time would get people to spend fiat money.

[Aureum_Coffee]

People who save are home-grown terrorists.

Funny.   

[Aureum_Coffee]

I spend money because there are basic needs like food, shelter, transportation.

Interest paid from the banks is way less than the real world inflation.  

Take for example, food.  1 gallon milk used to be $1.75 in 2000.  Now it's nearly $4.0.  

So that's roughly 13 years to double the price.  Use rule of 72 for calculations, gives us 5.5% inflation every year.  Regular 1 year CD is 0.7%.

This is forcing me to chase yield instead of saving, just to keep up with the real world inflation.

Bitcoin is more like a hobby, an experiment.  I want to see how things would pan out differently if parameters are different from what's going on with the world.

[BitPappa]

Guys, calm down, Elwar is being sarcastic, he's obviously playing on the whole "Deflationary currencies are doomed because no one spends money that will be worth more in the future" concept by applying it to fiat money and showing how it doesn't hold water.

Thanks for saying that. I think the original post was an interesting discussion-starter. Definitely no need for anyone to get riled up.

[Stunna]

Interest is pretty much non-existent in our current economy unfortunately. Holding fiat is the worst thing one can possibly do with their wealth in my opinion, wisely invest and you can double your money several times throughout your lifetime.

[alkuluku]

Why spend money when you can save it and enjoy the afterlife?