Parking money in index/hedge funds is not "investing it back in the economy". Bank lending is driven by demand, not deposits.
Of course it is. What do you think those funds invest in? Piles of cash?
> Bank lending is driven by demand, not deposits.
If that were true, banks wouldn't need deposits and certainly wouldn't offer free checking. They're not charities.
> If that were true, banks wouldn't need deposits
That doesn't follow from what I said. Banks are required by law to back their loans up with reserves. So when they don't have enough reserves, they borrow on the interbank lending market or from the central bank.
http://www.bankofengland.co.uk/publications/Documents/quarte...
HF traders don't hold for long, so why are they equivalent?
Of course it is. Buying a piece of a company is investing in it.
> Buy that logic, high-frequency traders are investing in the economy.
And they are - even if they hold a particular stock for a millisecond. The aggregate invested across the market is what matters.
It's a bit like calculus. All those infinitesimal bits add up to real amounts.
> That doesn't follow from what I said.
Maybe you can explain why banks offer free checking.
The original comment was implying that rich people contribute to the economy by investing their spare savings back into it. I'm not claiming that there's no benefit to buying secondary stocks and derivatives on them, just that this is not even remotely the same in terms of creating economic growth as actually investing in creating new business opportunities and such. It's kind of like saying that trust fund kids who don't work contribute to the economy by spending money. And often this "investment" in the stock market is the mere fueling of bubbles.