In the bank-debt money system that the whole world uses today, borrowers spend bank-issued money into the economy, and people and businesses earn and save that spent money. Money = debt. So all the tens of $trillions of US private sector bank debt, plus the US government's $18 trillion of bond debt, added tens of trillions of "spent money" into the US$ money supply. Savers earned and now "have" those $tens of $trillions, and are trying to invest the money to earn a return.
The top 20% of the wealth ladder "owns" most of the money supply. But they invest rather than spend their incomes, so businesses who sell consumer goods are seeing spending decline as more of the income money flows upward to people who don't spend their incomes. These are the same businesses that wealthy people want to "invest in", to share in business profits by earning dividends. So business sales and profits and dividends are down, but the price of shares is being inflated by all that saved money trying to earn a return on investment.
The "savings glut" saturates the investible assets markets with demand money, which inflates the prices (and lowers the returns) on investment assets. Neither bank account savers nor investors are earning money on their money, in this situation. The government-issued $1000/month "to everybody" -- including the investor class -- would further inflate the prices of investment assets and make returns worse, not better.
We can't all be capitalist rentiers who earn incomes simply by "having money". Somebody has to produce stuff and pay out earned incomes to their workers and suppliers; and somebody has to buy all that stuff at prices that are profitable to productive businesses, before this low-return environment will change. In that regard, increased spending by poor and middle class recipients of $1000/month -- and the resultant increase in business sales and profits -- might increase dividends and offset the investible asset price inflation that the same program causes. The program might be zero sum in terms of its effects on investment returns.
War as a 'Solution' to The Money Problem
War spending produces some of the same financial effects, by vastly more destructive means.
It is a truism in economics that war is inflationary. Governments borrow all the savings they can by selling war bonds to the public, and borrow new bank-created credit money, and use the money to hire the economy for war production and war waging. The economy is put to work producing goods that are designed to be blown to smithereens.
The government pays out vast incomes to all the soldiers and suppliers, but produces no goods "for sale" to those incomes. So the economy's income vastly increases, but the supply of goods for sale is constrained by the government's commandeering the economy for war production. The incomes "demand" goods for sale, and in the limited supply environment high demand bids up the price of whatever goods are still being produced for sale rather than for blowing up.
Government war spending provides incomes that cause demand-driven inflation of consumer goods prices, which is why governments usually impose price controls and/or rationing during wars. But war is often used as a 'solution' to debt-deflation depression, so war's inflationary effects counteract the deflation, and make economic production and investment money-profitable again.
War is grossly economically destructive. But war is financially beneficial, within a bank monopoly money system like the world is presently saddled with. War spending "solves" a debt-deflation depression.
Every bank loan and every bank purchase of a government bond involves the "creation" of new bank deposit money by the bank. Banks do not lend out their depositors' savings: that false belief is called the "loanable funds fallacy". Saved money is simply removed from circulation in the buying/selling economy.
Bank lending and bond purchases "adds" to the economy's spendable/earnable money supply. Borrowers spend the money they borrow. Other people and businesses earn that spent money, and ultimately somebody holds the money as their savings. The money that is saved is the same money that is owed to banks by borrowers/spenders. To reduce total debt requires reducing total savings. Debt repayment reduces savings. Repayment of bank loans, and government bond redemptions, reduce the economy's money supply, in the amount of the loan principal repayments.
On one hand the economy's money supply was loaned into existence by banks and spent into the economy by debtors. On the other hand the economy's money supply is our savings, and capitalists' "capital".
Within the perverse $arithmetic equation of our current bank money monopoly, the debtors owe ALL of our money savings and ALL of our "liquid" capital, as their debt repayment money. Debtors can only paydown their total debt by getting their hands on our money, and using that money to repay their debts. Debt repayment eliminates both the money and the debt: reduces debtors' debt by reducing our money. Dodd-Frank and related G20 legislation plans to do just that: bailout the banks by reducing our savings. This legislation plans to save the system while preserving the banks' money monopoly, at the expense of our money. We and our economies are being sacrificed to save the banks and preserve the banks' monopoly on money issuance.
In a debt-runup, people are borrowing and spending bank-issued credit/debt money to buy assets whose price is inflating, in order to sell them at a higher price in a year or two and make a capital gain (or simply to buy before the get priced out of the market). In a debt-deflation depression, all the debtors are trying to earn money "out" of the economy by selling assets to get money to paydown their bank debt, which deflates the price of assets (like underwater mortgages today).
The reduction of the economy's money supply due to more debt-money being removed from the economy than new debt-money being spent into the economy, deflates the money supply. And the general feeling of sell and save, don't buy and spend, reduces economic activity in a general depression. People who have money in this environment hoard it, don't spend it, and don't invest it in assets whose sellable price is rapidly deflating.
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