Now that we know the mathematical relationship between interest rate and bank reserve ratio; we can explain the relationship between that and population and credit related to the improving standard of living?
When population increases, poor countries had no credit allowed and no improving standards of living. Centuries can go by without the conveniences of water, sewers and electricity. No credit allowances are needed by central government.
Then technology brought better standard of living, and each person with a job can be given maximum allowed credit, both short term and long term installment payment plans.
The credit, however, is limited by Feds loan to member banks in fixed ratio to deposits, which limits the maximum credit and interest rates, that economy can generate income to support the loans.
In the end, more than 18 to 1 ratio on bank reserve limit, will force the government to nationalize the member banks, when population and standard of living goes beyond visible support of their loans.
Empirical data from many countries, supports this theory. We have now seen the situation in Japan. Fortunately, Japanese had a standard of living still being improved, with auto ownership and track house ownership yet to be increased. Japanese banks may have to be nationalized to afford more credit for their own citizens rather than export customers. |
