Hi mindmeld; Re: " I'll give you two very explicit ways they've stolen far more than $100B per year from Americans: 1) zero percent interest rates = all the savers that would normally be earning a free market rate on their savings of 3-4% or higher are now earning zero percent.";
If we were actually on a real gold standard, there's no way that interest rates for demand deposits would be as high as 3-4%. This is particularly true in the middle of a big depression.
Interest rates went sub 0% during the last depression in the US (which was *not* accompanied by quantitative easing that we see today). I realize you're quite stupid and have no idea how these things work so I'll explain it for you.
If I put some seeds into the soil, they will grow plants and the plants will produce more seeds than I planted. This is called "farming" and was the basis for how humans interact with the world for thousands of years. Unfortunately, "farming" doesn't work in finances.
With farming, there is no need for a counterparty. You put your seeds in the soil and they grow. Putting money into a bank is not like farming. There is no "fair" interest rate. Instead, when you put money into a bank, the bank is able to pay you interest *only* because there is another person who takes money out of the bank. That person is called a "borrower" and they do not exist in the farming paradigm.
If interest rates go too low, (for example, interest rates can and do go negative) borrowers will decide that they should do something else with their money than put it into the bank. This reduces the amount of money that the bank has available to loan and makes it more difficult for borrowers to borrow from the bank. So interest rates go higher. If interest rates go too high, borrowers decide that they shouldn't borrow money. This leaves the banks with an excess of funds. Say they might be able to loan out only half the money that is deposited by savers. And so the interest rates paid to savers have to go down.
A deep depression like the one we're in now is caused by the rich people deciding that they do not want to spend money. Instead they decide to save it. This causes funds to build up in banks and as a result interest rates drop automatically.
This is why interest rates *always* drop during deep depressions. This is not some new idea that was just invented. It's the consequence of human behavior and has been present many times in the past. For example, see:
Japan 1998
Western banks are charging Japanese banks for the privilege of holding their yen deposits, in what one economist said was the "unprecedented" use of negative inter-bank interest rates.
In a further damaging sign of the extent of Japan's economic woes overseas banks such as Barclays Capital and JP Morgan have begun to charge negative nominal interest rates to Japanese banks for holding yen deposits.
money.cnn.com
It also happened famously during the Great Depression. Conveniently, the St. Louis Federal Reserve has a chart that goes back to the last half of the Great Depression here, and you will notice that interest rates were also extremely low during that time as well:
Now, here's a question for you. In the above graph you can see the zero percent interest rates prevailed for about a decade from around 1930 to 1942. That's a lot longer than we've experienced so far. And was there a massive burst of inflation at the end of that period???
There was not. In fact, the US remained on a nominal gold standard throughout these years.
Re: "2) The Fed has pursued a policy of inflation since its inception 100 years ago. That means that a dollar today cannot buy what a dollar could by even a decade ago. Hell, I remember when a movie ticket used to cost $2. Now, it costs $8. Inflation. That's the Fed. If they kept monetary policy stable, then prices would be stable. The fact that they are not is a purposeful policy action by the Fed. That is theft."
I also remember when a movie ticket cost $2 and now it does cost $8 (or more). However, if I'd taken that $2 and put it away in the bank to collect interest, it would have grown well beyond $8. That is, the interest rate paid on money has been in excess of inflation and therefore there is no theft.
In 1964 I could have gotten into a movie for about 8 quarters. Those silver quarters are now worth considerably more than $8. Does that mean that the Federal Reserve has done the opposite of theft? That they've given me money?
But most paper money decreases in value with time. And that is a sort of theft. But in the absence of inflation, you'd never see short term interest rates of the "3-4%" you're quoting. What you're doing is trying to have your cake (high interest rates) without eating it (and having inflation). What you're describing is a situation where the savers perpetually steal from the borrowers by keeping interest rates unnaturally high (as compared to inflation). Obviously you're a saver, not a borrower, but why should the rest of us be in favor of a theoretical economic system (one that has never existed on the planet) that would be to your personal financial advantage? No country has *ever* had an economic system that paid 3 to 4% interest on short term deposits, over the long term, without inflation eating away the value, or some other threat to the amount on deposit. Why don't you think about why that is the case?
-- Carl |
