2. Savings does not equal investment because interest rates are determined in the money markets and so cannot serve to equate savings with investment
The article mentions when savings get low - interest rates should rise -
The greater the demand for credit the greater is the interest rate that is charged to borrow the savings. As the savings pool is drawn down through lending, savings become scarcer, hence a higher rate of interest is needed to convince savers to part with their savings.
If credit is lent out of the savings pool, and the savings pool is at the lowest levels in history, how is it that credit and debt can be expanding? This is a conundrum. Interest rates are also at historical low levels, another conundrum, as interest rates should be rising to attract scarcer savings into the credit markets.
But the central bankers, being ever resourceful, dreamed up a new way to finance the government debt. Instead of selling the bonds to the commercial banks, the bonds were sold to private investors via existing financial markets, and to foreign investors and central banks, especially Japan and China. This placed the bonds in the hands of investment funds, hedge funds, and foreign central banks, which meant the bonds did not show up on the books of our commercial banks as before.
This is the how historical debt levels have been issued without creating price inflation, which would have caused market interest rates to rise to make up for the loss of purchasing power of the currency. Instead of price inflation of consumer goods, the money has flowed into the bond market and other financial markets, including the stock market and especially the real estate market, bidding up the prices of financial assets.
The United States has learned how to export inflation. You must admit they are clever.
In place of price inflation we have asset inflation, as exemplified by the rise in bonded debt issuance from less than $1 trillion in 1970, to $23 trillion by 1997, to approximately $46 trillion by 2003 - a doubling in just six years. Such is not an increase in debt - it is an explosion of debt.
But the money didn't just go into the bond market, it also went into the stock market, although some of that has been given back; but it has also flowed quite heavily into the real estate market, which is tied to the bond market quite closely.
Nothing quite like a 30-year mortgage to get you to work your life away to earn enough to pay 3 times the original price of the house. Now that's progress - isn't it?
Further, he claims fiat currencies must inflate or die. On what basis does he make this claim?
....By monetizing government debt, Federal Reserve Notes, which are irredeemable promises to pay, circulate as the currency. When money, credit and debt are one and the same, such a system must inflate or die. The money supply must constantly increase to pay the ever-increasing interest rate stream on all the debt that is and has been issued. It is a vicious, never-ending circle.
The rate of interest that the Federal Reserve charges for short-term loans to member banks is the Discount Rate. They also have a similar Federal Funds Rate. In paper fiat land most credit does not come out of the savings pool, but is instead created out of thin air or nothing.
If the credit came from the savings pool, interest rates would rise as the savings pool was drawn down. The Fed manipulates interest rates to keep them below the natural rate of interest that would exist if credit came from savings, which would limit the available amount of credit.
What is actually occurring within the markets is a form of wealth transference, from the producing sector to the financial sector, taking the capital of the former, and giving it to the latter, creating almost risk-free capital gains in the process.
The productive sector of the economy is being pillaged and plundered by the financial sector of structured finance - by casino-style gambling running wild. The house has rigged the game and is collecting all the chips. Our greatest skill is now in pushing paper, especially paper debt, to the rest of the world.
In paper fiat land, banks are permitted to carry assets, such as bets in the derivatives markets, off balance sheet. They do this in order to hide what is really going on from public scrutiny. But the accountants and bank inspectors know what's up, but that's a different matter, as they seem to find it in their best interest not to mention it. This is how Dr. Parks describes the fraudulent activity:
"Fractional reserve lending is jargon for creating money out of nothing. That's what that means. In the case of derivatives, these are bets that the banks make. The banks today in the aggregate worldwide have made roughly $110 trillion worth of bets. That's all they are. Banks are making bets and creating money. One of the things that obscures this for everybody is that banks alone do not have to reveal their entire balance sheets, as all other public companies must do under Securities and Exchange Commission regulations. Banks have the option, with some of their assets, to put them in a basket that they call "held for investment". When they put assets in that basket (they could be stocks, bonds, or whatever), then those assets are held at historical costs, rather than at market value... Nobody else gets away with this except for them. The reason they get away with it is because they say, in effect: 'If we had to mark everything to market, there would be too much volatility in our earnings. We don't want you to find out.' All this is secret. It's called bank secrecy... There are winners and there are losers. The losers are the ordinary people who lose their pensions, their savings, and their jobs.
The winners are the financial guys... These guys have no downside... Do you know what the banks took out of the economy last year? Nearly $400 billion. The Wall Street firms who get transaction fees for moving the newly created money around took another roughly $250 billion. Between them they took out nearly three times the amount of money that the auto industry took out. But from the auto industry we got 20 million cars. What did we get from these guys? We got cancelled checks and bank statements. This is monstrous, don't you think?" |
