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Politics : President Barack Obama -- Ignore unavailable to you. Want to Upgrade?

To: Road Walker who wrote (137909)	10/1/2013 10:49:56 PM
From: RetiredNow	Respond to of 149317

It's an interesting article and I think he gets it mostly right in some of his suggestions. However, he makes several statements where he is obviously confusing global debt abundance with capital abundance. Debt and capital are NOT the same thing. Capital formation is the process of productive capacity being used to create cash flows which turn into savings, which then gets loaned out for a return on that savings. Letting the Capitalist markets allocate capital like this is the secret sauce to the US historical wealth. The governments of the world that run deficits, then need to sell debt to finance those deficits, then print money to buy their own debt...that is not the same thing as capital. In fact, debt created from gov't deficit spending, followed by QE and ZIRP is exactly the perfect recipe for Capital Destruction. Why? Well ZIRP and QE both discourage savings. Not getting a good savings rate encourages people to find other investments with higher yields. Combine that with QE, money printing, and those policies encourage people to get rid of US Dollars and put it into anything that protects against devaluation of their savings. Both of those activities suck money out of the core of the financial system. There's an old saying that bad money drives out the good. What they mean by this is that in an age of money printing, people can't get rid of that currency fast enough. They'll invest in anything to keep their currency stock low to guard against devaluation and evaporation of their savings. When all of that is combined with the already excessive leverage at the Big Banks, you have a witches brew of instability. When banks become gambling casinos and savers refuse to keep their money in banks, who don't care to make money in traditional lending activities, you have Capital Destruction and a plunging velocity of money. And remember, it is Capital Formation and Deployment by businesses that are the true job creators. The Fed doesn't create jobs. When they are engaging in QE and ZIRP, they are quite literally killing Capital Formation, which by extension means they are killing the goose that lays the golden eggs. Deficits, too high debt, followed by QE and ZIRP are Capital Destroyers. Not only are they not helping, they are now actively making things worse. So that is why it is very important for policy makers and article creators like the one in your post to make sure they understand Capital Formation. This concept is key, because it is the beating heart of a vibrant Capitalist economic system. Kill the Capital Formation and you kill Capitalism.