The Central Bank War On Savers - The Big Lie Beneath

Tyler Durden's picture

Submitted by David Stockman via Contra Corner blog,

The central bank war on savers is rooted in a monumental case of the Big Lie. Here is what a retired worker who managed to save $5,000 per year over a 40 year’s lifetime of toil and sweat in a steel factory now earns in daily interest on a bank CD. To wit, a single cup of cappuccino.

Yet the central bankers claim they have absolutely nothing to do with this flaming economic injustice.

That’s right. A return that amounts to one Starbucks’ cappuccino per day on a $200,000 nest egg is purportedly not the result of massive central bank intrusion in financial markets and pegging interest rates at the zero bound; it’s owing to a global “savings glut” and low economic growth.

Thus, Mario Draghi insisted recently that ultra loose monetary policy and NIRP are,

……… “not the problem, but a symptom of an underlying problem” caused by a “global excess of savings” and a lack of appetite for investment……This excess — dubbed as the “global savings glut” by Ben Bernanke, former US Federal Reserve chairman — lay behind a historical decline in interest rates in recent decades, the ECB president said.

Nor did Draghi even bother to blame it soley on the allegedly savings-obsessed Chinese girls working for 12 hours per day in the Foxcon factories assembling iPhones. Said Europe’s mad money printer:

The single currency area was “also a protagonist…….”

Actually, that’s a bald faced lie. The household savings rate in the eurozone has been declining ever since the inception of the single currency. And that long-term erosion has not slowed one wit since Draghi issued his “whatever it takes” ukase in August 2012.

Euro Area Gross Household Saving Rate

Yes, double-talking central bankers like Draghi slip in some statistical subterfuge, claiming “current account surpluses” are the same thing as “national savings”. Actually, they are nothing of the kind; current account surpluses and deficits are an accounting identity within the world’s Keynesian GDP accounting schemes, and for all nations combined add to zero save for statistical discrepancies.

In fact, current account surpluses and deficits are a function of central bank credit and FX policies and their impact on domestic wages, prices and costs. Chronic current account surpluses result from pegging exchange rates below economic levels and thereby repressing domestic wages and prices, and chronic deficits from the opposite.

Stated differently, what central bankers claim to be “excess savings” generated by households and businesses, which need to be punished for their sins, are actually deformations of world trade and capital flows that are rooted in the machination of central bankers themselves.

That much is evident in Draghi’s own numbers. He chides Germany and the eurozone for fueling the savings glut as represented by 5% and 3% of GDP current account surpluses. But that’s a case of the cat calling the kettle black, if there ever was one.

During the 14 years before Draghi’s mid-2012 “whatever it takes” ukase, which meant that he was fixing to trash the then prevailing exchange rate of 1.40-1.50 dollars per euro, the eurozone did not have a current account surplus!

What Draghi sites as the problem he is fixing is mainly his own creation. That is, it is a result of the 25% currency depreciation the ECB effected under his leadership, and also the temporary improvement in Europe’s terms of trade owing to the global oil and commodities glut. And even in the latter case it is central banker action that originally led to the cheap credit boom of the last two decades and resulting over-investment in energy and mining production capacity.

In any event, the eurozone surpluses since 2011 shown below do not represent consumers and business failing to spend enough and hoarding their cash. To the contrary, these accounting surpluses are just another phase of the world’s massively deformed system of global trade and capital flows. The latter, in turn, is the fruit of a rotten regime of central bank falsification of money and capital markets.

Euro Area Current Account to GDP

In fact, when savings are honestly measured, there is not a single major DM economy in the world that has not experienced a severe decline in its household savings rate over the last several decades. The US household savings rate, for example, has not only dropped by more than half, but in so doing it was going in exactly the wrong direction.

That is, the giant 78 million plus baby boom generation was demographically ambling toward the inflection point of massive retirement waves beginning in 2010. The savings rate should have been rising toward a generational peak, not sliding into the sub-basement of history.

United States Personal Savings Rate

In this regard, Japan is the poster child for the truth of the matter, which is that we have actually had the opposite——an anti-savings famine in most of the world.

Thus, Japan’s much vaunted high saving households back in its pre-1990 boom times have literally disappeared from the face of the earth. Yet this baleful development occurred just when Japan needed to be building a considerable savings nest egg for the decades ahead when it will essentially morph into a giant retirement colony.

The deep secular decline of household savings rates throughout the DM world is in itself the tip-off that central banks have drastically deformed the financial system, and are now telling the proverbial Big Lie about a phony “savings glut” in order to justify their continued savage assault on depositors. That’s because under any historical rule of sound money, the kind of investment boom experienced by the EM world during the last two decades would have been accompanied by the upsurge of a large savings surplus in the DM economies.

During the great global growth and industrialization boom between 1870 and 1914, for example, Great Britain, France, Holland and, to a lesser degree, Germany were huge exporters of capital. By contrast, the emerging markets of the day——the United States, Argentina, Russia, India, Australia etc.——-were major capital importers.

That made tremendous economic sense. The advanced economies of the day earned trade surpluses exporting machinery, rolling stock, steel and chemicals and consumer manufactures, and then reinvested these surpluses in loans and investments in ships, mines, railroads, factories, ports and public infrastructure in the developing economies.

The lynch-pin of this virtuous circle, of course, was common global money. That is, currencies that had a constant weight in gold, and which, accordingly, were convertible at fixed rates over long stretches of time. English investors and insurance companies, for example, invested in sterling denominated bonds issued by foreign borrowers because they knew the bonds were good as gold, and that their only real risk was borrower defaults on interest or principal.

Today’s world of printing press money has turned the logic of gold standard capitalism upside down. Accordingly, during the last several decades the east Asian manufacturers and petro-economies have purportedly become varacious savers and capital exporters, while the most advanced economy on the planet has become a giant capital importer. Indeed, Keynesian economists and so-called conservative monetarists alike have proclaimed these huge, chronic US current account surpluses to be a wonderful thing.

No it isn’t. Donald Trump is right—–even if for the wrong reason.

The US has borrowed approximately $8 trillion from the rest of the world since the 1970’s not pursuant to the laws of economics, as the Keynesian/monetarist consensus proclaims. Instead, the unbroken string of giant current account deficits shown below——-the basic measure of annual borrowing from abroad——were accumulated in violation of the laws of sound money; and were, in fact, enabled by Richard Nixon’s abandonment of  the dollar’s convertibility to a fixed weight of gold in August 1971.

At length, the unshackled Fed found one excuse after another to flood the world with dollar liabilities. In fact, the Fed’s balance sheet liabilities (i.e. dollars) totaled just $45 billion in August 1971, meaning that it has exploded by 100X to $4.5 trillion in the years since.

This vast inflation of the monetary system, in turn, enabled total credit outstanding in the US economy to soar from $1.7 trillion at the time of Camp David to $63.5 trillion at present. That means the US economy’s ratio of total public and private debt to national income surged from its historic level of 1.5X in 1971 to 3.5X today.

Needless to say, the evil of this kind of massive money and credit inflation is that it is contagious. The last 45 years have proven in spades that there is no such thing as printing press money in one country.

In fact, the borrowing binge in America, Japan and Europe played right into the hands of the mercantilist policy-makers in East Asia and the petro-states. By pegging their currencies not to a fixed standard like gold, but to the massive emission of floating dollars, they appeared to become prodigious capital exporters and “savers”. That’s because in order to keep their currencies from soaring against depreciating dollars and euros, their central banks accumulated huge amounts of US treasuries and euro debt in the process of chronic, heavy-handed intervention in the FX markets.

Folks, that’s not a savings glut; it’s the consequences of massive money printing and credit expansion on a worldwide basis. Had China not depreciated it currency by 60% in 1994 and kept it more or less linked to the Fed’s flood of dollars ever since, its vaunted $4 trillion of FX reserves and the 60X expansion of its domestic credit—from $500 billion in the mid-1990s to $30 trillion at present—–would not have happened in a million years.

China Central Bank Balance Sheet

The graphs below, therefore, have nothing to do with a “savings glut”. Had China’s currency been linked to gold in 1994, the dollars exchange rate against the RMB would have collapsed long ago, and America’s ability to live for decades beyond its means by swapping treasury debt for Chinese manufactures would have been stopped dead in its tracks.

China Current Account to GDP

At the end of the day, central banker palaver about the world’s alleged “savings glut” refers to nothing more than the inherent accounting identity in world trade. Mercantilist policy makers which choose to swap the sweat of their workers brows (China and east Asia) and the bounty of nature buried in their energy and mineral resources (the petro-states) for paper IOU’s end up with current account surpluses; the net issuers of these paper debts accumulate the net deficits.

It has nothing whatsoever to do with too much savings from real incomes. It’s a consequence of the rampant money printing that has saddled the world economy with $225 trillion of unrepayable debt and massive excess production capacity that will result in deflationary pressures and low-growth for years to come.

Indeed, central bankers has wandered so deep into the rabbit hole of monetary crankery that they no longer even know the difference between honest savings from household incomes, business profits and government surpluses and fiat credits generated ex nihilo by central banks and the financial institutions which they enable. Accordingly, the global economy has been saddled with a historically aberrational run of malinvestment and surplus CapEx that at length has now triggered an sweeping global deflation and collapse of profits in the primary industries and capital goods.

Stated differently, lunatic levels of CapEx in China and its supply train satellites during the last two decades was not a function of workers coming out of the rice paddies in their hundreds of millions and saving too much from the 60 cents per hour they were paid in wages. Instead, the economic insanity displayed in the chart  below is on central bankers and their $20 trillion emission of fiat credit over this period.

And that gets us to the end game mendacity of Bernanke, Yellen and most especially Draghi. This blithering fool answered the valid German complaints about his savage war on European savers with this gem:

In a world where real returns are low everywhere, there is simply not enough demand for capital elsewhere in the world to absorb that excess saving without declining returns,” Mr Draghi said……In such an environment, low central bank interest rates were not the enemy, but exactly what was needed to boost demand for investment….If central banks did not do this, investing would be unattractive,” Mr Draghi said. “So the economy would stay in recession.

Ironically, these baleful conditions were caused by central bankers. Now they want to punish savers for the consequences of their epic errors.

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eishund's picture

that is certainly an objective response.

nope-1004's picture

And whenever the phrase "currency debauchery" is brought up, people either don't understand it or simply excuse it as some crazy conspiracy.

Read the article people.  This is currency debauchery by your overlords.  Always setting a goal of inflation as a policy is always setting a goal to steal your wealth as policy.  That is FACT.

They steal your money and enslave you for life.  Time to react accordingly to being played like a fiddle for years.

illyia's picture

Thank you for an intelligent comment about 'currency debauchery' (spelled correctly, btw).

BuddyEffed's picture

I keep updating this mini-analysis with more supporting links and a few commentary tweaks.

From : http://www.zerohedge.com/news/2016-02-23/financial-time-bombs-hiding-pla...
......
"That’s how we get to the crime of NIRP. Keynesian central banks cannot imagine a problem for which more debt is not the solution. But is it not lack of “aggregate demand” which is idling an increasing share of the world’s oilfield drilling equipment; nor did it cause Caterpillar’s heavy mining machinery sales to plunge or the Baltic Dry index to plummet to 30-year lows.

What is driving output, wages and profits drastically southward throughout the materials and energy complex is drastically sinking profits and a desperate need to conserve cash flow in order to survive. The CapEx budget of global mining giant BHP is a proxy for what is becoming a global CapEx depression in the world’s industrial economy. "

.......

And what's driving all of that in my humble opinion is resource constraints caused by depletion of the physically easiest to get (closer to surface and in nearby locations and in higher ore grades) and hence the cheapest to get natural resources.

The easiest to get copper, aluminum, gold, silver, diamonds, oil, coal, natural gas, iron, manganese, fish, trees, etc. etc have all been harvested pretty hard for the past 100 years or so. When the industrial revolution came to us, we got really good at the extraction of non renewable natural resources.

In the early part of the industrial revolution, there was an increasing amount of energy, metals, forests, fish, cattle, crops, etc that were used by economies at all levels. That's true growth and true GDP and this increase / growth lasted for quite many decades. The banking business model used to be more closely tied to real GDP and real growth and the earlier version of the banking and investing business models could structurally tie growth to capital and interest and debt in stable ways as long as there was growth.

A strong case can be made that suggests that interest rates on savings accounts were strongly coupled to real world growth over those years where there was true growth. Even theory can argue towards a strong coupling of real growth and interest rates. When you used to be able to get 4% interest on a savings account, there really was 4% more production in real industries. Interestingly with ZIRP the implication is that there was no real growth anymore and for it to last so long would strongly suggest a structural causality. And interestingly NIRP would strongly suggest a negative (contracting) scenario in real world production of real things.

Once the easiest and cheapest resources were gone and the more expensive and harder to get resources were all that is left, that gradually changed the business models and the expectation of profits from corporate activities. Business models of growth that were stable for decades and decades become structurally challenged, and at risk of not being able to generate a profit and keep going as valid concerns.

Hence the games of PPT, QE, ZIRP, then NIRP, and banning cash come into play for various reasons such as to purchase the large amounts of bad paper associated with subprime that others would not touch and to help people not notice the underfunded pension plans and unfunded liabilities and the decreasing chance that those models and assumptions will hold together intact while the appearance of them holding must be maintained no matter what. And hence the similar recent government policies on the importance of the keeping up of appearances with only rosy narratives allowed in Ukraine, China, Japan, Turkey, etc.

Hope was placed on substituting with other resources based on new technology. We all were hoping we could "upgrade". But the strongest upgrade of all in the past 2 centuries was the increasing energy content in our choice of fuels, from wood, to coal, to oil and the increasing FF energy at our disposal did wonders for real (old fashioned) GDP and provided positive reinforcement for an increasing rate of industrialization. Under the increasing rate of industrialization scenario, debt/credit could be used in the financial system to pursue new physical resources or new processes and obtain profit/ROI. Now that upgrade trend seems to be stalled out with indications of deteriorating EROEI ( http://r4d.dfid.gov.uk/pdf/outputs/Energy/60999-EROI_of_Global_Energy_Re... ) and with that upgrade trend possibly about to reverse and begin on a downgrade where new debt/credit may not be able to garner anything new or any surplus at all and might not even get return of investment back either. Sure, some renewables came into play across the decades and it helped, but most of the heavy lifting was always done with FF, and the current economy is still highly dependent on FF. Regarding renewables, top Google engineers recently made these concerned comments : http://www.theregister.co.uk/2014/11/21/renewable_energy_simply_wont_wor...

Sadly, we did some inefficient things in big ways too. Rail and boat traffic are very energy efficient ways to move things around. But when the rubber hit the road with automobiles, the energy efficiency of moving things per unit of weight dropped considerably. (See http://business.tenntom.org/why-use-the-waterway/shipping-comparisons/ or see http://truecostblog.com/2010/05/27/fuel-efficiency-modes-of-transportati... ) When we chose that more inefficient mode of transportation of rubber on the road, and ran with it so hard, there was plenty of FF surplus at the time so it made short sighted sense in a way, and it was big fun too. With the former FF surplus scenario now structurally challenged, various struggling business models now reflect this.

This might give you some clues on why that "markit" is not following their wrong headed models :

http://web.archive.org/web/20111112074159/http://www.zerohedge.com/news/...

And this : http://www.theoildrum.com/node/7062
And this : http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf

MANvsMACHINE's picture

I'm surprised they haven't used the, "there's an extra shot in that cappucino which has not been factored into the return"

Boris Alatovkrap's picture

Boris is present cynical truth (please, if you are coward wimp, take blue pill and return to slumber):

Bankster Cabal is embrace store of wealth only as bait for entice citizenry to entrust bankster class with control over wealth, but end of game is to deprive citizenry of wealth and in luciferious emulation, is thereby gain control over liberty of individual. Please, listen! Bankster is require not one time entrustment of wealth by citizenry, but in perpetuity, so as to acquire more and more control, so real store of wealth in hand of citizenry is direct opposition to satanic agenda of bankster. Bankster is rely on currency and velocity of wealth exchange THAT IS PASS THROUGH BANKSTER demonic claw (tentacle in more common nomenclature). Only by capture transactional control is bankster incur ongoing profit.

This is profit without provide ANY value. This is why Bankster is move citizenry toward cashless society, like herd of dumb sheep. No store of wealth (Gold, Silver, PM), not even token of wealth (Federal Reserve Note), can be in possession of citizenry.

Of course, government is collude with Bankster in grotesque intermingling of bodily fluid in budoir of congress, parliament, duma, diet, and knesset as together state and bank is enable dual purpose of enslave citizenry and enrich self. So now you are witness of final act, final consumation of grotesque plan of total usurpation of individual liberty at hand of spawn of Bealzebub.

Then of course, maybe is just business as usual, nothing is to see here… what is Boris knowing, anyway?

taoJones's picture

Boris:

"Of course, government is collude with Bankster in grotesque intermingling of bodily fluid in budoir of congress, parliament, duma, diet, and knesset as together state and bank is enable dual purpose of enslave citizenry and enrich self "

Classic!  Thank you... and I don't even speak Russian

orez65's picture

"... the central bankers claim they have absolutely nothing to do with this flaming economic injustice."

It is not a Central Bank INJUSTICE it is Central Bank FRAUD!

The individual lends the capital that he created by consuming less than he produced.

The Central Bank lends the capital that they pulled out of their assess.

UNOFOO's picture

Proper response is " Keep stacking Fuckers."

flyingpigg's picture

Right UNOFOO,

Saving is for Suckers.

If the guy would have bought gold for 5000 USD/year his average purchase price would have been way below the gold price today.

You reap what you sow.

Never One Roach's picture

I hope ALPO goes on sale this week.

Dr. Engali's picture

True, savers may not get a return on their investment, but just think of all those valuable Chinese trinkets they've bought over the years. Surely they must have some everlasting value....lol. Stoopid Merkiuns, sold their legacy for some cheap Chinese goods.

FreeShitter's picture

Yes....those 12 dollar trinkets that americans have bought all on credit with interest... and when they got home, they didnt give a shit about it anymore.

FreeShitter's picture

You forgot to add "all done by design". At least make it easy to understand for the ameridumbs, as Kaiser says.

venturen's picture

Bernanke, Yellen and Draighi will be down in history as Charlatan Fools! On the same level of awe of stupidity as the Tulip mania and South Seas Corporation. 

Tarjan's picture

I think their legacy will be orders of magnitude worse than that.

~

truthgiver's picture

The ONLY question is how long before this all blows!

FreeShitter's picture

Its blown now. You are feeling a slow cooking, that way PTB can keep ruling w/o too many hiccups.

Seasmoke's picture

Everyone should just go on strike for the rest of the month and put an end to this Ponzi system once and for all. But everyone is too afraid. 

Pareto's picture

End the fucking FED

i_call_you_my_base's picture

The worst part about Draghi's "advice" is that it makes no consideration of a person's appetite for risk, their age, whether they may need the funds in the sort-term, etc. His advice is something you would expect from a dumbfuck uberbull on a yahoo finance forum or a boiler room grifter.

Ghordius's picture

I like Stockman's way of putting things. though not here

from the retired US worker with his savings in USD.... to Draghi. sure

you can say whatever you want about the ECB, it was a "lead first, I'll follow you" thing with the FED. most of the times with a delay of over one year, something that generated lots of articles on ZH

"The US has borrowed approximately $8 trillion from the rest of the world since the 1970’s not pursuant to the laws of economics, as the Keynesian/monetarist consensus proclaims. Instead, the unbroken string of giant current account deficits shown below——-the basic measure of annual borrowing from abroad——were accumulated in violation of the laws of sound money; and were, in fact, enabled by Richard Nixon’s abandonment of  the dollar’s convertibility to a fixed weight of gold in August 1971."

correct. nobody forced the US to have so much deficit spending. meanwhile, the complaints from the rest of the world... weren't heard. Nixon did not shock Americans, they were not even allowed to own gold until 1974

mary mary's picture

I don't blame Nixon.  It was his predecessor, Lyndon Johnson, who started the Vietnam War and the War on Poverty.  Those (plus, always, of course, the Fed) are what bankrupted the USA.

And, of course, Barack Obama has added to the War on Poverty with his Obamacare.  "Spend till you've bankrupted the peasants" seems to be the "Liberal" slogan.

malek's picture

Looking for excuses for the European bureaucrats again?

But nobody forced the US to not have so much deficit spending either.
If the complaints weren't heard, they either had to do something stronger than complain, or they did in fact accept what was (and is) happening.

Ghordius's picture

true. what is also true is... that those were decisions of national governments, not those "European bureaucrats", which had not even really started properly, in the 70's

Graph's picture

An interest collected eather by steel worker (give a man a beer, not fucking cappuccino) or "steal worker" is created by sombody's heavy toil ?

Just asking.

mary mary's picture

The Central Bankers, including Draghi, want a world of grasshoppers, not a world of ants.

It is their flooding of the world with their funny-money and their one-bank-to-rule-them-all that have destroyed savings.  Intentionally.

They are Oligarchs of the worst order.  Their ultimate goal is to make it impossible for any of the peasants to start his own business, because business is power.

Europeans neet to get a pair and quit electing Central Bankers.  But, then, I bet that, in every election, the CHURCH tells them to vote for the Central Banker.

Grandad Grumps's picture

Maybe the European elections are as completely rigged as the US elections.

Newspeaktogo's picture

Kind of sounds like King Henry the 8th.

NAV's picture

Savings represent an investment for future spending for the holder; at the same time borrowed savings is another form of current spending by the investor. And the Fed oligarchs can’t stand to let that value escape their clutches. The Fed prints excess in relation to production in order to hold interest rates at zero and to purposely steal the years of labor and savings of Americans.

Why is the transfer of the value of savers’ money, i.e., surplus labor, to the Fed bankers and crony oligarchs not one of the major economic stories of the past several decades?

David Stockman is one of the few voices to raise this alarm of paper money and tyranny, i.e., counterfeiting.

“When the government can replicate the monetary unit without regard to cost, whether it’s paper currency or a computer entry, it’s morally identical to the counterfeiter who illegally prints currency. Both ways, it’s fraud.” – Ron Paul

Grandad Grumps's picture

It seems that the "current" slaver regime uses several methodologies:

1. indebt the populace
2. give free money to cronies
3. collect the surplusses in friendly (to them) pools

There can never be excess savings, except in the surplus pools because all money is created out of debt and debt by definition is always higher than the amount of money in existence ... to imply that there is excess cash, guarantees that there is excess debt.

Personally I believe that the crony slavers have done enough damage to the human population ... the least of which is indebting them. But, we must also thank them because by creating this subtle but extremely hostile environment for humanity, they are teaching us about "them".

mary mary's picture

Stockman sours his article when he says Donald Trump wants to do the right things, "even if for the wrong reasons".

Anybody can make up "reasons" all day long.  It is a man's ACTIONS which define him.  I don't give a d&mn about anything else.

"The road to Hell is paved with good intentions".  I believe this old saying is actually intended to be interpreted as, "The road to Hell is paved with good EXCUSES."

jakesdad's picture

I'll "invest" when fraud is prosecuted, bad debt is cleared & prices reflect something other than manipulation - until then go fuck yourself!

sincerely,
at least one debt-free (barely) 1% muppet 

Dg4884's picture

I'm no 1%'er.  A 5%'er maybe.  BUT, we yanked almost everything out of the banks and keep enough to pay monthly debt.  We are pretty much debt free and along with PM, have invested in mountain land in NC.  I am so far out of this bullshit loop and want to puke every time I hear about some gullible shmuck who's worked hard getting played by TPTB. 

A special place in hell for these crooks...

ghostzapper's picture

From the Federal Reserve Policies and Procedures concerning the granting of Federally insured loans, to wit, “A deposit created through lending is a debt that has to be paid on demand of the depositor, just the same as a debt arising from a deposit of checks or currency in the bank.” (Federal Reserve publication “Two Faces of Debt”, page 19).

 

 

hooligan2009's picture

Excellent article.

I don't think that the central bankers are going out of their way to destroy savings, per se. I think they are just too stupid, ill-informed, retarded, drunk and not getting enough sex to understand the reality facing the 99% of the populace.

If you can't accumulate savings at a sufficiently fast rate, you will starve in retirement and die a long, painful and undignified exit.

I am still shocked by the "Dubya" type logic (yanno the one where Dubya said soemthing and you had to pause to make sure you heard the stupidity of what he said, correctly).

Central Bank logic is, "if we print money with a vaue that it takes the entire countries work force five years to produce, that will be a good thing, because the sweat and tears of the entire planet are not as important as ou ability to print some 1's and 0's and keep our jobs, which after all, are completely immune from any proseuction for fraud, racketeering and us being found out to have the equivalent iq's of gekko's without their tails"

mind you draghi does look a lot like a gekko

http://www.theinformationarchives.com/Gecko/

mary mary's picture

I believe it's greed and lack of empathy, not stupidity.  Lack of caring.  And it always uses the same excuse: "I'm a member of THIS GROUP or THAT GROUP, so when I steal from everyone else, I'm helping MY GROUP, and therefore everything's okay."  But that's just an excuse.  The truth is, "You are of your father, Satan."

Dg4884's picture

FUCK THE CB's.  Time for a global enima.

withglee's picture

The central bank war on savers is rooted in a monumental case of the Big Lie. Here is what a retired worker who managed to save $5,000 per year over a 40 year’s lifetime of toil and sweat in a steel factory now earns in daily interest on a bank CD.

With a properly managed MOE process, his interest expectation would have been zero ... but so would his inflation expectation. You can't have one without the other.

malek's picture

You stated yourself that your proposed MOE cannot fulfill the role of a store of value.

Why are you now blabbering your perpetual bullshit even in the context of savings.

withglee's picture

MALEK: You stated yourself that your proposed MOE cannot fulfill the role of a store of value.

WG: I stated the media in a properly managed MOE process is a "perfect store of value". I've stated it "never" loses or gains in value. Pretty hard for you to understand that Malek?

MALEK: Why are you now blabbering your perpetual bullshit even in the context of savings.

WG: Sure. It's obvious. If you have INFLATION reducing the value of something, you're going to be wanting INTEREST being paid to attempt to restore what is lost to INFLATION. If you have zero INFLATION, you don't have an expectation (or need) for INTEREST to be paid. It's a very simple concept MALEK.

What we know as INTEREST paid on your savings is a measure of someone's desire to take control of those savings and your willingness to let them.

What we know as INTEREST paid on our creation of money indicates our propensity to DEFAULT on the promise the money we create stands for.

They're different.

mary mary's picture

"If you have zero INFLATION, you don't have an expectation (or need) for INTEREST to be paid."

If I loan you 10 bushels of potatoes to get your family through the winter, I expect you to repay me 11 bushels of potatoes out of your next crop.  No inflation is required for you to grow the 11 bushels of potatoes.

withglee's picture

Did you miss this part of my comment?

(A) What we know as INTEREST paid on your savings is a measure of someone's desire to take control of those savings and your willingness to let them.

(B) What we know as INTEREST paid on our creation of money indicates our propensity to DEFAULT on the promise the money we create stands for.

They're different.

Your case with the potatoes is case (A), My case as a perfect store of value (i.e. zero INFLATION of money itself) is case (B).

If you can get 11 bushels of potatoes in a year for 10 bushels now, fine. That's a trade of potatoes for potatoes over time and space and doesn't use money at all. It is agreement between you and your trading partner and no one else.

If I put money that would buy your potatoes today under a rock, and there is zero inflation of your potatoes and zero inflation of the money under the rock, I can take that money out from under the rock and trade you for 10 bushels of potatoes in the future. If that money trades for 11 bushels, your bushels became less dear to you ... they inflated. My money didn't change ... zero inflation of my money is guaranteed.

Do you dispute that? Remember, I stipulated no inflation of the value of your potatoes and no inflation of my money under the rock.

mary mary's picture

In loaning the potatoes, I might charge more interest if:

a.  he has more desire to take control of my saved potatoes, and

b. I suspect he might default.

And if, instead of potatoes, I am lending him dollars, then I might charge more interest if:

a. he has more desire to take control of my saved dollars, and

b. I suspect he might default, and

c. the dollars he will return a year from now will be worth less, because of inflation.

So,

if there were no inflation, I would be charging him interest, and the amount of that interest would be a + b.

if there were inflation, I would be charging him interest, and the amount of that interest would be a + b + c.

withglee's picture

MM: In loaning the potatoes, I might charge more interest if:
a.  he has more desire to take control of my saved potatoes, and
b. I suspect he might default.

WG: Correct.

But if he buys the potatoes from you with money (i.e. does a money transaction), your part of the trade is over. He has the potatoes and you have the money.

If he created the money, his part it not over. He must do something to reclaim that money and return and destroy it as promised. That's not any concern of yours.

More likely, he already has the money (maybe from a wage), so he is just using it as another object in simple barter simultaneous exchange on-the-spot. That's how money enables simple barter exchange over time and space. You may use that money to buy potatoes from him later ... or you may use it for something else. Regardless, because of the process, the trading strength of the money itself never changes. It's supply and demand is perpetually in perfect balance.

If it's a straight trade of potatoes for the potatoes over time and space, that's a whole different ball game. It doesn't involve money at all. And it could go the other way. He could be taking potatoes off your hands that you don't need and will spoil, in exchange for potatoes later when you need them. In may get 11 in exchange for 10 to you later. That's better for you than having to dispense with 11 rotten potatoes. All those details are irrelevant to money.

MM: And if, instead of potatoes, I am lending him dollars, then I might charge more interest if:
a. he has more desire to take control of my saved dollars, and
b. I suspect he might default, and
c. the dollars he will return a year from now will be worth less, because of inflation.

WG: If you are lending him dollars, that's no different than the potato transaction. That's how money works. If you're not the creator (i.e. originator of the money), the money is just another object of exchange ... in fact, the most common and desired object of all trades.

MM: So,

if there were no inflation, I would be charging him interest, and the amount of that interest would be a + b.

if there were inflation, I would be charging him interest, and the amount of that interest would be a + b + c.

WG: Correct, if your trade with its interest load is enticing to him.

A guarantee of zero inflation of the money itself simplifies the trade by "c". That's a big deal. Further, since he can freely create the money himself (at zero interest if he's a responsible trade like you and me) that changes the demand side of your interest loaded trade. He can get "b" for nothing. He won't be trading with you under those terms. A deadbeat, who can't create money (i.e. has non-zero "b") because his defaults have earned himself a heavy interest load, would be your only prospect.

This idea of time value of money is so deeply ingrained it seems impossible to excise it. Yet it is easy to show how INFLATION can be guaranteed to be zero and how the process can allow zero INTEREST load to responsible traders. Those are the two "i"s in any time value of money expression ... and they're both zero.

I don't know why it is so difficult for people to grasp.

mary mary's picture

1.

This is what I do not grasp: "it is easy to show how INFLATION can be guaranteed to be zero".  CAN be?  Who could issue that guarantee?  What would motivate them to issue such a guaranty?  Who would benefit from such a guarantee?  How would those parties benefit?  What are we talking about?  Is this a policy you would like our leaders to consider?

Personally, zero inflation sounds good to me.  I think it would simplify life. 

2.

A loan is a type of trade.

If I loan my neighbor 10 potatoes with the expectation that he will return 11 potatoes later, that is a trade whose terms are contango.

If I loan my neighber 10 potatoes with the expectation that he will return 10 potatoes later, that is a trade whose terms are zero interest.

If I loan my neighbor 10 potatoes with the expectation that he will return 9 potatoes later, that is a trade whose terms are backwardation.

If the loans are of money, AND there is a third party, a central bank, which is creating more of that money, then that creation of money is inflation, and I think that anyone who loans for less than the rate of inflation rate is actually making a trade whose terms are backwardation, whether he realizes it or not.

Before there was a central bank generating inflation, I think most loans of money were made in contango.

With a central bank generating inflation, the question "how much inflation is there, actually" is important. I believe that, right now, the central bank is generating more inflation than the 2% rate typically reported by Congress.  But how much?  Several independent websites attempt to measure this.

3.

The "time value of money" is an important concept, and has been dealt with by governments from way back.  "A bird in the hand is worth two in the bush".  If given the choice of whether to have an important commodity or tool now, or have it later, there is always the chance that, whatever endeavors one is involved in, the lack of that commodity might mean the difference between success and failure.  War comes to mind.  In war, we bomb railroads and munitions factories so that our enemy's troops will acquire the commodities and tools produced and transported AFTER our next battle with them, rather than before.  When we say "time is money", one of the things we mean is that difference, between acquiring the commodities and tools AFTER the next battle, or before.

Just rambling, I guess.  Sounds like 1. is the point you are trying to hammer into our heads.