The Federal Reserve is trying a range of new tricks to push new forms of lending as a means of preventing what they fear may otherwise be a major collapse in financial markets. What all these strategies have in common is an unwillingness to come to terms with the reality that the crisis is based on real factors and can’t be merely papered over without grave consequence to economic health.
The engine of economic growth is not money, however, but real savings. If the pool of real saving is declining or stagnating, then the economy — also in terms of GDP — will follow suit, irrespective of what the Fed is doing. FULL ARTICLE
{ 11 comments }
Fantastic article Frank!!!
Thank You
Right on the money!
Let’s hope this dialogue makes it into mainstream consciousness.
This financial dismantlement of the West is for a certain purpose, as I explain in here:
http://planneddestructionofamerica.blogspot.com/
Read this, and learn that Bush & Company has PURPOSELY caused the sub-prime debacle ((Lew Rockwell and other Mises advocates are BLIND, and refuse to report the truth of it:
http://www.321gold.com/editorials/engdahl/engdahl031808.html
Frank Shostak is right on the money as is usual for him.
However he is being kind to the Federal Reserve which was created for the benefit of the banks and politicians in Washington. This institution in its functions is morally corrupt in that the gainers of this system are thieving from the public because of the fractional reserves under which loans can be made.
The profits made are from the blood and sweat of the public of which constitutes Interest on loans which are created out of thin air for the most part.
Whether they (the fed and politicians) will get away with it again as they have in the past remains to be seen, however it becomes more and more difficult as time passes.
Thanks for the insightful comment. I like your view that seeks to balance the what if arguments between real savings, which are objective, and the past effects of malinvestment, which are diffcult to assess, on the current scene. A potential outcome from the effect of the “real engine” action of individuals’ savings–the “real” economy–which is the thing that will always push the economy forward into growth, and the current malaise, which is the outworking of stated malinvestments, as you have weighed it, is that current real savings are not adequate and will not be able able to ourweigh further damage imposed by the Fed. Who knows the outcome? If inadequate savings rule then real capital investment decreases and the onset effects of this and the malinvestments dominate.
I also enjoyed your careful analaysis that separated the effect of the Fed’s policies from what is occurring in the real economy. Too often the statists claim the honour for results that are not of their making.
Thank you for another Misesian informative article.
Real personal savings seems to be a major issue in many financial consideration of the US market.They have been minimal or zero for somtime, I was wondering why the various plans extant, IRA, Roth, 401k…etc. in sum do not constitute a legitimate form of savings. I would appreciate your input.
Thank you for another Misesian informative article.
Real personal savings seems to be a major issue in many financial considerations of the US market.They have been minimal or zero for somtime, I was wondering why the various plans extant, IRA, Roth, 401k…etc. in sum do not constitute a legitimate form of savings. I would appreciate your input.
Thank you for another Misesian informative article.
Real savings seems to be a major issue in many financial considerations of the US market. It has been at or below zero for some time. Many analysts have extensivley criticized the US consumer for this condition. I was wondering why the various plans extant, IRA, Roth, 401k…etc. in sum do not constitute a legitimate form of savings. I would appreciate your input. TIA
Tony brings up an excellent point I’ve wondered about for a while.
What is the difference between “real savings” and investment? We keep hearing about the falling savings rate, but we also hear about rising participation in capital markets through mutual funds. How are these investments not considered savings? Or are they? I’d love to hear an informed commentator on this question.
Excellent article. The best in the media so far on the bubble. Clear and precise. A pleasure to read some real economics for a change!
I don’t think of myself as an ‘Austrian’ so this is high praise.
As for the previous comments, Savings and Investment equal each other only in equilibrium. When domestic savings are negative due to massive budget deficits (as at present), foreign savings have to flow in to maintain high investment levels. The result of high capital inflows from abroad is that we must experience a large trade deficit to balance it out. The dollar drops in value as a result.
Another lesson in economics, but what for a lesson , a good one :
interest rates, wealth-generating activities versus “bubble
activities”, consumers’priority list, money, real savings, investment
banks, loose monetary policy, “monetary pumping”, all what Mises called
“malinvestment”, and so on…We must realize that we are reading a paper
written by you, Sir; we would feel as well reading a chapter of “Human
Action” or another one of Mises’lessons in economics…
Many thanks for all these enlightening articles in economics, which are
as much lessons, or practicle exercices who allow us to understand all
these difficult, but nevertheless thrilling issues.
Comments on this entry are closed.