Real Savings vs. Counterfeit Savings
RESULTS OF COUNTERFEITING
In a previous post titled, Financial Markets Move When The Puppet Master Speaks, we talked about some of the consequences the Fed creates, when it electronically counterfeits money and injects it into the economy. Some of these are 1) the misallocation of scarce resources into activities that can’t be sustained when the counterfeit money injections are halted, and 2) people’s real production is being redistributed to the first receivers of the counterfeit money (which is known in my world as theft). What’s the difference when real savings enter the market as opposed to counterfeit savings? Lets see what happens, but first let’s talk about money.
WHAT IS MONEY?
The first thing we have to understand is what money is, and what money’s purpose is in the economy. These are easier to understand if we understand how money came to exist in the first place. Money evolved out of exchange in the barter system. Money existed long before Governments existed, Governments didn’t come up with the idea of money, nobody came up with the idea of money, it came to exist spontaneously through the barter process. People were using a form of money before they even knew what money was. Through observation, people began to notice certain commodities being accepted in an exchange, not for their use value, but for their value to facilitate a future exchange. Once a commodity became widely accepted because of its higher value in exchange, instead of use, it became the money commodity. Put differently the concept of money was already in use before it was observed [discovered] as a discernible pattern in the exchange process.
WHAT ROLE DOES MONEY PLAY IN EXCHANGE?
Money is used to calculate the exchange ratios between goods and services. When you receive money for your work, you are receiving a percentage of the value you’ve produced. If you work at a Boeing plant, your weekly pay represents a portion of the plane your labor helped produce that week. When you deposit your paycheck in the bank you are really depositing a portion of the plane you helped produce. When you save money it represents something that really exists.
Let’s not confuse money with wealth. Wealth is the actual goods and services all of us produce. Money isn’t these goods and services, money is what we use to exchange these goods and services, it is what we use to calculate the value ratio’s between these goods and services. Because of these exchange ratios, we have the ability to exchange a part of the plane we helped produce for a book, and this exchange could have never happened if the concept of money had not evolved spontaneously through exchange in the barter system. Money makes the exchange process more efficient which means less costly.
We would never have to worry about economics if we lived in a world of abundance. Unfortunately we live in a world of scarcity, where resources have alternative uses to go along with their scarcity. Because of scarcity real savings are at the heart of economic growth. When you save you are putting off present consumption for consumption at some point in the future. When real savings are used to create capital goods for future production, these dollars are not being used to purchase consumption goods in the present. The fact that these dollars are being used on the production side of the economy, and not on the consumption side, helps coordinates production and consumption, bringing it in line with the desires of all individuals as expressed by their saving or spending. When the Feds counterfeit money is injected into the economy, it starts a bidding war with people’s real money for these scarce resources. The ability of the market to coordinate production and consumption becomes distorted because of the false signals sent by the counterfeit money. Resources are not being allocated to their most productive uses and people’s real production is redistributed to the people who get the counterfeit money first.
When real savings are invested, it represents an exchange of a present something for a future something. When electronically counterfeited money is used for an investment, it is an exchange of a present nothing, for a present or future something. The tech and housing bubbles are the result of the Feds counterfeiting money, and the present financial bubble is bigger than both of them combined.
Related Article – Does The Supply Of Money Have To Increase To Accommodate Increasing Production?, at austrianaddict.com.
Related Article – A Tornado vs. The Fed, Which Is More Destructive?, at austrianaddict.com.
Related Article – “The Carrot’s In Reach:” The Myth Of A Self-Sustaining Recovery, by Charles Hugh Smith, at austiranaddict.com.