Education, starting a family (children and a house), building a career, retirement – these are the moments of life that almost everyone lives for. But nowadays these goals seem more and more difficult to achieve, and life is more and more difficult. In large part, it got here because of the many opportunities for government intervention in finance and economics that arose as a result of the removal of the gold standard.
Destruction Of The Economy And Suicide Of Civilization
The lack of a gold standard allows central banks to manipulate the interest rate themselves. They are always about growth (even illusory) and allowing politicians to spend more. Therefore, they take the easy way out – lower interest rates, inflate bubbles, allow credit and expansion, and generate a temporary increase in the cost of deep crises.
Let’s take a step back. What is the interest rate? Interest is a norm that shows whether people prefer to consume today or save their resources for the future. High interest rates on loans do not mean savings and vice versa. When the interest rate is deliberately suppressed, we are told that it makes sense to consume savings today. At the same time, banks know that the purchasing power of money will evaporate due to inflation, and manipulation of the key interest rate also means low interest rates on deposits .
In this situation, the logical behavior is: let me shop today to get more goods and services now, because in the future I can buy less with the same amount.
Central bankers, at the helm of the sinking “fiat money” ship, are now creating a serious new problem. Real savings means capital for the private sector. When there is no real savings (and today the only thing growing is nominal deposits), businesses have less money to grow their business. Thus, the manipulation of interest rates, which is “possible” due to the lack of a gold standard, endangers production and entrepreneurship .
Individuals have fewer resources to cope with difficult times such as crises, unemployment or unexpected expenses. Today, this phenomenon is observed throughout the developed world. A Bankrate survey from early 2021 found that 61% of Americans could not afford a $1,000 emergency expense.
On the other side of the Atlantic, the situation is notrosier. The European Consumer Spending Report shows that 40% of Europeans do not save money. The ECB’s 2020 Household Spending and Consumption Survey showed that 100 million Europeans could not afford to lose their income for two months.
The Invasion Of Consumer Debt
As noted above, in an environment of artificially suppressed lending rates, consumers have a strong incentive to take out more loans. And that’s exactly what I do.
On average, global consumer debt stands at 21-26% of GDP over the last 2 decades of the absence of the gold standard. But, from 1971 to today, it has doubled.
However, big data hides the full picture. In Switzerland, Australia, Denmark, Norway, the Netherlands and Canada, household debt is over 100% of GDP by the end of 2019. The top twenty countries in the ranking (where consumer debt to GDP is over 65%) also include Sweden, Hong Kong, the United States, the United Kingdom, New Zealand and South Korea. Not far behind are the other major European economies and China.
What do they all have in common? The active conduct of monetary and interest policy by central banks (of course, there are many differences in the groups considered). At the same time, in Romania and Bulgaria the values are much lower, respectively 14% and 23%.
The combination of huge debt and no savings is a ticking time bomb. This is the recipe behind most of the crises that have occurred in history .But instead of changing the policies that led to the crises, the banks have gone deeper and deeper into such actions over the past 13 years.