Thursday, 10 March 2016

The Reserve Bank’s war on capital


So the Reserve Bank just lowered interest rates to a record low – making the price of debt cheaper than ever before, opening a new front on the war on savers ( a war that all but demands those living off their income look for riskier and risker places from which to yield it) – and giving the lie to all those bullshit stories spouted about this being a “rockstar” economy.

The Reserve Bank’s move is predicated wholly and solely on the notion that if the price of debt is lowered, then more will be borrowed, more will be spent, and the economy will therefore produce stable inflationary growth.  This is the basic notion every time the Reserve Bank lowers interest rates. This is what they and all the learned commentators commenting on the rate drop hope will happen.

They ignore entirely the deflationary instability produced by the very malinvestment all that newly-created counterfeit capital creates.

They ignore in toto the asset bubbles created by this new debt at the very same time as the prices of commodities produced by all those gobs of previous debt are collapsing.

Save Seed Corn Now!They ignore completely that over the last several years (since the central bankers last crashed the world’s economies) every 18 dollars of their newly-created debt created just one dollar of GDP. Eighteen dollars to produce just one! You wouldn’t take those odds out at the track – unless perhaps you were a central banker or one of their ‘learned’ commentators.

It is, quite frankly, a fucking stupid and flatly destructive notion – that new debt creates stable inflationary growth – but the poor lambs really do have no other. (If they did, then talk of Negative Interest Rates to “jump-start” something would not even be on the table.) But since every one of those bankers and the commentators that brown-nose them still worships at the altar of John Maynard Keynes and his cultish notion that all growth comes from new debt, that fucking stupid notion and the war on saving and destruction of real capital it engenders will continue to blow up new bubbles, consume our seed corn and just generally eat out our substance.

This war on saving and on the real capital it represents – on the pool of real savings that actually does fund all production – has an endpoint. As George Reisman explains, it is the picture of America’s decaying rust belt.

The Keynesians' preoccupation with the utterly fictitious problem of saving as a cause of poverty bears major responsibility for the very real problem of growing poverty as the result of a lack of saving. Based on their hostile economic analysis of saving, the Keynesians have brought about the enactment of correspondingly hostile government economic policies towards saving. The result has been economic stagnation and decline, whose nature and significance are captured in the words: the rust belt. Over a span of approximately two generations [now three], the intellectual rot of Keynesianism has helped to bring about the physical rot of the industrial heartland of the United States.

That intellectual rot is all pervasive.

We heard it this morning oozing out of the Reserve Bank, and from the industry flunkies who religiously follow their utterances.


  • “Well, load up on drugs and bring your friends, because New Zealand is being talked up as the “rock star” economy for 2014. Hee haw!
        “But there are problems here—the first problem being in the way these alleged economists measure growth.”
    We’re rock stars! – NOT PC, 2014
  • “The price of all commodities are at historical lows, not just these, and the reason for all is the same: the creation in the last seven years of counterfeit capital at record rates. This is what “stimulus season” finally wrought: an avalanche of malinvestment creating a mountain of over-supply.”
    Dairy, oil, iron, rubber, steel, malinvestment – NOT PC
  • “As you’ve probably noticed, we are in an asset bubble and have been for some time. With interest rates on the floor and investors desperate for yield, folk have been able to make risk-free profits using banks’ almost free money to buy bonds and shares and houses and flats…and sit back and marvel at their brilliance as their prices go up.
        “But there is a problem: we haven’t been growing capital, we’ve been consuming it.
        “We’ve been eating our seed corn. And we think it’s been making us rich.”
    Housing bubble is consuming our capital – NOT PC, 2015
  • “But  first, let’s understand in very simple terms what does causes economic progress. The seed corn of economic growth is capital—capital put to work producing economic wealth, and still more capital.  It’s an ongoing virtuous cycle dependent on one thing: that you keep growing your seed corn instead of consuming it.
        “’“Capital is accumulated on a foundation of saving. Saving is the act of abstaining from consuming funds that have been earned in the sale of goods or services.
        “’Saving does not mean not spending. It does not mean hoarding. It means not spending for purposes of consumption. Abstaining from spending for consumption makes possible equivalent spending for production. Whoever saves is in a position to that extent to buy capital goods and pay wages to workers, to lend funds for the purchase of expensive consumers' goods, or to lend funds to others who will use them for any of these purposes.’”
        “As I quoted John Stuart Mill here the other day saying, ‘What a country wants to make it richer, is never consumption, but production.’”
    “Tax cuts don’t cause growth”? – NOT PC, 2010
  • “Here's a curly one for you: What's the difference between capital expansion and credit expansion?  It's important.  The answer could well affect your future for some years to come. Give up?  Here's George Reisman with the answer…”
    Counterfeit capital – NOT PC, 2008

1 comment:

  1. Savings as a cause of poverty is Keynesian nonsense.Those that are up to their ears in debt are the ones that are poor. Ask the heavily indebted dairy farmers that could go be facing bankruptcy.Being freehold and having savings is a good place to be, especially if your income from the farming world as mine does.


1. Comments are welcome and encouraged.
2. Comments are moderated. Gibberish, spam & off-topic grandstanding will be removed. Tu quoque will be moderated. Links to bogus news sites (and worse) will be deleted.
3. Read the post before you comment. Challenge facts, but don't simply ignore them.
4. Use a name. If it's important enough to say it, it's important enough to put a name to it.
5. Above all: Act with honour. Say what you mean, and mean what you say.