Self liquidating loan asp id
For a fractional-reserve-banking system to stay solvent, the money supply needs to be continually increased by at least the weighted-average interest rate.This means that money supply needs to grow exponentially.In short, the problems that caused the Great Recession have been compounded. How can anyone logically assert that we are in the beginning of a recovery?Declining output is not the answer to keep a system with a debt-to-GDP ratio nearing 400 percent (800 percent if you include Social Security and Medicare obligations) solvent.There may be blips here and there, but they are more likely to be the result of capital consumption than of any sustainable increase in output.Meanwhile, for reasons detailed below, the money supply will constantly increase.
On the surface, consumers are finally getting religion, curbing their spending habits and paying down debt.Consider a system with 0 in loans due in a year at a 10 percent interest rate.The total amount of money in the system is only 0 but the amount due at the end of the year is 0. It has to be lent into existence at some point prior to when the 0 is due."It goes without saying that deflation would have been very painful for any debtor.To combat this deflation, the Fed will keeping printing money and adding reserves by buying all kinds of assets.
This will continue until general prices violently overshoot on the other side, causing runaway price inflation.However, underneath that surface, the real pool of savings is continually being channeled away from wealth creators to malinvestments such as housing, autos, and banking.