Capitalism Crosses The Rubicon – The Second American Revolution
By: Darryl Robert Schoon
GoldSeek.com
Tuesday, 19 May 2015
In capitalist economies, capital, i.e. ‘money’, is created by central banks in the form of credit; and the cost of that credit—central bank interest rates—determines the rate of economic growth. In the end game, however, this is not so.
In the end game, credit’s expansive and inflationary incentives are offset by the collapse of massive speculative bubbles resulting in dangerously low levels of economic activity and a commensurate plunge in the velocity of money.
When this happens, central banks cut interest rates hoping that cheaper credit will revive growth. But, in the end game, attempting to revive growth by lowering the cost of credit is like pushing on a string; a phrase used in 1935 when Fed Governor Marriner Eccles was asked about Fed attempts to revive the US economy.
[Fed] Governor Eccles: Under present circumstances there is very little, if any, that can be done.
Congressman Goldsborough: You mean you cannot push on a string.
[Fed] Governor Eccles: That is a very good way to put it, one cannot push on a string. We are in the depths of a depression and… beyond creating an easy money situation through reduction of discount rates, there is very little, if anything, that the reserve organization can do to bring about recovery.
In the 1920s, excessive monetary creation by the Fed fueled an historic stock market bubble. The greed and speculation ended on October 29, 1929 when the bubble burst, stocks plummeted, banks closed, savings were lost and unemployment soared—plunging the US into the Great Depression of the 1930s.
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