Capitalism is similar to a giant casino where capital, i.e. paper chips, are issued by the house, i.e. banks, as interest-generating loans. The longer the chips remain in play, the more debt is created which accrues to the house as profit.
Most of those in the casino, i.e. workers, producers and savers, must “invest” their savings with professional gamblers, e.g. investment banks, insurance companies, and pension funds, who arbitrage the odds at various tables and are given additional credit by the house in order to do so.
The professional gamblers offer a small return to the workers, producers and savers and pocket the difference between their winnings and the returns offered; and, as long as the velocity and amount of capital bet increases, the house is profitable and can pay what is owed to the professional gamblers who pay what they owe and keep the rest.
Problems happen when the velocity of capital slows and the aggregate amount bet diminishes. This explains the obsessive concern of the house bookkeepers (central bank economists) regarding the velocity of money and the overall money supply.
After 1900, the velocity of money steadily fell until 1913 when America officially became a casino to be managed by the Federal Reserve, i.e. the house. The house fix, however, was temporary and lasted only 5 years. Note what happened to the velocity of money after 1971 when the casino’s chips are no longer backed by gold.
When the historic 1920s US stock market bubble collapsed in 1929, the money supply contracted 25 % by 1933; and, as a consequence, the US made the private ownership of gold illegal that year.
The US confiscation of gold was enforced by the casino to prevent Americans from taking their paper chips off the table to instead buy gold; as gold buying diminishes the overall money supply, i.e. the amount of paper chips in play, and the velocity of capital, i.e. the volume of paper money being bet with the house.
That the US could again confiscate gold is a possibility as America is still operated by the same managers, the Federal Reserve. However, there are differences between the 1930s and today and I discussed this possibility previously on a youtube video, see http://www.youtube.com/user/SchoonWorks#p/u/9/5o36Dj-ukPo.
If the US does outlaw the private ownership of gold, it will erode the ability of Americans to recover after the collapse. The US government, however, is primarily concerned with the ability of the Fed to loan the government money, not the well-being of its citizens. This should be obvious to most Americans. Unfortunately, it isn’t.
Capitalism is similar to a Ponzi-scheme where earnings and winnings must be constantly re-cycled, i.e. “re-invested”, in order to keep the scheme going. This is why the US is so upset with Asian nations with high savings rates-earnings in Asia are not being recycled as quickly as the West requires.
To Asians, savings are a sign of healthy economies and balanced living. To US and Western bankers, high Asian saving rates constitute a “savings glut”, causing the velocity of money and amount bet in the West to slow and threaten its global Ponzi-scheme
This is why China, Japan, Korea, and Middle-Eastern oil-producing nations are pressured to recycle their savings back to the US and/or other Western economies. By so doing, they become captive to the West as their increasingly indebted economies become dependent on the West’s paper driven demand.
In Asia, however, savings are still considered a virtue, not an under-leveraged asset as in the US and Europe. Gold, too, is held in high regard in Asia. Recently, Chinese households have more than doubled the percentage of their savings invested in gold.
The Chinese are investing in gold because in the 1940s the value of Chinese paper money plummeted 1,000-fold in a hyperinflationary collapse and they remember. Europe, too, suffered extreme monetary distress during the early 20th century, and the Europeans likewise understand that gold is the money of last resort; and, after global markets imploded in 2008, it is understandable why the European demand for gold quadrupled.
In America, however, the house is committed to keeping America’s savings invested in paper assets and paper promises, i.e. bonds, in order to keep its Ponzi-scheme alive. How long the house, i.e. the Fed, can do so is now the world’s quadrillion dollar question.
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