Abandonment of the Gold Standard has turned some of the weathiest world powers into welfare states. Notable among these are Great Britain and the United States. While it is true that dumping their precious metals-backed currency systems had immediate effect on both countries, it seems that this shift is only now truly coming home to roost.
The century that has passed since the Bullion Committee of the British Parliament recommended a return to the Gold Standard, has seen even lower interest rates than those that initially spurred the recommendation. Real return on banked capital is now yielding less than one percent, a rate much lower than the almost five percent earned between 1811 and 1911. Even the rates paid during the mid 1970s, when double-digit inflation was rampant, pale in comparison to the money being lost by the frugal savers of today. At least the central banking system addressed the issue then, by setting its nominal rate at a base of eleven percent.
Today’s holders of cash reserves, who retain money in failing financial institutions, have effectively been morphed into unsecured creditors of increasingly insolvent lenders. Paying to bank their money has become the new reality for millions of pensioners and potential retirees, who are unable to make their savings profitable in their golden years.
The toils of the investor now serve no function in the marketplace, other than to keep the poorly oiled gears of fiscal policy turning. Unlike precious metals, whose scarcity has reason, there is no explanation for scarcity of capital. The fact that interest can no longer be collected on it would indicate that there is an ample supply of cash reserves. The only thing that is missing is the solvency to liquidate these assets.
