War on Savings: Modern Monetary Management in Crisis

War on savings: modern

monetary management in crisis

Sarel Johannes Oberholster

CCPT (PTY) Ltd, Johannesburg, South Africa

Abstract

Purpose - The purpose of this paper is to examine modern monetary policy as practiced and

promoted by the officials of Central Banks, with the Federal Reserve Bank of the USA and the Bank of

Japan in leading roles.

Design/methodology/approach - Modern monetary policy is assessed for its rhetoric and its

philosophies steeped in Keynesian traditions. The fallacies of relying on patently incorrect economic

theory with specific critique on the assumption that saving is equal to investment (S ¼ I) is exposed in

the policy failures of themes such as quantitative easing, approaching the zero bound, wealth effects,

the liquidity trap, forbearance lending and an unwavering belief in the power to inflate. An alternative

credit theory is presented and discussed to explain the accumulation of monetary interventions in the

modern banking environment. The credit theory is further expanded to evaluate an economy in

distress as a result of an accumulation of monetary stimulations against a background of the

philosophies of the Austrian school of economics.

Findings - Three decisive monetary policy outcomes are identified and substantiated in the Austrian

philosophy of laissez faire; the probable outcome of modern monetary policies in deflationary stasis; and

the destructive outcome of extreme monetary and fiscal interventions resulting in a hyperinflationary

depression and destruction of the money unit.

Originality/value - The conceptual framework and content of the paper are mostly original and will

contribute to the study of political and monetary economics.

Keywords Monetary policy, Central banks, Keynesian economics, Fiscal policy, Fiscal measures

Paper type Conceptual paper

The great inflations of our age are not acts of God. They are man-made or, to say it bluntly,

government-made. They are the offshoots of doctrines that ascribe to governments the magic

power of creating wealth out of nothing and of making people happy by raising the "national

income (foreword by Murray N. Rothbard to The Theory of Money and Credit - Mises,

Ludwig von (1881-1973)).

1. Introduction

The war upon savings is an ancient one. Even the alchemic desire of turning lead to

gold was part of this war. Saving is a sacrifice. Savings can be stolen, plundered, but

most of all, used to protect against an uncertain future. Savings and the vassals of

savings have been lusted after since the production of the very first economic surplus.

The inventions of deceit to dispossess savings have no match in any other human

endeavour. Wars have been fought with it and over it. Everybody wanted some but not

all were prepared to gather it the hard way.

Japan was the focus of my research when I set out on this journey of discovery.

The Japanese economic miracle turning into a long-term disaster of systemic failure

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/1358-1988.htm

Monetary

management

in crisis

201

Journal of Financial Regulation and

Compliance

Vol. 18 No. 3, 2010

pp. 201-223

q Emerald Group Publishing Limited

1358-1988

DOI 10.1108/13581981011060790

needed to be understood. The reason for the research became more compelling with the

advent of the global financial crisis in 2007.

The Austrian School of economic thought was going to be important for my

research but a rigorous drive into economic theorising took me to the heart of Austrian

economics. My research shows that economic management in the invisible hands of the

market is in much better hands than the hands of monetary interventionists. The

destructive nature of monetary interventionism will be placed on display.

1.1 The truth of finite income

The economy exists to satisfy the needs of the individual. Yet individuals have a finite

life span and as such a finite income over that life span. This will hold true even when

individuals are assessed as a collective. Individuals consuming in excess of their finite

income from production are deficit producing while individuals who consumes less

than their finite income from production are surplus producing.

Debt as the discounting of future income for consumption in the present is a servant

to the finity of an individual's income. In plain language, debt discounted should not be

greater than the finite income from production of the individual.

Modern monetary policies