Why Private Banks MIGHT Keep their RETAIL lending rates low while the Central Banks Raise Their Interest Rates – April 5, 2023,
The central banks, as many know, are FRAUDULENT scams that exist primarily for the benefit of politicians and the overall Public Sector. Whenever I read or listen to people who talk about a GOVERNMENT gold standard, I’m curious to know if these individuals comprehend how damaging PRICE CONTROLS are to the overall economy.
Legal tender is merely politicized money, whose value is derived primarily by CONFIDENCE; the underrated aspect of fiat money is the foreign exchange markets(Forex markets); the FOREX markets determine what most people in your country can afford IMPORT to improve their standard of living. If, as an example, you live in a country ripe with socialism, chances are the people will vote to DESTROY their currency.
Argentina as an example, is known for its CONSTANT hyperinflation problems, most people do not understand why Argentina has hyperinflation problems, but if you realize that inflation comes primarily via PRICE CONTROLS, that’s when Argentina and overall Latin American economies start to make a whole lot of sense.
In most Latin countries, and this thinking comes from Europe, by the way, socialism is the ONLY path forward; in the mind of a socialist, it’s how do we get the right form of socialism to enrich the nation, but you see, the problem with socialism, or communism is the DEMOCRATIC aspect. When people can vote to redistribute income, their voting process does not and can not include DELAYED gratification.
In Communist China, there is no democratic process as it relates to their federal government; in China, their government, although labeled as Communist, actually behaves more like a Fascist regime. Fascism economically, unlike communism, doesn’t control the means of production; instead, the government allows certain parts of the economy to have free market capitalistic elements, while, their Federal Government has the ability to confiscate private property whenever it feels like it.
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So in China, it’s to the benefit of their federal government to delay gratification, even allowing private companies to flourish in China, while the Chinese Communist Party inevitably steals from or nationalizes a business to its benefit. You might ask why any private business would do business in China when China might steal their business. The answer is simple, once you understand that the Democratic process in most Western Nations is very similar, and quite frankly, life is short.
If I own a business in the United States and the VOTERS, have been told my company is making too much and should pay its fair share, and I’m made to look like an evil capitalist, exploiting the poor, and VOTERS can use the political process to not only create labor unions to extort my business, but they can also write legislation that adds more regulations and paperwork to the operations of my business, that’s when a business person will weigh the pros and cons of doing business in a “Free” supposedly capitalist nation versus a “Communist” nation that will at least allow me the liberty to enrich myself for a few years before the Chinese Communist Party confiscates my property or steals my business ideas.
Why this matters when I write about private banks vs. central banks is that the central banks exist for the benefit of the politicians, whereas the private banks are for-profit banks that KNOW when the economy is in recession. The mistake Latin American countries make constantly is OVER politicizing their central banks, lowering rates when interest rates HAVE to go up.
The cost to borrow money is a VERY important function; if you look up the history of interest rates in a country like Zimbabwe or Argentina, you will notice the wild and ludicrous swings in their deposit interest rates, as their governments mistakenly assume that the world will finance their welfare state without their country offering equal value to the world.
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The problem with the welfare state and fiat money is that if the government has an initiative that creates a PERMANENT hindrance to the private sector, most private business will cut their losses and either leave the country and/or declare bankruptcy. If you’re unaware that government doesn’t make or manufacture anything, furthermore most government people, politicians, and public servants are typically HORRIBLE at doing business.
But whenever a democratically elected President or Prime minister promises voters that they will take from the rich and give to the “poor,” what the politician is telling the business community is that they’re partners with the government now(Fascism), and if the business owner doesn’t do what the democratically elected government says, said business will be SHUT DOWN or nationalized.
When it comes to private banks in a fiat monetary system, the fractional reserve banking component, allows a bank to lend a lot more money than it has on deposit. So if I put $10 into a bank account, the bank, via the fractional reserve banking concept, can lend out $100,000. Now when the bank lends this money out, it’s reliant on debt repayments, and this is why in more developed nations, most “experts” have a hard time comprehending private bank behavior.
Private banks have learned to generate income in more ways than simply lending money, and what this means is that if the Central banks raise interest rates, which make the private banks on paper insolvent, the private banks might decide to lower minimum payments and their interest rates to assure that their borrower has now excuse not to keep making monthly payments.
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Now, this becomes more complicated for retail banks if, let’s say, their borrower purchased a mansion and said mansion will now only sell for a fraction of the purchase price, well in this scenario, the private bank is screwed because maybe the mortgage is $25,000 per month and the owner of the mansion only put a small fraction down on the home, and in this instance, the private bank doesn’t want to confiscate the home, for a fraction of the purchase price, so it’s these instances in which the private bank, will do nothing when the owner of the mansion decides NOT to make mortgage payments.
This can also apply to commercial properties; this is how financial problems are created and crashes occur; in essence, what’s happening is that the private banks are buying time. Private Banks are also heavily regulated so once they fall below the regulatory threshold, the private bank could be NATIONALIZED by the government, and you should know this nationalization occurs in so-called capitalistic countries like the United States.
Most people= did not realize that what Barack Obama did when the economy crashed under his watch was something you’d expect from a communist nation. Barack Obama, in case people forget, BAILED OUT the banks and Wall Street, and then the Federal Reserve dropped interest rates to near zero and kept interest rates at zero for decades.
Now, a persona should ask, well, didn’t this cause damage to the economy, and the answer is 100% yes, because interest rates remained at zero for decades, a thing called BITCOIN and cryptocurrency flourished, why? Because the cost to borrow was effectively ZERO, and therefore a lot of very bad ideas became good ideas.
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Any example of a bad idea becoming a good idea is this POLITICAL climate change agenda, which could never be financed if interest rates were normalized. The political climate change agenda is so bad that most third-world nations are now at record levels of poverty, and this political climate change agenda only happened in the last five years.
Malinvestment is the result of the government deciding the cost of borrowing capital, and this is something most people have a hard time comprehending. Certain government regulations exist because the government has control over the money supply because if lets say, the world was on a Gold Standard, a bad government policy in DEVELOPED nations with reserve currency statuses would be felt IMMEDIATELY because the government would have to find the money from WILLING, PRODUCTIVE and industrious investors.
n the modern era of fiat money, when the government wants to enact a Carbon tax as an example, the government borrows the money at the lowest possible interest rates, sets the rules and regulations, and tells the market to go and make it happen when the market can’t profit without raising prices because their costs have gone up via regulations, the government merely makes a claim to voters that private businesses are greedy, and so the government will often create additional rules and regulations on private businesses for price gouging.
For countries that don’t have the benefit of world reserve currency status, meaning that no country, entity, or individual wants to hoard your currency outside your country’s borders, they operate basically under a gold standard. For example, although Singapore is a well-run country(economically), most people do not transact in Singapore dollars outside of Singapore.
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So what Singapore does is they make their country FRIENDLY to foreign investment. Their system is attractive to foreign investment, and if you look at Singaporean interest rates, they mirror most developed nations. The key difference between Singapore’s fiat currency and, say, the U.S. dollar is that Singapore managed to keep its currency strong WITHOUT having currency reserve status; this also makes IMPORTING to Singapore cheaper for its citizens.
I’m definitely not calling Singapore a perfect country, but economically, clearly, its leaders comprehend how a market economy works. Currency reserve status allows all sorts of malinvestments to be normalized in any society granted that privilege.
In closing, if the private banks deviate from the central banks and keep their rates as low as possibly while the central bank raises its rates, that’s a recession indicator, and it’s a sign the economy is DELFATING!
Interesting times ahead!