While it's clear to most people that money kept in a bank will loose purchasing power over time, the exact mechanisms for this is not all that well understood, nor is it clear that there are other ways in which we are being robbed of our savings.
But the scheme devised to impoverish the vast majority of us to the benefit of a small elite is not all that complex, nor is it a big secret. A clever component of the scheme is that it's relayed to people as if it is in the general interest of everybody to keep it. There's no lack of people willing to spend hours of their time defending this scheme. Anyone suggesting the abolishment of central banking or a return to a gold standard is sure to get a storm of objections from just about anyone with an academic degree in economics.
The scheme that they defend is that of a flexible money supply, as opposed to something anchored in a limited resource such as gold. This, they claim, is important for price stability and the smooth operation of financial markets. However, what it really means is that there will be monetary inflation, and that there will be price inflation as a consequence. Asset prices go up faster than they otherwise would.
But any price gain at or below the increase in money supply is not a gain. It's a loss. If an asset goes up 5%, but money supply goes up 10%, that asset is down in relative terms. However, there's a 5% nominal gain to the asset owner, and hence a fictitious profit that the state can tax as capital gains. Monetary inflation allows the state in this way to confiscate savings from savers. There's either a loss directly from monetary inflation, or a loss through taxes on gains that appear larger than they are.
The way to win in this system is to buy assets, not with savings, but with money borrowed cheaply in a bank. If bank interest is at 2%, anyone with a nominal gain above 2% will make a profit, even if the gain is below monetary inflation, of say 10%. A 5% return will in this case yield a 3% gain on the borrowed money. If the entire purchase was done with borrowed money alone, this 3% is free money, created out of nothing. What is a loss to the prudent saver becomes in this way a gain to the speculative investor. The investor pays capital gains tax on a real 3% profit while the prudent saver pays capital gains tax on a fictitious 5% gain.
Most people don't fully understand the difference between borrowed and saved money, and the unfair outcomes of the current system are therefore difficult to see. The error in thinking lies in an assumption that money is inflexible, and that the gains had by the speculator come entirely as a result of a willingness to take on risk through bank borrowing. The system looks fair because we forget that money is in fact made cheap to some and expensive to others through monetary inflation. Those in the privileged position of easy access to cheap credit are given an advantage to everyone else.
Central banks help the privileged at the expense of the common saver, and the state takes advantage of this by further impoverishing savers through capital gains taxes and taxes levied on assets held by savers. As a result, there is today a tiny class of super-rich individuals who own almost everything in the world, and a middle class that's but a shadow of its former self.
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| Seal of the United States Federal Reserve System |
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