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| John - These are really high quality posts!!!
I can remember a dialogue we had a year or two ago when I suggested that to you that if the banks would start lending again (post 2008), that perhaps the Fed's quantitative easing could be stopped and perhaps even reversed. Think I pointed out to you some macro National or Iowa banking loan to deposit ratio's that showed how the normal monetary creation system was broken and why the Fed was stepping in shore up that deficiency with quantitative easing in hopes of getting us thru the contraction in money supply.
Well, it seems like you took the dialogue and just continued to dig and dig, expand knowledge and expand it further to the point where I can actually learn from you. For all these things, you get a big tip from my hat from me. +1.
I do have a question/comment on your interest drag observation that I admittedly do not know the answer to with certainty. I understand what you, and quite frankly, others have insisted upon in that there is a structural flaw in that there is not enough money to cover the debt b/c of the interest expense on debt that is created. Makes sense on the surface. However, when on considers that the interest paid on debt to the banks is what primarily helps the banks to grow their capital base, which, in turn, allows them to create more loans and hence more money via the fractional lending system we have, I have some reservations in wholeheartedly agreeing with that concept. In your readings have you seen this issue addressed?
The government deficits are a definite structural deficiency IMO. If the banking system is working in the manner it is supposed (very questionable), it should be continuing cleaning up excesses in the economy and rewarding the ones who are creating real wealth with more credit. However, the government deficits do just the opposite. Since the only real barrier to greater deficits is "confidence" and the general public has no real concept of what is sound and what it not, the "confidence" issue can obviously be leverage to a great extent. Unfortunately, that spending is not done with efficiency in mind, but rather with rewarding excesses with even greater excesses. To me, that is the greater of the two drags you refer to. Hard to quantify, but easy to understand when one steps back and looks at from a big picture standpoint.
Perhaps you have no more answers to these observations than I do. I do thank you for your research. Again, I do learn from you and that is one of the biggest compliments I can give.
Finally, there is obviously a reason for holding the fine metals. I think that pointing out these structural deficiencies is a good conversation to have, b/c they point to a need to hedge our inherently flawed economic system that we depend upon. That is why I am invested in many different areas of the economy, but I do keep a significant amount of wealth in the form of physical gold/silver that I keep physical control over. Simply put, one needs to participate in the current economy to survive, however, to be totally dependent upon a system with so many inherent flaws in unwise IMO.
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Loans make deposits II
