This is not how I explained it.
“wealth is never destroyed, it is merely transferred” is all I
wrote, the rest I have no idea where you got it from.
Now if it was part of your explanation then it needs to be clarified
wealth is never destroyed, it is merely transferred.
I’ll answer this anyway.
The money was never there in the first place and in this instance,
debt will be transferred to our children and grandchildren...It is
their money that has been spent! The economic bomb has dropped, but
it hasn't exploded yet! In order to get out of this one, capitalism
as we currently know it will have to change. They (banks and
governments) can't just keep printing money or lending what does
not exist! There is no 'gold standard' anymore. Laws regarding
what banks are allowed to lend were changed about 10 years ago and
I believe that that is when it all got out of hand.. Having said
this, there will always be wealthy people and Cartier is aiming
The real issue is that capitalism worked very well for some, but not
for others especially those who thought they had available capital,
when they really didn’t. In housing, there was a perceived value
driven by greed and not on reality. People thought they where rich
when prices became inflated, when in fact you can only relize that
gain or profit in a simplified form, when you actually sell the house
and physically take possesion of your cash, check, gold or silver and
hand over the keys. When you sold a property and had a 100k equity
and you spent it, there was no debt. You enjoyed the splurge free and
clear. However, people took out a 100k line of credit against their
percieved equity, spent it and now technically still owe that money.
Money they didn’t have to begin with as you mentioned above,
they spent a 100k and still owe a 100k, geeeeez what a surprise that
the kids and grand kids have to bail out a bunch of dumb asses. The
individuals who spent the money carelessly, are as much to blame as
the banks are for giving it to them. Your right, the deregulation of
the lending criterias thanks to Fanny and Freddie Mac and even Acorn
to a degree caused sub prime loans to become a major instigator in
allowing credit to individuals that where not credit worthy to begin
with. Having said that, the 100k is in circulation, just not moving
around right now.
I believe you are wrong...If capitalism functioned as you
explained it, there would be no problem, but it doesn't. To try to
make an extremely complex sublect very simple I will summarise what
I have been lead to believe has happened economically and why
capitalism as we know it is nearing it's end...I believe the
current 'crisis' is due to the fact that the western world has
overspent and overlent (and overprinted money) by more than the
borrower is able to pay back in their, and sometimes their
Overspent, overlent and fiat money not worth a damn is your summary,
but that does not indicate that capitalism as we now it, is coming to
Lets take spending as a starting point. If someone has $20 and they
go and spend it, then the recipient “capitalized” on that transaction
by that invidual transferring their little bit of wealth over to the
other entity. Somewhere that $20 exists.
Overspending is the same, but now with additional money coming from
somewhere else. Therefore, if someone has $20 but the item they wish
to purchase is $30, well hey, lets borrow the $10 and pay it back
later. The credit card lends the individual the $10, which therefore
means that they are transferring a portion of their wealth by means
of a loan to someone who now goes out and buys that $30 item. The $30
is still intact, and is merely transferred from one entity to
another. Therefore, and again, the recipient of the $30 is
capitalized. However, the individual still owes that money plus
interest, therefore, $30 is in circulation with $10 plus interest on
the books with the lender as money owed. As you pointed out, the $10
will be paid at a later point in time. In reality here, an additional
$10 was “created” on paper and will be collected at some point in
time, if they are lucky Lets say that the money was never repaid,
in a nutshell, the loss on paper disappears, but the $10 is still in
circulation along with the other $20. Do you think the $10 is lost?
If you think so, then can you lend me $10 that I never have to repay?
I can offer a guarantee that it will not be lost, I will know exactly
where it is
Overlending means that they would lend more than they had, and yes I
know, quite obvious, therefore, it must be obvious that the entity
that recieved the money became funded, and therefore capitalized.
Whether it was a $1 or a $1m is irrelevent, a transfer was made, and
someone was capitalized. So who is to blame, the one who overlent,
or the one who borrowed in excess?. It doesn’t really matter, because
those two entities are the ones in trouble especially if the borrower
spent it. The final recipient, who as Al Pacino said in the Movie
Scarface “What we gonna do with all the freaking cash”, will now
decide how that capital will be distributed or not. But it does
Banks did not go under for over lending on a dollar to dollar ratio
persay, that’s the simple explanation, they went under for being
"over leveraged" in financial vehicles such as derivatives for the
most part and other extremely complex financial intruments that no
one really understood. Look up Bear Stearns. Additionally, look up
fractional-reserve banking and inflationary central banking as a
means to understand true instability and volatility. Back in 2002,
Morgan was leverged to the hilt and to the tune of 600 times their
asset holdings. What Happened to them? The whole pyramid was held
together by spit and a prayer. Any chance there was a problem back
Printing money is not a new concept. It happened in the mid 90’s
under Greenspan which fueled the dot com bubble, and centuried before
that. The problem with cheap money, is it encourages speculation,
which is not necessarily a bad thing, but one never knows the
direction it will take. Money will flow wherever it will, and whether
assets or the market is the target, something will be created out of
nothing. The key is whether it has real, hard or tangible assets vs
paper wealth. The smart money made a little cash in residentiaql
real estate, then moved to commercial real estate and then back into
the market and mainly in commodities. They understand the principles
of buy low and sell high, but unfortunately many miss the boat and
are merely carried along by the emotional ties of maybe missing out.
When the majority of people make a move, it’s too late. The original
hedged investments already took their profits on the uptick and
profited again on the way back down shorting the market. You can
thank the SEC for eliminating the uptick rule in 2007 for that one.
The printing of money does have valid and negative points in doing
so, but sometimes it’s the necessary evil in dealing with the choice
of inflation vs deflation, but that’s another post.
If you did some research, you would be trully amazed how much money
everyday Americans are sitting on. Statistics say that Americans
don’t save. Don’t believe that for one second.
My point still stands, that wealth is transferred and not destroyed.