Folks, we are living through history. Interest rates have never been as low as they are now since the dawn of recorded history.
European Bank Run http://www.youtube.com/watch?v=qu2uJWSZkck
Ask why–if people place their money into a bank as DEMAND DEPOSITS (the money is payable IMMEDIATELY upon DEMAND)–the bank would not have the money to pay them? If you stored your valuables in a warehouse for safekeeping and paid a fee for storage, would you consider it theft if the manager “borrowed” your valuables? ”Don’t worry,” the manager says, “We will deliver your goods as soon as we get them back from another customer.” Of course, you would be outraged.
One of the reasons there is a credit crisis, booms and busts and economic calamity is because of the violation of property rights by the bank, though not illegal under our current laws, but illegal in the sense of common law and sense. Do you think bank runs would be possible if bankers had to have 100% backed reserves behind all customer deposits? Bankers could not take depositors money and use it for their own use? A bank using fractional reserve banking practices is a Ponzi.
Let’s not confuse this with LOAN BANKING where a bank is in business as a credit intermediary to take a customer’s loan to the bank in the form of a Time Deposit (Savings Account) and lend that money to another customer as a loan at a higher interest rate. The banker is taking a businessman’s risk and paying the customer who has a Time Deposit a rate of interest for their risk.
The comprehensive book on banking theory and economic cycles:http://mises.org/books/desoto.pdf. I am gripping my way through the book now. History through the eyes of a banker. Rome fell due to inflation and price controls imposed by witless bureaucrats. Since food production was curtailed (farmers couldn’t receive an adequate price for their crops), Rome couldn’t support her troops to defend the empire (The U.S. in countless foreign wars today?). Barbarians took control. Ouch!
How does this relate to low interest rates in the US? Read this: http://scottgrannis.blogspot.com/2012/05/what-record-low-treasury-yields-tell-us.html
For another view: http://www.hussmanfunds.com/wmc/wmc120528.htm