Money And Ethics And Loanable Funds.

The interest rate is the price where the supply of loanable funds equals the demand for loanable funds.

We all know that, currently, there is a scramble for loanable funds. This is another way of saying that the demand for loanable funds is high. I will briefly go into the reason for the scramble for resources.

If demand increases and the supply stays the same then the price (the interest rate in this case) will go up. These are the current conditions, where the increased demand is caused by cumulative malinvestment. But under these conditions higher interest rates will aggravate an already tenuous situation. The Federal Reserve decided on September 19th to not only maintain the price (interest rate) but to actually decrease the interest rate, even despite the increased demand for loanable funds.

The only way to accomplish this interest rate reduction is to increase the supply of money injected into the banking system. The amount of money injected is intended to not only move the supply of loanable funds outward (visualize the demand and supply curves), but to move it out so far as to intersect the demand for money, such that the interest rate will decrease!

Yesterday those loanable funds did not exist, today they do. How is that possible? Is that a miracle or an act of counterfeit? Who and/or what institution is so completely out of touch with ethics and money that it would unscrupulously practice counterfeiting? The problems that need fixed are the result of the malinvestments caused by earlier artificial injections of money into the banking system. Compounding poor ethical judgments on previous poor ethical judgments cannot be wise or just. Rather, it is unwise and unjust.

Constitutionally the Federal Reserve is illegitimate. And counterfeiting is illegal. The solution to this problem of ethics and money is clear.