Cost of Capital: The Impact of Monetary Manipulation on Savings and Investments

3 min read by Ben
published 12 months ago


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Saving is crucial for future planning, but factors like interest rates and money supply impact our ability to save. Manipulation of these factors creates economic cycles, hindering financial planning. To navigate these challenges, it’s important to understand the distinction between savings and investments and advocate for stable financial systems.

Factors Affecting the Ability to Save

The ability to save is crucial for individuals to plan ahead and reduce future uncertainty. In the fiat system, two key factors determine the ability to save: the interest rate and the money supply.

The Influence of Interest Rates

The interest rate, set by the central bank, plays a significant role in savings. It affects the cost of debt and influences the interest rates offered by commercial banks on savings accounts. When interest rates are low, individuals find it challenging to generate a decent return on their savings, as the returns offered by banks are reduced.

True Nature of Inflation

Contrary to popular belief, inflation is not solely reflected in the headline CPI metric. It is primarily caused by an increase in the broad money supply (M2). Inflation is always a monetary phenomenon, and sometimes the CPI is manipulated to conceal the true inflation caused by coordinated actions of the central bank, government, and commercial banks. These actions effectively create new money, leading to a devaluation of existing currency.

The Consequences for Savers

The manipulation of interest rates and money supply has significant consequences for savers. When the central bank keeps interest rates low, savers experience a dilution or decrease in the purchasing power of their savings. With interest rates close to 0%, the real return on savings is minimal, making it harder for individuals to save for their financial goals, such as buying a house.

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The Pressure to Become an Investor

To counteract the diminishing value of their savings, individuals may feel compelled to become part-time investors. They take on the risk of speculating on stocks, bonds, and equities in the stock market. By blurring the line between savings and investments, individuals expose their capital to market volatility and potential losses.

The Distinction Between Savings and Investments

It is crucial to understand the distinction between savings and investments. Savings serve as a means of mitigating future uncertainty and reducing risk, while investments involve assuming risk in the pursuit of returns. Investing requires time, expertise, and a thorough understanding of market dynamics. Competing with professional investors, who have access to specialized tools and knowledge, can be challenging and risky.

Disruption of Financial Priorities

Blurring the lines between savings and investments disrupts an individual’s ability to focus on their areas of specialization and enjoy the rewards of their skills. Instead of concentrating on developing their expertise, individuals are forced to spend valuable time researching and monitoring investment opportunities. This shift in priorities can lead to increased risk exposure and a higher preference for immediate rewards, affecting overall financial well-being.

The Cost of Capital Manipulation

The manipulation of money supply and interest rates incentivizes individuals to take on more risk than they would under normal circumstances. As interest rates rise, the cost of repaying debts increases, placing a greater burden on borrowers. Meanwhile, savers suffer as inflation erodes the purchasing power of their savings. The manipulation of these factors contributes to cycles of economic booms and busts, negatively impacting social cohesion and making it harder to save and plan for the future. This manipulation results in a higher cost of capital, hindering individuals’ ability to enjoy the rewards of their specialization and division of labor.


In summary, the manipulation of monetary factors like interest rates and money supply significantly affects savings and investments. Low interest rates reduce returns and purchasing power, pushing individuals towards riskier investments. However, competing with professionals is challenging, and many fail to outperform inflation. This blurring of savings and investments disrupts specialization and diverts time and energy. It also leads to cycles of boom and bust, hindering financial planning and social cohesion. Understanding the distinction between savings and investments and advocating for stable financial systems is crucial for navigating these challenges and securing a better future.

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