James Grant founded Grant’s Interest Rate Observer in 1983 following a stint at Barron’s, where he originated the “Current Yield” column. His books include many works of financial history, finance and include “Mr. Market Miscalculates” (Axios Press, 2008); and “John Adams: Party of One” (Farrar, Straus & Giroux, 2005). Grant answers questions on savings, debt, and growth.
What is the difference between real savings and money injected into the system?
Real savings is consumption deferred. Money is work. It is the residue of work. Credit is a promise to pay money. It’s different than [money] itself. These days, the distinction is somewhat blurred because paper money is called notes. A note is a promise to pay and yet money also goes by the name of note. If you look at a Federal Reserve note, our greenbacks in America say, “This note is a promise to pay.” Pay what exactly? There is nothing behind it.
The age-old distinction between money and credit has been blurred certainly since the early 1970s with the disappearance of the last vestiges of the gold standard. But there still remains a clear intellectual distinction between what central banks do when they create new credit that is, promises to pay on the one hand and what someone does when he or she puts aside money that he or she has earned.
People talk about a savings glut. That’s a phrase you hear a lot. But it’s not so much a glut of savings as it is a glut of central bank created scrip.
