The butcher that could teach Ben Bernanke a thing or two.

A butcher crams a pound of beef into a meat grinder. Out comes a pound of ground beef. One pound goes in and one pound comes out. Sure it has changed form, but it has not increased in quantity. It cannot.

Enter the realm of the monetary policy with the Federal Reserve however, and perfectly sane people can believe the impossible.

Substitute a nation’s savings for the butcher’s meat and a nation’s new capital investment for the ground beef. Savings from one person are available to be borrowed by another person. Similarly the total savings for a population of individuals is equal to the total amount of capital available for new investment.

Consider the following example: I am a brick manufacturer and produce 10,000 bricks in a year. I sell 9,000 of them to cover my business and living expenses. The remaining 1,000 bricks are my savings. I can sell them now and keep the savings as cash or keep the bricks as savings and sell them later.