Monday 20th May 2019
It’s only going to get better & better …
……with Split Velocity.
Don’t be overwhelmed. No matter what issues or problems your country is going through, you should not have sleepless nights. There is simply no economic problem, in any country today, that cannot be resolved comprehensively by the power of an economy run on a Split Velocity model.
Why does it get better and better?
It gets better when businesses, be it mining agriculture, manufacturing retail, regardless of how large or small, are able to function in an economy with an efficient circular flow of income (CFI) or operating system. When this happens they begin to operate in the best business environment that can possibly be created because losses caused by inefficiencies in the CFI are corrected. These businesses can now be run profitably with relative ease. Historically economies go through booms and busts, however, when a central bank introduces a Split Velocity system an economic boom becomes the natural position in terms of economic performance which henceforth should have sustained double digit growth. Businesses therefore thrive, productivity and output rise while unemployment is brought to an end.
When banks lend money they generally back this money with the rate of economic growth. In the past they used to back this money against gold until the gold standard was dropped. However, when the rate of economic growth fails to increase at the same pace as loans what inevitably happens is that the debt burden in the economy becomes too heavy to the extent that it cannot be amortized, that is, paid back and consequently an economy slides into recession. We saw this with the sub-prime mortgages in the United States. The risk of issuing or creating money through commercial banks giving out loans is that should slow growth or the rate of economic growth be unable to keep up, the economy naturally slides into recession.
The Solution: The solution is having the rate of growth guaranteed by a central bank applying Split Velocity, which is basically advanced monetary policy applied at the structural level of the economy. A Split Velocity system allows a central bank to back or guarantee economic growth by 100% or more in any given year. This means that whenever commercial banks issue loans the risk of default is now almost negligible; therefore, the risk of recession is almost completely removed from any economy. This is why we say a Split Velocity system is more powerful and more durable than a Gold Standard when it comes to protecting wealth.
When commercial banks issue loans today they do so in an environment in which conventional monetary policy applied by central banks is topical rather than structural and therefore limited in its capacity to ensure financial system stability. For instance, when interest rates on borrowing are high (25%-40%) commercial banks can make a profit but demand for loans will be low. When interest rates are too low and fall to 0% (as we see in the United States and the European Union) commercial banks can lend copious amounts of money because its cheap, but their profits will be low. Furthermore, interest on deposits will tend to be very low due the lack of profitability from issuing loans in both scenarios. Consequently, the public will feel placing their money in banks erodes rather than increases its value and their wealth. They will look for other ways of preserving their wealth other than savings and this will hurt commercial banks.
The Solution: The Solution is to use Split Velocity to allow a low rate of interest on loans (0%) and a high (ROCr) return on loans (100%) without a debt burden. Since loaning money now becomes very profitable and low risk commercial banks can now offer more lucrative interest rates on deposits. For instance with returns being as high as 100% commercial banks could offer depositors interest rates as high as 15% or more whether these are long term or short term deposits. This encourages pensioners and other people or institutions with idle money to keep it with banks as deposits, since their wealth is now protected. Confidence and value are restored to the economy and the general public will be more eager to bank their money.
Income inequality will generally arise from the fact that when loans are issued they will follow a low risk profile – which is of course common sense. They will not follow great business ideas, public need and so on if the risks are high. Therefore, money, assets or status attracts money in the form of credit worthiness. The problem that arises is good business proposals go unfunded, the rich get richer because they are generally more bankable and there is generally not enough value to go around. This position significantly weakens an economy.
The Solution: The Solution is to use Split Velocity to guarantee economic growth and consequently guarantee amortization. Split Velocity does not discriminate, it follows transactions. Whether it is a person selling vegetables in a market or beans in a stall that transaction is backed by Split Velocity. What this does is generate more wealth to go around in the economy without discrimination. What this does in turn is restore the capacity to have loans issued by banks guaranteed by economic growth eventually allowing what was only available to the 1% to now become available to 99%. This spells the end of income inequality, at least as it is understood in economics today.
At this point an economy begins to function normally and no one is left behind.
Split Velocity Solutions Ltd 