What is money anyways?

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June 29th, 2017 at 3:30:17 PM permalink
DRich
Member since: Oct 24, 2012
Threads: 18
Posts: 763
Quote: petroglyph
It went away with my sex appeal


My money went away with my ex-wife.
June 29th, 2017 at 3:35:24 PM permalink
petroglyph
Member since: Aug 3, 2014
Threads: 12
Posts: 2122
Quote: DRich
My money went away with my ex-wife.
That is where I learned something about the new math. Half equals 85%.
Everyone gets thrown from the plane to maintain altitude
June 29th, 2017 at 3:42:55 PM permalink
Pacomartin
Member since: Oct 24, 2012
Threads: 736
Posts: 8580


The ultimate cynical meme.


Interestingly, both the "savings" theory of money and the ‘money multiplier’ theory was what I was taught in school. It's kind of an eye opener to find that it actually that has no basis in reality.

Quote: Bank of England
The vast majority of money held by the public takes the form of bank deposits. But where the stock of bank deposits comes from is often misunderstood. One common misconception is that banks act simply as intermediaries, lending out the deposits that savers place with them. In this view deposits are typically ‘created’ by the saving decisions of households, and banks then ‘lend out’ those existing deposits to borrowers, for example to companies looking to finance investment or individuals wanting to purchase houses.

In fact, when households choose to save more money in bank accounts, those deposits come simply at the expense of deposits that would have otherwise gone to companies in payment for goods and services. Saving does not by itself increase the deposits or ‘funds available’ for banks to lend. Indeed, viewing banks simply as intermediaries ignores the fact that, in reality in the modern economy, commercial banks are the creators of deposit money. This article explains how, rather than banks lending out deposits that are placed with them, the act of lending creates deposits — the reverse of the sequence typically described in textbooks.

Another common misconception is that the central bank determines the quantity of loans and deposits in the economy by controlling the quantity of central bank money — the so-called ‘money multiplier’ approach. In that view, central banks implement monetary policy by choosing a quantity of reserves. And, because there is assumed to be a constant ratio of broad money to base money, these reserves are then ‘multiplied up’ to a much greater change in bank loans and deposits. For the theory to hold, the amount of reserves must be a binding constraint on lending, and the central bank must directly determine the amount of reserves.

While the money multiplier theory can be a useful way of introducing money and banking in economic textbooks, it is not an accurate description of how money is created in reality. Rather than controlling the quantity of reserves, central banks today typically implement monetary policy by setting the price of reserves — that is, interest rates. In reality, neither are reserves a binding constraint on lending, nor does the central bank fix the amount of reserves that are available. As with the relationship between deposits and loans, the relationship between reserves and loans typically operates in the reverse way to that described in some economics textbooks.

Banks first decide how much to lend depending on the profitable lending opportunities available to them — which will, crucially, depend on the interest rate set by the Bank of England. It is these lending decisions that determine how many bank deposits are created by the banking system. The amount of bank deposits in turn influences how much central bank money banks want to hold in reserve (to meet withdrawals by the public, make payments to other banks, or meet regulatory liquidity requirements), which is then, in normal times, supplied on demand by the Bank of England.


The above quote shows you how far we have come from "representative money", or money that represents a fixed asset like gold.
June 29th, 2017 at 5:01:02 PM permalink
petroglyph
Member since: Aug 3, 2014
Threads: 12
Posts: 2122
Quote: Pacomartin
Interestingly, both the "savings" theory of money and the ‘money multiplier’ theory was what I was taught in school. It's kind of an eye opener to find that it actually that has no basis in reality.
When do you think it changed?
Everyone gets thrown from the plane to maintain altitude
June 29th, 2017 at 5:59:00 PM permalink
Pacomartin
Member since: Oct 24, 2012
Threads: 736
Posts: 8580
Quote: petroglyph
When do you think it changed?


Actually, that is a very good question. I was taught the money multiplier theory in the 1970's.
https://en.wikipedia.org/wiki/Money_multiplier


Circulating Federal Reserve notes in 1938 were valued at $4.114 billion. By 1945 to finance the war effort they were valued at $22.867 billion. But even with the five fold multiplication, it was still credible to say that they were backed by the gold supply.

In 1964 the silver certificates were no longer redeemable for silver. The silver certificates were produced in response to the Mint Act of 1873 which effectively put the USA on a gold certificate. I would say at this point the concept of value of "banknotes" changed.

By 1969 the federal reserve notes had doubled to $44.547 billion. At this point the anti money laundering laws started to go into effect. The federal government also made the decision to destroy as many of the banknotes of denominations over $100 that they could get their hands on.

The Bank Secrecy Act (otherwise known as the Currency and Foreign Transactions Reporting Act) went into effect on October 26, 1970.

The Nixon shock was a series of economic measures undertaken by United States President Richard Nixon in 1971, the most significant of which was the unilateral cancellation of the direct international convertibility of the United States dollar to gold. They value of federal reserve notes spiked to $51.3 billion in two years until the end of 1971 ( still less than $250 per capita).

The value of the federal reserve notes began to grow exponentially reaching $100 billion in 1979, $200 billion in 1987, $300 billion in 1992, and a trillion dollars by 2011.

If it isn't immediately obvious, the rate of increase in federal reserve notes is many times the inflation rate as $44.55 billion in December 1969 has the same buying power $289 billion today.

So far over $915 billion of color c-notes have produced. I don't think they should keep making c-notes without restraint as eventually the world will question their value.

Sweden's banknotes peaked in value at the end of 2007, and they have been reduced by well over 50% since then.
July 1st, 2017 at 6:34:47 PM permalink
petroglyph
Member since: Aug 3, 2014
Threads: 12
Posts: 2122
Quote: petroglyph
Quote: Pacomartin
Interestingly, both the "savings" theory of money and the ‘money multiplier’ theory was what I was taught in school. It's kind of an eye opener to find that it actually that has no basis in reality.
When do you think it changed?
I had wondered if maybe your answer might have been after E.O. 6102 in 1933?

http://www.history.com/this-day-in-history/fdr-takes-united-states-off-gold-standard

People were no longer able to hold constitutional money, and so soon after the crash of 29. It must have horrified a good plenty of those that actually turned in their gold?
Everyone gets thrown from the plane to maintain altitude
July 1st, 2017 at 6:42:50 PM permalink
Pacomartin
Member since: Oct 24, 2012
Threads: 736
Posts: 8580
Quote: petroglyph
[I had wondered if maybe your answer might have been after E.O. 6102 in 1933?


On April 5, 1933, Roosevelt ordered all gold coins and gold certificates in denominations of more than $100 turned in for other money.
On August 15, 1971, President Richard Nixon announced that the United States would no longer convert dollars to gold at a fixed value, thus completely abandoning the gold standard.

But I think the "money multiplier" theory of money creation had been abandoned before 1971, but was still valid in 1933.

It is a somewhat arbitrary decision since these changes are gradual, but In 1964 the silver certificates were no longer redeemable for silver. That is the first time that the connection between commodity and money was formerly severed.
July 18th, 2017 at 12:54:42 AM permalink
Evenbob
Member since: Oct 24, 2012
Threads: 110
Posts: 11614
I got a AmEx Bluebird card thru Walmart a
few months ago. I haven't had a bank account
in awhile because they aren't free anymore.
You have to keep a certain balance and use
the account a set number of times a month
or they charge a fee for the account.

With this AmEx card, who needs a bank
account. It's a debit card, but it comes
with checks. It has a routing number
and account number and it's free, no
fees for doing every day things like
paying bills. I read millions of Americans
have these accounts because they are
the perfect place to hide money from
your spouse, or from creditors. They
aren't connected to any credit rating
company and there is no way for anyone
to know you have the account unless
they see you using the card. Which is
accepted anywhere they accept American
Express.

The IRS knows, but that's not an issue
for most people. You put lots of money
on it and support your mistress and your
wife will never see it pop up on a routine
credit report. Have it all done paperless
and sent to a secret email account, and
even a private detective would have
no way to find it. All perfectly legal.
If you take a risk, you may lose. If you never take a risk, you will always lose.
July 18th, 2017 at 8:34:07 AM permalink
Pacomartin
Member since: Oct 24, 2012
Threads: 736
Posts: 8580


The new £10 note was revealed today. The UK has previously introduced a new polymer £5 note and new £1 coin. The older £2 coin is being retained.

The big task in a few years will be to replace the £20=US$26 banknote which is the mainstay of most cash transactions. The government of the UK may not introduce a new £50 note to discourage large scale cash transactions

In the Euro zone the standard banknote is the 50 EUR = £44.42, so limiting cash to a £20 banknote in the UK would make them radically different than the rest of Europe (even the small countries).

Even cash starved Sweden has the bulk of it's cash value in the denomination 500 SEK =£46.33
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