I offer you a challenge

[darkswordsman17]

Originally posted by: Perry404

Originally posted by: Mo0o

Originally posted by: Perry404
Is it just me or is the idea that our money is held up by aspects of psychology somewhat disturbing? Also if our money is not backed by the gold in fort knox then why don't we use the gold in fort knox for something useful? Or is there even still any gold in fort knox?

This raises some disturbing questions.

it's really not that disturbing... if you're that interested you should take an economics course

I tried but the scool refused me. They said they don take pigs.

I disagree with the idea that it's not disturbing. I'd like to know how much my money is really worth. Especially when i have no idea how much money is being printed.

No offense its only disturbing because you don't have enough knowledge about how things work. Not to sound discouraging, but I don't think there is really anyone who fully comprehends/knows everything about modern global economics. It is very complicated and there is are tons of factors that go into everything.

The fact is economy is a resource of people, and people do not always act rationally, but they do for the most part which is why things tend to go pretty smoothly. It can be disturbing that people's fears and other things do factor into it, but there's no way to remove that except for not participating at all (which is impossible).

Also, you don't need to go to school to learn about economics. There's plenty of good online resources (look up wikipedia and follow the links used as sources). I think MIT offers online content for a bunch of their classes.

 

[AgaBoogaBoo]

Originally posted by: eoliss

Originally posted by: Perry404
How does money work? I want to know. I realize they should have taught me this in high school or collage but they didn't.

So given this scenario:

A small world of 1000 people where no money exists.
Everyone has their respective jobs farmers, metal workers, carpenters etc...
But because they use no money they simply trade goods. So one day someone comes up with the idea to use money.

How would this community begin using money? Can anyone explain this so that the rest of us can understand?

I very simplified story that I was told on how money/banking started:

At some point, a person gave their valuables to someone very trustworthy and honorable. Lets say a farmer gave some gold to the village elder or something while he left the area. The elder then would give a written piece of paper with the information on it, namely the amount of gold. This is the receipt. The farmer would come back, hand in the receipt, get his gold back. Over time, people saw the elder as trustworthy and gave him their gold too. Additionally, it was thought that the gold was safer with the elder.

When people needed to do transactions, they would turn in their receipts, get their gold, give it to seller. Then the seller would then go back and turn in the same piece of gold. To reduce the redundancy of this process, the elder just started to trade these receipts.

These receipts developed into currency. The elder turned into a banker.

We have fiat money in the U.S. Basically, it has value because most believe it has value.

Exactly, you did a great job of explaining it :thumbsup:

 

[Special K]

To what extent does the US government control the enconomy by printing more money or taking existing money out of circulation? Does printing more money correspond to inflation? If so, why would the government want to do that? I thought inflation was a bad thing.

 

[Rogodin2]

We don't base the value of US currency off of gold anymore, correct? So doesn't that mean our money is only good because everyone agrees that it is?

We abandoned the 'gold standard' prior to WWI. Our dollar is backed by crude oil.

The 'petrol dollar' is real and part of the reason why this administration responded so heavily when Sadaam went to the E.U. offering to abandon the dollar in favor of the euro.

The Saudis are contemplating the same thing.

Rogo

 

[HeXploiT]

Originally posted by: Special K
To what extent does the US government control the enconomy by printing more money or taking existing money out of circulation? Does printing more money correspond to inflation? If so, why would the government want to do that? I thought inflation was a bad thing.

I don't think the government EVER takes money out of circulation anymore. Also i do believe that the fed even secretely prints money and is not accountable to the people to communicate how much they are printing.

Originally posted by: darkswordsman17

Originally posted by: Perry404

Originally posted by: Mo0o

Originally posted by: Perry404
Is it just me or is the idea that our money is held up by aspects of psychology somewhat disturbing? Also if our money is not backed by the gold in fort knox then why don't we use the gold in fort knox for something useful? Or is there even still any gold in fort knox?

This raises some disturbing questions.

it's really not that disturbing... if you're that interested you should take an economics course

I tried but the scool refused me. They said they don take pigs.

I disagree with the idea that it's not disturbing. I'd like to know how much my money is really worth. Especially when i have no idea how much money is being printed.

No offense its only disturbing because you don't have enough knowledge about how things work. Not to sound discouraging, but I don't think there is really anyone who fully comprehends/knows everything about modern global economics. It is very complicated and there is are tons of factors that go into everything.

The fact is economy is a resource of people, and people do not always act rationally, but they do for the most part which is why things tend to go pretty smoothly. It can be disturbing that people's fears and other things do factor into it, but there's no way to remove that except for not participating at all (which is impossible).

Also, you don't need to go to school to learn about economics. There's plenty of good online resources (look up wikipedia and follow the links used as sources). I think MIT offers online content for a bunch of their classes.

No offense taken. I'm asking because i realize i am ignorant on the subject.
Plus...the whole subject is just so interesting to me.

 

[eoliss]

Originally posted by: Special K
To what extent does the US government control the enconomy by printing more money or taking existing money out of circulation? Does printing more money correspond to inflation? If so, why would the government want to do that? I thought inflation was a bad thing.

The Fed is able to adjust the interest rate (among other things), effectively making it more or less expensive to borrow money. If the rate increases, money is more expensive, making it less available. If the rate decreases, money is less expensive, making it more available.

 

[darkswordsman17]

Originally posted by: Perry404

No offense taken. I'm asking because i realize i am ignorant on the subject.
Plus...the whole subject is just so interesting to me.

It is good that you are trying to learn, hopefully we can be helpful and not harmful to your understanding. :thumbsup:

But yeah, look into the MIT open coursewares stuff, I'm pretty sure they have some good economics stuff on there that would be good reading.

 

[HeXploiT]

Originally posted by: darkswordsman17

Originally posted by: Perry404

No offense taken. I'm asking because i realize i am ignorant on the subject.
Plus...the whole subject is just so interesting to me.

It is good that you are trying to learn, hopefully we can be helpful and not harmful to your understanding. :thumbsup:

But yeah, look into the MIT open coursewares stuff, I'm pretty sure they have some good economics stuff on there that would be good reading.

I will check it out thanks.

 

[necine]

Originally posted by: Rogodin2

We don't base the value of US currency off of gold anymore, correct? So doesn't that mean our money is only good because everyone agrees that it is?

We abandoned the 'gold stanard' prior to WWI. Our dollar is backed by crude oil.

The 'petrol dollar' is real and part of the reason why this administration responded so heavily when Sadaam went to the E.U. offering to abandon the dollar in favor of the euro.

The Saudis are contemplating the same thing.

Rogo

The Saudis were contemplating this 3 years ago... at least someone understands this ****** besides me.

 

[HeXploiT]

Originally posted by: necine

Originally posted by: Rogodin2

We don't base the value of US currency off of gold anymore, correct? So doesn't that mean our money is only good because everyone agrees that it is?

We abandoned the 'gold stanard' prior to WWI. Our dollar is backed by crude oil.

The 'petrol dollar' is real and part of the reason why this administration responded so heavily when Sadaam went to the E.U. offering to abandon the dollar in favor of the euro.

The Saudis are contemplating the same thing.

Rogo

The Saudis were contemplating this 3 years ago... at least someone understands this ****** besides me.

I do remember hearing Michel Chossudovsky talk about that in his lecture entitled War and Globalization .

 

[Special K]

Originally posted by: eoliss

Originally posted by: Special K
To what extent does the US government control the enconomy by printing more money or taking existing money out of circulation? Does printing more money correspond to inflation? If so, why would the government want to do that? I thought inflation was a bad thing.

The Fed is able to adjust the interest rate (among other things), effectively making it more or less expensive to borrow money. If the rate increases, money is more expensive, making it less available. If the rate decreases, money is less expensive, making it more available.

OK, but it's not like interest rates have been steadily increasing since the 1970's (arbitrary point in time), yet the value of a dollar has gone steadily down since then. Why is that?

 

[bGIveNs33]

another question regarding the same thing-

If I transfer money from one bank to another... does any money actually transfer? I know my bank accounts go Balance - x and Balance +x but what really happened? Did some numbers just increase? How doe the banks work that? I'm assuming they don't receive a check for it.

 

[GuitarDaddy]

Originally posted by: ViviTheMage
government is your answer

:thumbsup:

Currency becomes necessary once organization takes place, and some form of control or rule of law takes place. Once some type of government (dictatorship,monarchy,democracy,etc..) is formed then the need for taxation and distribution of wealth spawn the need for currency.

 

[SlitheryDee]

Originally posted by: bGIveNs33
another question regarding the same thing-

If I transfer money from one bank to another... does any money actually transfer? I know my bank accounts go Balance - x and Balance +x but what really happened? Did some numbers just increase? How doe the banks work that? I'm assuming they don't receive a check for it.

Even if they did receive a check how does that make a difference? What's the check but a piece of paper with numbers on it? A check doesn't amount to anything without the financial institution that backs it.

 

[GuitarDaddy]

Originally posted by: bGIveNs33
another question regarding the same thing-

If I transfer money from one bank to another... does any money actually transfer? I know my bank accounts go Balance - x and Balance +x but what really happened? Did some numbers just increase? How doe the banks work that? I'm assuming they don't receive a check for it.

It's pretty much just a numbers change. Banks net transactions between branches and other banks and only transfer actual assets(currency) when imbalances meet certain ratios.

 

[Special K]

Originally posted by: GuitarDaddy

Originally posted by: bGIveNs33
another question regarding the same thing-

If I transfer money from one bank to another... does any money actually transfer? I know my bank accounts go Balance - x and Balance +x but what really happened? Did some numbers just increase? How doe the banks work that? I'm assuming they don't receive a check for it.

It's pretty much just a numbers change. Banks net transactions between branches and other banks and only transfer actual assets(currency) when imbalances meet certain ratios.

So does that mean that for every dollar of value in anyone's account, there isn't necessarily a physical dollar out there to correspond to it?

What about transactions with foreign countries? Is anything physical actually exchanged (besides the goods/services themselves), or does one number in a computer go down, and another number go up, based on the current exchange rate?

It seems like it would be way too easy for a large bank to cheat the system.

 

[everman]

Originally posted by: Perry404

Originally posted by: SlitheryDee


Ok now we're getting somewhere. So then theoretically i can trade in my dollar for some gold at fort knox?

No, we use what is defined as "fiat money", it's not backed by anything in particular like gold. Same thing with Euros, French Francs, Yen, Yuan...many many others.

 

[GuitarDaddy]

Originally posted by: Special K


So does that mean that for every dollar of value in anyone's account, there isn't necessarily a physical dollar out there to correspond to it?
Yes, thats correct. There is not physical currency for every dollar in a banks accounts. That's why in the US we have the federal reserve system that backs all banks, and I assume other countries have a similar centralized banking organization.


What about transactions with foreign countries? Is anything physical actually exchanged (besides the goods/services themselves), or does one number in a computer go down, and another number go up, based on the current exchange rate?
Same, transactions are netted and net values are transacted between banking systems and actual cash exchanges only happen to cover out of balance situations with other banking systems, the net transfers of actual currency are a miniscule percentage of the transaction volumes

It seems like it would be way too easy for a large bank to cheat the system.
Thats the importance of a centralized banking system, all banks in the system have to post their daily balances with all other banks to the federal reserve every night. In simple terms every bank is an account and has a net balance, and when all banks are posted the federal reserve ledger has to balance to zero

 

[HeXploiT]

Originally posted by: everman

Originally posted by: Perry404

Originally posted by: SlitheryDee


Ok now we're getting somewhere. So then theoretically i can trade in my dollar for some gold at fort knox?

No, we use what is defined as "fiat money", it's not backed by anything in particular like gold. Same thing with Euros, French Francs, Yen, Yuan...many many others.

If that is so the next logical question is what about the gold in fort knox? Why don't we use it?

 

[darkswordsman17]

Originally posted by: Perry404

If that is so the next logical question is what about the gold in fort knox? Why don't we use it?

Because the price of gold is considered to be more stable (it will hold its value better than paper money so that in the event of something major happening we have gold to back us up should we need it).

 

[Special K]

Originally posted by: GuitarDaddy

Thats the importance of a centralized banking system, all banks in the system have to post their daily balances with all other banks to the federal reserve every night. In simple terms every bank is an account and has a net balance, and when all banks are posted the federal reserve ledger has to balance to zero

But I thought our economy was not a zero-sum system? That is, just because someone gained a dollar does not necessarily mean that someone else had to lose one.

Plus how would the federal reserve keep track of foreign transactions?

 

[GuitarDaddy]

Originally posted by: Special K

Originally posted by: GuitarDaddy

Thats the importance of a centralized banking system, all banks in the system have to post their daily balances with all other banks to the federal reserve every night. In simple terms every bank is an account and has a net balance, and when all banks are posted the federal reserve ledger has to balance to zero

But I thought our economy was not a zero-sum system? That is, just because someone gained a dollar does not necessarily mean that someone else had to lose one.

Plus how would the federal reserve keep track of foreign transactions?

The economy is not zero-sum, but the currency system is. This is a difficult concept to get a grasp of, the other factors that influence economics are national debt, land and asset values, import export, and many, many others.

I'm not as familiar with the international banking system but the US federal reserve clears against foriegn systems in much the same way as individual domestic banks clear within the US system, with the added complication of exchange rates.

 

[Special K]

Originally posted by: GuitarDaddy

Originally posted by: Special K

Originally posted by: GuitarDaddy

Thats the importance of a centralized banking system, all banks in the system have to post their daily balances with all other banks to the federal reserve every night. In simple terms every bank is an account and has a net balance, and when all banks are posted the federal reserve ledger has to balance to zero

But I thought our economy was not a zero-sum system? That is, just because someone gained a dollar does not necessarily mean that someone else had to lose one.

Plus how would the federal reserve keep track of foreign transactions?

The economy is not zero-sum, but the currency system is. This is a difficult concept to get a grasp of, the other factors that influence economics are national debt, land and asset values, import export, and many, many others.

I'm not as familiar with the international banking system but the US federal reserve clears against foriegn systems in much the same way as individual domestic banks clear within the US system, with the added complication of exchange rates.

So when the US government puts more money into circulation, do they do it electronically, or do they literally print off more money and use it from there?

 

[ViRGE]

Originally posted by: Special K

Originally posted by: GuitarDaddy

Originally posted by: Special K

Originally posted by: GuitarDaddy

Thats the importance of a centralized banking system, all banks in the system have to post their daily balances with all other banks to the federal reserve every night. In simple terms every bank is an account and has a net balance, and when all banks are posted the federal reserve ledger has to balance to zero

But I thought our economy was not a zero-sum system? That is, just because someone gained a dollar does not necessarily mean that someone else had to lose one.

Plus how would the federal reserve keep track of foreign transactions?

The economy is not zero-sum, but the currency system is. This is a difficult concept to get a grasp of, the other factors that influence economics are national debt, land and asset values, import export, and many, many others.

I'm not as familiar with the international banking system but the US federal reserve clears against foriegn systems in much the same way as individual domestic banks clear within the US system, with the added complication of exchange rates.

So when the US government puts more money into circulation, do they do it electronically, or do they literally print off more money and use it from there?

Both. They'll produce new currency to replace old currency or if there's a need for more currency, but they'll also electronically transfer money to banks if they borrow from the Federal Reserve.

 

[GuitarDaddy]

Originally posted by: Special K

So when the US government puts more money into circulation, do they do it electronically, or do they literally print off more money and use it from there?

They literally print more currency, which is much like when a company issues stock.
And just like when companys increase their outstanding shares the price per share goes down, ie... the US currency goes down against foriegn currencys. They can also take currency out of circulation which has the opposite effect.