Last change: September 22, 2019
Posted: November 5, 2016
Number of words: 1653
Have you ever come across the story about vast riches, hidden somewhere deep, or beneath, or both. Have you ever wondered how your life would, or could have been, if you had more money? Even if you are already rich. Would be different, right? Have you ever wondered how it would be, if everyone had more money? How do you think that would turn out?
Well, allow me to disappoint you, it would be exactly the same as it is now.
Modern economics is a bunch of complicated jargon. Like in many other cases language is used to obscure and confuse. You should know scarcity is the basis.
Everything has a finite amount. Too much of something lowers its value, this includes the money itself. The problem, however, was never about money or paper money. If anything, too much money, or large denominations - many zeroes on each paper, means big problems for anyone not holding some sort of an alternative.
The shortage of money is not, and has never been a problem. Wars never start over paper with numbers and pictures on it - the financial economy. Wars start due to tangible assets, real economy. The problem has always been the amount of tangible assets. Quantity, quality and distribution. Tangible assets include the sweat equity or in other words - people.
When you desire or need something the demand increases. When something is produced the supply increases. According to the economic theory; the price is determined where supply and demand meet.
When interest rates go down → supply of money increases → demand for goods increases → prices inflate. When interest rates go up → supply of money decreases → demand for goods decreases → prices deflate.
The interest rate may be understood as the price of money creation.
Overabundance → less profit → cutting production → layoffs → people have less money → less shopping → decrease in demand → more overabundance → even less profit → cutting production more → even more layoffs
Scarcity → more profit → keeping production bellow the demand → employment opportunities → people have more money → more shopping → increase in demand → more scarcity → even more profit → increased production, still bellow the demand → more employment opportunities
This is why they keep telling you how consumer spending and consumer confidence is important. This is why the lack of credit availability or a credit crunch is a problem, since that means consumers are not able to shop as much. They love credit and you love them long time if you take it.
Economists dread deflation. They dread the decrease in demand, unless it is of their own design. The System, such as it is, can only grow while it expands. Expands or consumes. They like their consumers, that is You, to have a good confidence and spend money.
Economists want inflation. About 3% a year is fine with them. Inflation → prices go up. The System does not like you saving money. Those who save get punished by inflation. The System likes you to borrow money.
As prices go up, your income does not. Each year your purchasing power and your ability to cover debt payments decreases. When this becomes widespread the economy has a problem. A problem which was inevitable, so they start printing money aka quantitative easing, to further postpone the collapse.
You know how 1% of the population owns everything? Here comes the question: what if this 1% of people would give money away to You, the people? If everyone gets to have one million money units, and they all want to buy themselves a nice house, what happens to the price of real estate?
The demand for housing increases due to millionaires all around, as far as the eye can see. Has the supply of housing increased to match the demand? No, it has not. Will it? Hardly. So then what? So then the price of the real estate is proportionally increased to match the new demand. A house which used to cost 100 thousand money units is then valued in millions of money units, which makes everyone just as rich as before.
The only difference being that those, who were already rich and super rich, would then be less rich - why they prefer to be the only ones.
The supply of goods is finite. There are limits to how much of something can be produced. A lot of these limits are intentional in order to preserve the price. As long as people need it they will buy it. Even if it means taking a 30 year loan.
You have one of the most despicable jobs one can get - a salesman. Today you have 10 people asking you about a car. Not much to go with, but as far as you are concerned, a sucker is born every minute. Then the 1% gives their money away. Suddenly you have 100 people asking you about a car. What do you do? You increase the price of the car by factor of 10.
Nothing would be gained by showering everyone with money. There is not enough of tangible resources available to buy them.
You can not all be rich. Being rich is scarce. You can not all have everything.
By now it should be clear to you, as to what happens when you go into debt. Let us assume you do not spend as much as you can. Let us be daring and assume you have savings. You desire a house, but still do not have enough to buy it. You borrow money to buy a house. You add to the demand. Your contribution to the demand is artificial, you do not actually have that purchasing power, you borrowed it. But still you add to the demand and the price of the real estate reflects that demand. Cheap Credit = Higher Prices.
When, yet again, you see promises of some sort of riches, save yourself some time and direct your attention to something else.
The actual change would be in changing the System itself. This or that economic policy won’t change much if anything at all. In fact, when you see them talking about economic policies, know that you are screwed.
Deep State and Cabal and their trillions… Have you ever asked yourself why would someone capable of interstellar travel need to rely on our economy to build their Secret Space Program? Why would they gimp themselves like that?
A System in which basic goods and necessities are not scarce and have little to no production cost. [Star Trek replicator] This way you would not have to work to survive. You would only work to buy what would then be deemed a luxury.
Ever heard of Endogenous money theory? Money is created using a double entry accounting. This means every entry to an account requires a corresponding and opposite entry to a different account.
When You take a loan of 10 units, a new 10 units asset and a new 10 units deposit are created. Units such as € or $. The 10 units deposit is created ex nihilo. Out of nothing.
You are credited with a deposit and have a liability - the amount You need to pay back + loan expenses + interests. The bank has an asset which is Your loan and a liability - the amount You need to pay back.
Deposits = Your money, the money you are keeping, depositing, at the bank.
The System has base money and broad money. Base money, currency and bank reserves, is created by the central banks. Only when you use paper bank notes or coins you are using base money.
Broad money is created by the commerical entities. Broad money is used when you pay with your credit card, when money gets taken directly out of your bank account to pay the mortgage, etc.
Broad money is also included into the measure of money supply, such as M1. The 10 units loan is counted into the M1.
Non-banks such as credit unions similarly create loan-deposit pairs when they lend, but their new deposits are not counted in M1, so they can’t create “money”. They only create “credit”. But this is still purchasing power and acts just like money.
Banks, depending on what country they are in, are required to hold a % of reserves, or no reserves at all. Banks borrow these reserves and currently they are doing so at an extremely low interest rates.
Banks need reserves to make payments on behalf of customers. When Your mortgage is payed directly off your bank account, the bank settles that payment using it’s bank reserves. Bank reserves are electronic base money created by the central bank, and only banks hold them.
Banks can, and do, lend reserves to each other, but not to their customers. Reserve requirements are intended to ensure that banks have enough reserves to meet customers’ demands to withdraw funds, either as physical cash or by making electronic payments. Deposits are moved as broad money, but cleared (end of day) as reserves.
Each loan is a deposit and an asset. Each deposit is bank’s liability. Each deposit increases the bank’s reserve requirement. Each asset, your liability, rises the capital requirement.
The more deposits the bank has, the more reserves it needs. Bank’s net worth is the difference between the money it has borrowed and the money it has lent. If this is positive the bank is solvent, otherwise there is a problem.
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