Imagine a great big circular river. There is a small pump in it, moving the water along.
I drop a meter into it as some point, and measure that 10 gallons a minute are flowing by.
Then I replace the pump with a bigger one. Now my meter reads that 100 gallons a minute are flowing by.
Did the volume of water in my river change? No. It’s just moving around the loop faster, so more passes my meter (or my wallet). Note that the water/money is PASSING, not staying there. That’s the velocity of water (or money).
Then there is the value of what I own.
Say that 5 years ago:
My house was worth $200k
My retirement fund was worth another $200k (let’s assume I’m not adding to it right now)
Today:
My house is worth $175k
My retirement fund is worth another $175k
It looks like I lost $50k in the last 5 years, but did I really?
I still have my house. I still have all the same stocks. What I lost was a potential to have $50k. But we tend to treat the potential and the reality as the same thing.
You did not lose $50k because it never really existed. And the current assumed value of $175k each for your house and retirement do not exist until the money is moved in transactions where you feel you have received an equivilant amount of goods or services for your money. It is all potential money until it is used for something, and only at the time of it’s exchange for something else does any value exist. When the money is moved, as you said.
Your retirement might return a higher or lower value, or none at all, when you go to exchange it for goods and services. Your house is worth nothing real until you exchange it for money by selling it or mortgaging it to obtain goods and services.
You are right to call this value potential money rather than imaginary but until a transaction occurs the money exists much like Schrodinger’s cat, in a state of flux, where it’s state of value is uncertain until the situation is examined by making a transaction. By moving the money…
People are poor because they have nothing to add to the economy in exchange for money, other than perhaps their menial unskilled labor. And not having access to resources that would make them more valuable keeps them poor. Or they do have some skills but don’t have access to people or institutions that actually need them.
You give everyone an amount of money (say $10,000) and people will either spend, save or invest it. Spenders will buy crap they don’t need and soon be broke again. Savers will do ok, but eventually inflation and unexpected needs will eat into that $10k. Investors will take that $10,000 and put it into improving their skills so they can make more money or they will buy assets that other people find valuable.
Over time, money will tend to flow from spenders and some savers and settle with investors.
Because there are already lots of people with those skills.
And there will always be a demand for unskilled workers, and maintaining a sizable population of them will keep wages low and prices low, which helps the economy–at their expense.
http://www.wealthandwant.com/issues/wealth/Currents_Undercurrents_8904.htm The money has gone where it should, to your betters. The wealth has been deliberately concentrated into the few at the top. They are in charge. They will take what they want.
There is a 15 year chart showing what has happened. It is a fundamental change in America, done without votes or referendum.
Recently, after we gave billions to big banks, someone decided that the big banks should have a safe place to put all that money, so the policy was changed, and now the big banks can deposit the money with The Federal Reserve Bank and earn interest with no risk whatsoever, on the money we gave them that they feel is to risky to lend back to us at interest.
I believe it is all part of the economic stimulus program.
Economics is easy to understand. Money moves toward money. If you got none, you get none.
This is really very true. If you don’t have money, you end up paying interest. You don’t invest, you live paycheck to paycheck (assuming you are lucky enough to have a job.) And once you have debt, you are now spending money just on interest.
When you have money, you have enough money to have some left over every payday. That gets invested and starts making MORE money. It takes quite a bit of money before you can live off investments, but someone wealthy, big companies, and banks usually HAVE a lot of money. And it grows exponentially.
People have been singing that same sad song in America for at least 200 years. I’m not familiar enough with European, Asian, or African history to know if the same is true there. If it were so universally true, you would think that, by now, all of the wealth in the U.S. would be concentrated under the control of one person. And that person would be named “They”. Mr. They, he must be the head of the Illuminati, or something.
Depressions are characterized by a lack of production, which is different from money. You could theoretically have a moneyless economy that still had depressions if for some reason there was a lack of goods/services being produced.
In a capitalist society, one cause of these panics is fear itself - people are less likely to invest their money, and thus less stuff gets produced.
When less stuff gets produced, people are left off poorer than before, on average, even if there is exactly the same amount of money floating around!
A few months ago I posted how corporate cash reserves were at 1.6 trillion, but they were afraid to spend it. The reserves are now 1.84 trillion.
There is some money, but nobody wants to spend. In part because there is no security. Nobody knows if the economy will collapse again, or if new regulations will drastically change how business (health care, energy, finance, etc) is run, or if they will be unemployed in a year. So everybody saves their money or pays down debt. Consumers are saving more and paying down more debt. Corporations are saving.
