Or they could read the Wikipedia page.
and from the years here, it is clear most people americans or not have only the very vaguest ideas of what a bank is and often wrong.
Too bad no one will ever learn the answers to your questions.
Wasn’t this one of the Great Mysteries the Large Hadron Collider was built to investigate? But they went and built it in Switzerland and You.Know.Who runs that country.
The gnomes?
My point is that pieces of paper are quite easily exchanged for food, while it’s rather difficult to use a skyscraper to get food, without using pieces of paper as an intermediary. Money has the great advantage of being liquid.
Very true, but if I owned the skyscraper, I would rent out a couple floors to get some good income, and use that for food and other expenses.
The point I’m trying to make is that a skyscraper is a real thing, it has great views on the top floors, it has heating, it has a nice lobby, it has a nice facade, all these are very describable for people.
Paper money can be made worthless by the actions of who ever issued it (Zimbabwe for example)
Isn’t it true that in the only days the US backed it’s paper dollars with gold? Why did they stop doing that?
So you’d willingly trade space in your skyscraper for pieces of paper?
A skyscraper is a real thing, but the value of a skyscraper is just an idea. The value of a skyscraper can be made worthless if no one wants to live there (if for example, the skyscraper is surrounded by starving people).
Yes, the US used to back its money with the promise that they’d exchange their pieces of paper for pieces of metal - a pretty useless promise, unless you trust the US government to keep its word. Now the US backs its money with the promise that the money has value - which is just as useless if you don’t trust the government, and just as useful if you trust it.
Well, I think the reason that gold and skyscrapers have “value” is because of scarcity. You can’t find skyscrapers across the open plains of the Midwest, or across the plains of Texas, or in most towns/cities in the US. You find a large cluster of skyscrapers on the island of Manhattan, that’s what makes them valuable, they are hard to build, most cities don’t have buildings that large. They are scarce so they have value.
Gold is also scarce as is oil, copper, diamonds, silver, many other things.
But paper money can easily be printed, its not very scarce.
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Almost all major real estate that I know of is purchased with currency or some number on a screen.
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Real estate can decline in value – currency can, too, of course but currency is more liquid than real estate. You can easily find more people who will accept groceries in smaller denominations of a few million dollars; you can’t just go into your local market and use property to buy your weekly goods…which is kinda why currency was invented in the first place some millennia ago.
A painting by me would be very rare indeed, but not very valuable, I suspect.
Paper money demonstrates its value every day - people willingly accept it in exchange for food, water and shelter. No one has to advertise it - but companies do advertise in order to convince people to buy gold, silver, and diamonds.
The lack of understanding of how banking actually works pervades many sectors of society everywhere.
Which they will sell you … for paper money.
(and very often all they’ll sell you is yet another piece of paper saying there is a piece of gold with your name on it somewhere)
And really, at the point the Fed Reserve Notes become worthless as a medium of trade, I’m not going to be looking for gold or silver. I’ll be looking for 5.56mm ammunition.
The only reason the United States Dollar has value is because:
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the US government basically forces people to use it, and suppreses other currencies by forcing things like US taxes to be paid in US dollars
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Oil, the most important strategic commodity in the world must be traded in US dollars. Meaning every country in the world must first buy US dollars before they can buy oil.
So the dollar still does have a “gold standard”, it’s called “the oil standard”. The value of the US dollar is directly linked to oil, putting it in a privileged position not really deserved.
Without those two, I don’t see the dollar having much value.
So the dollar isn’t a fiat currency - it’s backed by oil. This is a good thing, right?
Hundreds of millions of people trade in dollars every day. The fact that they believe dollars are worth something gives dollars their worth. If everyone suddenly stopped accepting dollars, the dollar would lose all of its value; I put the odds of this happening about the same as the odds of the world ending in a nuclear holocaust, because that’s what it’d take to make that happen. So… 50/50 over the next 2 years, maybe?
As for this idea of “the oil standard”, if that’s the case, then this chart makes zero sense. “The value of the dollar is directly linked to the value of oil. Also, the value of oil relative to the dollar fluctuates wildly.”
You should recognize that you do not know very much about this subject. It might help you a little.
Hi Kamaska! Some of your questions are useful and important. But your best tactic to get knowledge is to focus on one question at a time. Otherwise too many unrelated issues get combined and people aren’t sure what you’re asking, let alone how to answer it.
Shenanigans by private bankers are a problem. Government policies regulating the supply of money may lead to a worthwhile debate. But first there needs to be a common basis for discourse.
Periodically I get my hair cut, and hand the barber a small piece of silver(*). Is the barber creating real wealth? Some hair is valuable but I’m pretty sure my shearings are just routed to some trash dump. And, whatever the value of my new haircut it’s not permanent wealth — in a few weeks I’ll be back needing another haircut.
The little piece of silver I give her is wealth as far as that barber is concerned! She takes it and several other silver coins and makes a down payment on a new barbershop. She wants to expand her business before she has enough to make the entire payment. That’s a logical strategy for her, no?
But the guy wants cash for the new building. She says she lacks silver; he asks ‘Do you have any goats?’ Her friend George raises goats but he doesn’t have enough, Can George pay 2 goats per month for a while? But the building owner doesn’t even know George.
I think you get the idea. Just as I considered the barber’s service valuable even though it didn’t “create real wealth”, the barber might find a banker’s service valuable.
Oh. I didn’t really pay a piece of silver; I paid a piece of paper labeled “silver certifcate.” Oooops! I didn’t even do that. I paid a piece of paper labeled “this is NOT a silver certificate but IS legal tender.”
Let’s start here. What one (1) part of this transaction disconcerts you most? What one thing makes you worry that this economy is based on a fraudulent house of cards?
- the fact that I paid a barber for service rather than “real wealth”?
- the fact that barber found it convenient to borrow?
- the fact that barber pays bank for a service?
- the fact that paper money was substituted for silver?
- the fact that the exchange rate of that paper into silver is variable instead of fixed?
- fear that bankers are cheating or making more profit than they “should”?
- fear that governments want to cheat you?
Focus on ONE question. With seven different questions, only loosely related, any discussion becomes too diffuse.
No offense intended, but I think you need to diversify your economic reading a bit. The US dollar is backed by many things, not just oil or gold. It’s backed by the confidence that people worldwide have in the American economy and the faith that people have in the Treasury to honor the value of the dollar. To be more specific, global investors have faith in the dollar to maintain its current value because they trust that the institutions in the United States will honor the value of bonds when they mature, or to maintain their basic value (which can fluctuate a little from day to day) when they try to use dollars for purchases.
As long as you have institutional strength and competent technocrats who know how to manage an economy, and as long as you have political figures who will leave them alone to do their job, modern finance works well, which is not to say that it can’t be improved. In any case, the dollar is better than gold or raw materials because of their liquidity - the ability to use it quickly as a uniform way to calculate the value of a market exchange. And even if you, as a libertarian, believe that it’s inevitable that a “full faith and credit” standard will inevitably lead to corruption and mismanagement, the truth is you could have just the same with the gold standard. Regardless of which standard you use, the real solution to macroeconomic policy is to have highly educated, competent, boring people in key decision-making posts to maintain stability within the system.
Septimus, I have read your post but don’t understand it fully. I will try to reply when I re-read it and understand it better. But good point.
Anyway, let’s say Elon Musk takes $5,000 worth of raw materials and turns it into a state-of-the-art Tesla electric car worth $80,000. I believe it thats great for the economy. He has made a great profit while building cars which are a benefit to all humanity, they are efficient and don’t burden the economy nearly as much as gasoline-powered cars.
Agree?
That’s what Henry Ford and every other great American industrial capatlist did. They took whatever their idea was (steel industry, automobiles, buildings, bridges, railroads) and produced it on a massive scale. Or even smaller consumer goods like pillows, TVs, electronics. Or services. But the main thing is that THEY PRODUCED SOMETHING. Whatever it may be, a product or a service.
America used to be the largest producer nation in the world, now it is the largest consumer nation. It is the largest debtor nation. It has the worlds largest trade deficit, not trade surplus. Consumption must be provided for by production, that’s basic common sense, no amount of accounting trickery, credit default swaps or dishonest banking techniques will change that. Consumption must always be provided for by production, no matter what.
So I think this discussion should really be about HONEST CAPITALISM vs DISHONEST CAPITALISM
The US is currently the second largest manufacturing nation in the world (second only to China, a nation with 4 times the population of the US). Below is a list of the top 4 manufacturing nations. Note that the US makes more than Japan and Germany together, and makes nearly as much as China.
China $2,010 billion
United States 1,867 billion
Japan 1,063 billion
Germany 700 billion
While the United States has a large debt, it also has a large population and a large economy
Per capital the US has a smaller debt than Germany, France, the United Kingdom, Sweden, Finland, and a dozen other nations.
As a percentage of GDP, the US has a smaller debt than the United Kingdom, Germany, Singapore, Denmark and a dozen other nations.
No, don’t just say “good point”, just point out which part of the transaction you have a problem with.
I feel like you’re skipping a few steps here. Does Elon Musk literally take those raw materials and with the sweat of his brow and his own tools form them into a state-of-the-art car? Does he do all the R&D himself? Where did he find the money to buy those raw materials?
By this definition, banks absolutely produce something - a service (or rather a group of services). A very valuable, very useful service, a service that is often quite financially risky to provide, a service which so many people find valuable that over 90% of all households in America have at least one bank account. If this service wasn’t useful, why would people in the free market use it?
Oh god, now we’re getting into trade deficits. Buddy, you can’t quite wrap your head around fractional reserve banking, you do not want to get into international trade.
Personally I think it should be about Econ 101, where the people who understand whether the fed is or is not a private entity play the role of “teacher” and the people who don’t play the role of “student”. But hey, it’s not my thread.