ECON101: pop quiz

[donk]

For everyone commenting on economics, the dollar, or monetary policy:

1. What is the "Fed rate" as the kids like to call it...not the actual rate but the concept?

b. what's the lowest it's ever been, and how long did it stay there?

Bonus: what are the implications of 1b?

[donk]

No bites, eh? Ok...moving right along, question number

2. What is a dollar (US Federal Reserve Note, peco, yaun, unit of currency)?

b. how is one created?

Same bonus: what are the implications of 2b?

[mosquito]

I sit here in blissful ignorance awaiting the answers !! ;)

[ghostrider]

The concept of the federal rate is the amount of interest that banks are charged when borrowing money from each other, No collateral is needed... Banks are required to keep a certain level of cash on hand ... the lowest rate is 0.25 percent ... thats my guess ... The way it is created is out of thin air, the ptb just manipulate the rate so they can buy cheap loans and charge 30-35 percent interest on money that isn't even theirs, they just print it , and kill the worth of the paper ...

[Praxis]

http://antifascist-calling.blogspot.com/2013/04/toothless-federal-reserve-enforcement.html
the report on correspondent banking http://www.imolin.org/pdf/imolin/CPRT-107SPRT69919.pdf
the grace commission report http://en.wikipedia.org/wiki/The_Grace_Commission
and modern money mechanics http://en.wikisource.org/wiki/Modern_Money_Mechanics

Just some interesting things to read that relate to this thread I feel.

I wanted to edit and add mr russo
O6ayb02bwp0

[donk]

Me too mari…ghostrider thanks for your input—9ofclubs I will check your stuff out.

I’m not the teacher, in fact, I gave up being the student of this nonsense around aught-eight or so, and it is quite depressing that it seems I oughta start paying attention again…which is why I bring this up.

So if I HAD to, here is my “answer”…it is multiple choice:

A) The answer to both questions (all 4 parts) is “whatever the f*** THEY want them to be”, with the bonus questions being “depends on who THEY are and what their intention is”.

B) 1a – I know it is technically the rate at which the Fed lends to (certain?) banks, though when I entered the industry and actually had my hands on such things, it was thought of more as the cost of or value of money. It effected or even determined all security values and loan costs. It was a reflection of what money was actually “worth”, at least to the finance industry. “The Fed” (one answer for THEY--it’s chief and the folks making decision within the institution) didn’t use it as a tool so much as adjusted it to reflect the supply/demand (ya know—the basic economic laws) of money. Or so I was lead to (or chose to) believe.
1b – To my remembrance, it was round aught-seven or aught-eight when “they” lowered it to some unspecific number in the 0-.25% range, and I have not heard of it being raised since (please correct me if I am wrong).
2a – This is the question I asked myself in ’99, which lead me down rabbit holes within rabbit holes all the way down the path to spirituality—and where I am now. To the best I can figure, it is a representation or store of energy, most likely/often your future work/man-hours. That’s my take—an abstract unit of energy
2b – this is easily researched, the theory at least (Fed loans to banks), but I don’t understand this in practice. QE (without a coinciding or subsequent rise in interest rate) is beyond my ability for cognitive dissonance, so I think it is some magical practice where it seems like it goes like this: the TV and newspapers scream how the“people” need cash/liquidity in the system to stave off financial destruction, the politicians whine to the Fed, Ben Bernanke makes it appear out of thin air (I guess deciding which number between 0-and .0025 to charge a given TBTF charged with pushing cash into circulation based on how much he likes them), and I would hope it goes on some sort of accounting as an entry where the public could easily find. As I said, I gave up trying to figure this out, so please please correct me.

C) These are the questions I feel shape my most basic reality. I believed a common understanding is what formed the structure of the construct of “free-market capitalism (with Central Bank)”, which is the system that I was born into. I was taught it was a concrete science, with fundamental rules and laws that would change the nature of it if they were changed or violated—a zero-sum game, if you will. What I have experienced is that it is faith-based religion, where the rules are changed at the whims of the “dungeon masters”, yet people still speak of it as if it a static, “fair”, relatively unchangable entity.

D) All of the above: you have a perfect understanding of the clusterf*ck that is Keynsian economics (for lack of better terms)..we are all coming from the same level of understanding, thanks for clearing it up donk!

E) None of the above. This is the “answer” I was looking for (with your detailed explanation)…I don’t KNOW a goddam thing. But I am sure interested in what your basis for reality is…especially those of you who post “knowledgably” about anything related to economics—which is (at least indirectly) EVERYTHING in the mundane 3D existence. If these aren’t the “right questions”, I’d love to know why, and what are. Since they are NOT the right answers, I would love to be corrected. This thread was an exercise in finding out where we are all coming from, when we are forming seemingly “informed” opinions and analyses.

I look forward to your input…and to proofread and edit—I apologize for any incoherence, this was written during a godawful webinar and I am on internet probation for too much Avalon on the cracker-factory’s time….

[conk]

Tell someone that the dollar they hold represents a dollars worth of debt and watch their eyes cross and their face go blank. "But it will buy me a candy bar". They never even ask why the candy used to cost one cent and will soon cost $10.........if there is even a candy manufacturer.

99 out of 100 will fail your test or worse, won't even care. They'll care when dollars are like leaves on the ground. You can have all you want, but they are already dead.

[donk]

Tell someone that the dollar they hold represents a dollars worth of debt and watch their eyes cross and their face go blank. "But it will buy me a candy bar". They never even ask why the candy used to cost one cent and will soon cost $10.........if there is even a candy manufacturer.

99 out of 100 will fail your test or worse, won't even care. They'll care when dollars are like leaves on the ground. You can have all you want, but they are already dead.

Agreed, and what I am concerned with is people who think they're thinking, and then spreading their (implanted) ideas around, do they truly comprehend what they are talking about?

I am not saying that I do, I'm asking questions, ones that lead me to spirituality and the nature of reality.

This is a shared reality based on a construct, which is actually very simple--it has just been piled on with deceptive complexity and encrypted in a secret code. Even those who learn the definitions of the code words rarely delve into the essence of what they mean, their implications, the mechanics of them.

Quite honestly, I intended this thread to be as much an examination of discernment of information more than an education (or test) of economic information. A chance to look honestly at what we believe about the reality (whether we like it or not) that dominates our life.

[confused]

Since one of my majors in college was economics and I graduated near top of my class, I'll take a stab - however, on this forum I must add the disclaimer that this is what is taught in schools here in the US, whether true or not:

1. What is the "Fed rate" as the kids like to call it...not the actual rate but the concept?
The interest charged to banks by the Fed for borrowing Fed money

b. what's the lowest it's ever been, and how long did it stay there?
Don't know, but probably recent times are the best place to look

Bonus: what are the implications of 1b?
The lower the Fed rate, the easier for banks to borrow money, which increases the money supply, decreases overall interest rates, and I guess for a long enough period of time if this rate is below the market interest rate then asset bubbles develop as too much money goes into worthless investments

2. What is a dollar (US Federal Reserve Note, peco, yaun, unit of currency)?
Dollar is a unit of currency. End of that story. Now what the value of a dollar is based on is a whole different story.

b. how is one created?
It is commonly known among economists that most (~90%) of the money in circulation is caused by what is called the Money multiplier from banks giving loans. An example should suffice - Person A gets $10 paycheck. Puts the $10 in savings account in a local bank. That bank can, if it wants, keep only 10% of the value of its deposits on hand and loan out the rest (the exact % can vary, but 10% is typically the norm in many countries). This means for every $10 deposited by Person A, the bank can loan $9 to Person B and keep only $1 on hand for withdrawals. Then Person B uses that money, perhaps pays a worker or something, and then that worker puts the $9 in their bank account. Now the worker's bank can keep on hand 10% of his $9 and lend the other 90% to Person C. This goes on and on until the last person deposits the last dollar.

This is called the money multiplier effect and is the most common way of creating money. So if you have a 10% reserve rate (must keep at least 10% of deposits on hand) then for every $10 deposited in a bank, at the very end an extra $90 will be created. That is how most of the dollars in the economy are created.

Same bonus: what are the implications of 2b?
This is simple - if deposits weren't insured by the FDIC, then one loan going bust that is all the way up the multiplier will unwind all of the money created before and everyone will lose everything. This is what happened during the historic bank runs when people would lose everything at the bank before the FDIC began insuring deposits. However, since the FDIC insures deposits up to I believe $100k or so, this unwinding doesn't occur. This is why many people consider FDIC insuring deposits to be a moral hazzard - it promotes unchecked bank loans and wasteful / destructive bank investments.

[donk]

Nice confused...pretty much what I was taught as well.


taught in schools here in the US, whether true or not

This is the point of this thread. If NOT TRUE (which in my experience, I believe is the case)...then what?

[confused]

Nice confused...pretty much what I was taught as well.


taught in schools here in the US, whether true or not

This is the point of this thread. If NOT TRUE (which in my experience, I believe is the case)...then what?

Well I'll tell you this - the only part that, from my perspective, may not be true is the money multiplier thing (as everything else is pretty straight forward). Maybe banks loan illegally even beyond the 10% reserve rate, or something like that. But the fact that there is even a fractional reserve system in place is enough to cause all the economic problems we see. I don't believe there is some grand manipulation in this sense - maybe market manipulation in how the money moves around and the effects this movement itself has. But in general, a fractional reserve system is all that is needed to keep the wealthy getting wealthier, the poorer getting poorer, and the economic cycles of boom and bust that we see.

At least, that is my belief. It is as simple as being able to loan 90% of your deposits and not having to answer to your depositors when loans go bad. Remove these two, and I think the economy would be much steadier (albeit slower).

[donk]

Well then, I guess it's time for question 3:

3. What is inflation? How is it caused?

b. what is the CPI? What is missing from it?

BONUS: same as it ever was...

[donk]

4. How is a financial security valued? Who determines what numbers appear on that big board, in the papers, etc.?

For that matter...how did they come up with 700 billion number for that bailout that saved us all from emminent destruction (which caused an exactly 777 point drop in the dow)?


Really...that's my final question. These are the bare bones basics that I can think of that make up the structure of the system that determines how I live. I spent years and years researching and studying it (AFTER receiving a B.S. in a good college for it). When I comment on such things, I promise to try to explain where I am coming from. I was hoping that maybe others here would use this opportunity to explain your level of understanding, the context from which you are coming.

I hope at least I made some people think...much love...good luck to us all

[donk]

This article demonstrates pretty much everything I tried pointing out with this little exercise:

Gold Rallied for Years on 'Misunderstanding' (http://finance.yahoo.com/news/gold-rallied-years-misunderstanding-021935344.html)


A couple of gems:

Investors are just starting to realize that their framework for analysis can't account for what's happening in the world right now.

"federal governments have been printing money at an unprecedented rate creating demand for gold as an alternative currency. It is this expectation of global paper currency debasement which makes gold an attractive long-term investment." (Financial Times, April 15 2013). This analysis is based on a misunderstanding of quantitative easing. Furthermore, it fails to take into account the unorthodox behavior of an economy facing a "balance sheet recession."

Governments have indeed been engaging in quantitative easing . But can that be called printing money?


The "misunderstanding" is that is the fundamental teachings of Economics are apparently just ideas, theories, guidelines...to be adhered to by the money changers only when they feel like it. If it isn't working for them? Change the rules.....and all the good little finance slaves (like myself) kinda pretend like that's how it always was (which is the tone of the article, read it if you want a textbook example of how they transmit this toxic mentality)

The real theme of this thread: the questions, which seem to be text book "scientific", are really rhetorical...whatever-the-eff our slavemasters want them to be....

[Positive Vibe Merchant]

Although the fractional reserve system is ingenious, and has worked well for them, I just have a couple of questions, and I know it may essentially be a different answer for each country, then again maybe not when we are now 'globalized' but; What 'loopholes' have been closed from average joe from using paper with a smiley face on it that he got his 3 yo son to draw up as 'promissory notes' to pay back any specific type of loan that he may have with a bank? Are they still not putting up anything as collateral or has this all changed now?

Im coming at this from the standpoint of what any one of us can do to challenge the banks regarding any loan we may have. Currently I am debt free but circumstances are likely to change for me shortly, so I want to arm myself.

PVM

[donk]

Money, loans, debt, securities, etc. are all backed by the same thing: faith

None of it has any value, other than that people believe it does.

The faith still exists because of fear and brainwashing. Ingenious, indeed...