$$$ out of thin air?.

M

markpatric

Gday guys I have a few questions for the financially in the know.
Firstly where does money come from and who and how is it distributed.
Secondly if one single investor made 10 million certainly this would take money from the pot meaning that many more would be homeless or broke as a result?.
Thirdly if America is in so much debt and in recession why is the Aussie dollar so low and how on earth can America bail out the banks when they have no money?.
Lastly if a country is in debt why not just print more money?, would this not have the effect of raising living standards across the board.

I smell a rat!.
 
You would need to take a year off and undertake extensive reading to begin to understand.

I've been reading on this for years and still could not give you a convincing answer and even if I could it would be a book, not a post.

Jim Puplava of Financial Sense does a lot on these subjects.
 
The Mystery of Banking is worth a look, as is reading about the lending practices of the Goldsmiths of old, interesting reading if you have the time or inclination
 
It's worth remembering that $$ does, in fact, appear and disappear as if via thin air. When an asset increases in value, no money changes hands, yet wealth is 'created'.
 
VYBerlinaV8 said:
It's worth remembering that $$ does, in fact, appear and disappear as if via thin air. When an asset increases in value, no money changes hands, yet wealth is 'created'.
Click to expand...

I was going to say similarly wealth can be destroyed when a valued asset is destroyed but I can't think of an example where the wealth isn't actually just transferred to the owners of similar assets (eg. 1000 people own a particular rare stamp, 1 stamp burns in a house fire, now the other 999 stamps are slightly more valuable).

Can anyone think of an example where wealth is truly destroyed if an asset is destroyed (and not transferred to owners of similar assets) ?
 
Thanks for all the responses and yes I will follow some of the links and ideas as this really does interest me.
I am surprised that there is no simple answer though.
Yes it is very interesting that if no money changes hands but the value of the asset increases money is created out of thin air largely via credit, and this does explain to some extent why money runs dry and the current financial crisis.
Cash must be distributed in order to support this but who to and how do they distribute the cash? and how much money do they recieve for making and distributing it?, do they make a bit more and pay themselves.:rolleyes:
Warren Buffet said that he was shocked when no-one at the reserve bank knew what to do with the current crisis.
 
markpatric said:
I am surprised that there is no simple answer though.
Click to expand...

You have asked a What is the meaning of life type question for an economist. A recently graduated B of Econ would be unable to give answer you ask.

But I encourage your quest. It will be the greatest test you ever put on your intellect, and you will get personal satisfaction from (half) understanding things no one else at the barbeque knows diddly squat about. Just don't try to tell them what you know. :) They won't thank you for it.
 
ianvestor said:
wealth can be destroyed when a valued asset is destroyed but I can't think of an example where the wealth isn't actually just transferred to the owners of similar assets
Click to expand...

If I find a big beautiful gold nugget, is wealth created or do I merely "grab" a little of the pool, diluting ever so slightly, everyone else's money invested in precious metals? If my beachfront home collapses into the sea during a storm, has wealth been destroyed or are my nieghbours each just a little better of in the way holders of collectables are when a rare piece is lost?

Something better explored in the wee hours after ingestion of legal and dubious substances, methinks.
 
there was a link to a youtube link (and series) about fiat currencies and the banking system, which I found quite interesting, but then I had not heard of the concept before, not sure if this is part of what you mean
 
There is an excellent primer on utube, a series which began with the goldsmiths and how they became the early bankers. Can't find the link, sadly. It explains fractional reserve banking which is at the core of our system.
 
I haven't seen that one JC and will watch it, but it isn't the one I was thinking of.

Interesting that it starts with a quote from a Rothschild and then shows the symbol of the illuminati.
 
ianvestor said:
I was going to say similarly wealth can be destroyed when a valued asset is destroyed but I can't think of an example where the wealth isn't actually just transferred to the owners of similar assets (eg. 1000 people own a particular rare stamp, 1 stamp burns in a house fire, now the other 999 stamps are slightly more valuable).

Can anyone think of an example where wealth is truly destroyed if an asset is destroyed (and not transferred to owners of similar assets) ?
Click to expand...

What if I own 1000 shares in company X, bought at $10 per share, and it falls to $8 per share due to market sentiment? Arguably, 20% of the wealth in this part of the portfolio has been destroyed.

Of course, a diverse and balanced portfolio would be expected to create and destory wealth, in bits and pieces, over time. The idea is to balance and manage risk such that the net effect is the creation of wealth over time.

Bear in mind that my argument is different to yours, in that I am considering wealth from the point of view of the individual only, and not in an all inclusive sense.
 
How much money you have is not necessarly more or less wealth, for example:
you have a country with 1mil homes and 1 mil abitants and each of them own a house, is there much of a difference if every home is worth 1 mil or 2 mil? The real wealth increse would come if you increase the number of homes to 2 mil keeping the number of abitant to 1 mil, that is even better if home prices drop at 500k.
On Wikipedia there is a good explanation on how the fractional lending work and how banks create money.
So when banks borrow money to investors or consumers they create money, the other way around is to pay off debt. So pretty much, more savings means destroing of money and somehow create the credit crunch. Central banks are creating money but, at least in Us, money is destroyed faster then is created, or at least the speed of money around has gone slower to compensate the amount of money increased. Speed of money is pretty much how fast the money get out of your wallet and how often you'll fill it up. And also how fast are banks to use the deposit of their creditor or if they just keep the money sitting in the Central banks (like it is happening in US now).
I believe t he credit crunch will hit harder in those country with high debt and low savings like US, UK or Australia. The good thing about Australia is that there is a good room for moving this debt from private hand into public hand like it is happening now with the GOV buying the mortgage backed securities or guarantee banks fundings.
 
boz said:
How much money you have is not necessarly more or less wealth, for example:
you have a country with 1mil homes and 1 mil abitants and each of them own a house, is there much of a difference if every home is worth 1 mil or 2 mil? The real wealth increse would come if you increase the number of homes to 2 mil keeping the number of abitant to 1 mil, that is even better if home prices drop at 500k.
On Wikipedia there is a good explanation on how the fractional lending work and how banks create money.
So when banks borrow money to investors or consumers they create money, the other way around is to pay off debt. So pretty much, more savings means destroing of money and somehow create the credit crunch. Central banks are creating money but, at least in Us, money is destroyed faster then is created, or at least the speed of money around has gone slower to compensate the amount of money increased. Speed of money is pretty much how fast the money get out of your wallet and how often you'll fill it up. And also how fast are banks to use the deposit of their creditor or if they just keep the money sitting in the Central banks (like it is happening in US now).
I believe t he credit crunch will hit harder in those country with high debt and low savings like US, UK or Australia. The good thing about Australia is that there is a good room for moving this debt from private hand into public hand like it is happening now with the GOV buying the mortgage backed securities or guarantee banks fundings.
Click to expand...

This is an excellent thread and goes to the heart of my concerns about the financial disaster and how it will impact on Australia
 
nonrecourse said:
This is an excellent thread and goes to the heart of my concerns about the financial disaster and how it will impact on Australia
Click to expand...
Yes, the bad thing is that not many know about how the money and debt system works. They should tech at school and everyone coming out from high school should know about it. The thing also is that this credit crunch would have been much milder if would have come years ago when saving rate around the western world were much better.
At the moment it is very hard to figure out what is going to happen in the future, like 1 to 5 year ahead. It is very likely anyone forecast is going to have equal chances to be right then wrong. I believe even the top investor and smartest economist wouldn't bet that much on their forecast
 
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