$$$ out of thin air?.

[markpatric]

But with more cash/money, could they not buy machinery/import food and a place to store it?.
Or pay whatever is necessary to bring in skilled workers etc.

And thanks Ethann I have downloaded that pdf!.

 

[markpatric]

I guess it goes back to my main question which really has me puzzled and that is how the US can bail out banks with billions when they have no money.
Who pays Obama?, the tooth fairy?.

 

[boz]

But with more cash/money, could they not buy machinery/import food and a place to store it?.
Or pay whatever is necessary to bring in skilled workers etc.

And thanks Ethann I have downloaded that pdf!.

Yes, of course, but it is up to the seller to set the price on the currency you are willing to flog him. Central banks can start throwing money out from choppers around the country. But would you still be happy to get the same wages and sell the home at the same price? I think you are better off keep your home and people finding these money at the side of the street to keep them as well.

I guess it goes back to my main question which really has me puzzled and that is how the US can bail out banks with billions when they have no money.
Who pays Obama?, the tooth fairy?.

that is not much different then anyone borrowing the money to buy a home or shares or anything else. The US government just issue more debt that will have to be bought by investors buying its treasury bonds, that new debt would be backed by banks shares or assets. A bank would do the same in giving you the money to buy a home in exchange of the mortgage. After all is it better to have banks shares and assets after the big drop over the last year (IN US) or having mortgages of homes valued at 7 times workers wages?

 

[bruxism]

http://au.youtube.com/watch?v=vVkFb26u9g8

I think this is the video you were looking for sunfish. I watched it ages ago and found it very fascinating and really helped me understand some stuff.

That said, truly understanding this stuff is going to take more than an animated video though. Good luck to OP on your quest.

 

[crc_error]

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!.

Firstly - Money used to be printed when there was a backing held by the reserve in gold.. so the government needed $10 worth of gold to print $10 worth of money.. now days they just print money, so really it doesn't have any value.. this why we have inflation.. the more money that is printed, the less value it really has.

Secondly - Thats correct. If a investor makes 10 million, he needs to take it from someone. it doesn't just come out of thin air. For example. If I buy a house for $500,000, and sell it for $600,000 where does that $100,000 come from? It comes from the next buyer, so he will need to earn this money to cover it. This is why say 20 years ago, people could buy a house with say 3 years wage, today you need 10 years wages to buy a house. My parents bought a house with 30% of my fathers income, today people need 1 whole wage to pay off a house.

Third- The US government is essentially just printing money to bail out these banks.. so who essentially is paying for this? Its the holders of cash in the form of inflation. There is more cash chasing the same amount of goods. The government is essentially stealing money from holders of cash.. This is why cash is not a good long term investment as in 10 years time, its worth nothing. You need to buy something with limited supply, that way it will be worth more in the coming years. This is why gold is so valuable in times of depression, as people can't trust cash, and gold jumps up in value many times over. Gold is limited, cash is unlimited. Government cant just 'print' more gold. they need to buy it from someone.

Why is the aussie dollar going down? Reason is because the dollar today is valued by the countries wealth, ie the assets the country holds. So essentially all the aussie dollars represent everything in the country. Now because resources are now deemed worth less today than 6 months ago, australias wealth has technically dropped. The same amount of money is still in circulation, but the resources like coal, iron, etc is worth less. So today Australia is worth 'less' on the world market. The dollar is not backed by gold these days, but by the countries GDP.

The other aspect is demand for the dollar. Australia is only a small market in the global economy. So its deemed higher risk to hold our currency. So for the big swinging dicks in the financial system to buy aussie dollar, they expect a higher return. 6 months ago holding aussie dollar was yielding far higher interest.. since our reserve bank has dropped rates, and is expect to drop them more, people are selling our dollar and buying US dollar which is considered 'safer' and has a similar yield now.. so why would someone buy aussie dollar when the US dollar pays similar interest? Plus since the stock markets are plummeting, people are looking for safer investments, and this is US government bonds.. so people want to buy these bonds, so they have to buy US dollar to buy them.. US bonds are government guaranteed, so people believe the US government can't go bankrupt (cough cough) that's why they buy them in times of uncertainty. But these bonds are eaten by inflation as well as the government prints more money! false sence of security really..

Your last question has been answered.. basically the more money is printed, there is more in circulation to chase the same amount of goods.. hence the money is worth less, or you need MORE to buy the same item. So printing more money wont solve anything.. This is why some rogue countries have stupid inflation which you read about.. cause the government just prints more money..

 

[Sunfish]

That said, truly understanding this stuff is going to take more than an animated video though. Good luck to OP on your quest.

I've been reading about this stuff for years and still can't say "I understand it".

I do believe the gubbermint and their crony banks would prefer us as mushrooms though.

 

[DCI]

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.

My guess is your neighbours wont be better of as there homes will be viewed potentially as the next to go into the drink in the next storm???
But I see your point..
If everyone decided to withdraw there cash from the banks all at once I would imagine the banks would be left high and dry before providing cash for half of there customers. Credit is fundamentally created as the principal behind (I Owe You's) where bartering has it's limits. Cash however isn't plentifully enough for every purpose. Yes we could print more money, but this becomes increasingly complex in a global ecconomy.

 

[crc_error]

Yes we could print more money, but this becomes increasingly complex in a global ecconomy.

especially if countries sign up to single currencies like the Euro.

I'm sure because of this the US will never use Euro, as they want control to be able to print more money if needed..

 

[ianvestor]

Slightly offtopic, but 50 billion Zimbabwe dollars are worth less than $US1 now... however I would be willing to pay more than $US1 to get my hands on a crisp 50 billion dollar Zimbabwe note, just to stick on my fridge. I'm willing to bet others would pay for the novelty too.

 

[crc_error]

Slightly offtopic, but 50 billion Zimbabwe dollars are worth less than $US1 now... however I would be willing to pay more than $US1 to get my hands on a crisp 50 billion dollar Zimbabwe note, just to stick on my fridge. I'm willing to bet others would pay for the novelty too.

hahaha, you could start a import business!

 

[ianvestor]

Yeah, I wonder how many of those notes are physically in Australia already (if any).

 

[dave99]

Firstly - Money used to be printed when there was a backing held by the reserve in gold.. so the government needed $10 worth of gold to print $10 worth of money.. now days they just print money, so really it doesn't have any value.. this why we have inflation.. the more money that is printed, the less value it really has.

That's not quite right. As the population increases, more and more stuff is produced, and so we need more and more money to buy the stuff, and the money still holds its value. The trick is to match the amount of new money to the amount of new stuff being produced. Too much money = inflation. Too little = recession. That's the RBA's job.

Secondly - Thats correct. If a investor makes 10 million, he needs to take it from someone. it doesn't just come out of thin air. For example. If I buy a house for $500,000, and sell it for $600,000 where does that $100,000 come from? It comes from the next buyer, so he will need to earn this money to cover it.

The $100,000 doesn't necessarily come from another buyer. For example, say you refinance your $500K house for $600K, based on a revaluation. The bank just lent you a brand new $100K. It didn't come from anyone - it came from thin air. It's an increase in the money supply, and a net increase in your total real assets.

Third- The US government is essentially just printing money to bail out these banks.. so who essentially is paying for this? Its the holders of cash in the form of inflation. There is more cash chasing the same amount of goods.

You say there is "more" cash chasing the same goods. But since credit is effectively frozen in the US, the amount of cash being created has dropped dramatically. In fact its dropped so far the US is looking at deflation.

Since the normal mechanism to increase the amount of cash - low interest rates to encourage borrowing - is not working, the US Government is trying to replace that missing cash with direct transfers to private companies. Desperate, but the alternative is a depression I think.

The government is essentially stealing money from holders of cash.. This is why cash is not a good long term investment as in 10 years time, its worth nothing. You need to buy something with limited supply, that way it will be worth more in the coming years. This is why gold is so valuable in times of depression, as people can't trust cash, and gold jumps up in value many times over. Gold is limited, cash is unlimited. Government cant just 'print' more gold. they need to buy it from someone.

I would argue that cash has intrinsic value because it's the only think you can pay your tax with. As long as we pay taxes, there will always be demand for cash for people looking to pay their tax bills. You can't pay them with gold.

Gold is limited in supply, but what is its intrinsic value? What is it used for, apart from jewellery and a few industrial processes? People only think it's valuable because others believe it's valuable. Almost the entire demand for gold is driven by other speculators, rather than any underlying requirement for it. And you can see from gold prices through the last 20 years (adjusted for inflation) that they have NOT gone up, but go up and down depending on investor sentiment at the time.

 

[crc_error]

That's not quite right. As the population increases, more and more stuff is produced, and so we need more and more money to buy the stuff, and the money still holds its value. The trick is to match the amount of new money to the amount of new stuff being produced. Too much money = inflation. Too little = recession. That's the RBA's job.

Thats why I said cash is backed up by GDP, if cash creation overtakes GDT, this = inflation So as you said, its a careful balancing act.

The $100,000 doesn't necessarily come from another buyer. For example, say you refinance your $500K house for $600K, based on a revaluation. The bank just lent you a brand new $100K. It didn't come from anyone - it came from thin air. It's an increase in the money supply, and a net increase in your total real assets.

And where do you think the bank gets the money? They borrow it from the money market or bank deposits where other investors place their cash. This money doesn't just come out of thin air. It still needs to be paid back, its a loan the bank has given you, and said they will take your house should you not pay it back. Money out of thin air would suggest the bank gives you $100,000 and there is no need to pay it back. Plus just because your house is now worth $600,000 doesn't mean your more wealthy. If you want to buy your house, or a similar house, you need to pay $100,000 MORE.. so essentially your $500,000 has been devalued by $100,000 to buy the same thing.

You say there is "more" cash chasing the same goods. But since credit is effectively frozen in the US, the amount of cash being created has dropped dramatically. In fact its dropped so far the US is looking at deflation.

The cash is still out there, its not like the cash has disappeared. Its just people don't want to part with it. Whether investors to lend, or consumers to buy. Its got nothing to do with cash creation. Since people with cash dont want to part with it, the government is printing more money and putting it into the economy to stimulate transactions again and get those with money to lend and buy once again..

Since the normal mechanism to increase the amount of cash - low interest rates to encourage borrowing - is not working, the US Government is trying to replace that missing cash with direct transfers to private companies. Desperate, but the alternative is a depression I think.

Its not to encourage borrowing, its to give banks a kick up the *** so they start to lend again.. if no one wants to lend because they are scared they will loose their money, then this results in no cash moving around. Investors keep their cash under the bed so to speak! If the government says "we will guarantee the loans" then people once again become confident they can lend out their money knowing they will get it back.. this stimulates the economy once again, people start buying as they can borrow money, jobs are created, people dont fear their will lose their job so they spend..

I would argue that cash has intrinsic value because it's the only think you can pay your tax with. As long as we pay taxes, there will always be demand for cash for people looking to pay their tax bills. You can't pay them with gold.

Gold is limited in supply, but what is its intrinsic value? What is it used for, apart from jewellery and a few industrial processes? People only think it's valuable because others believe it's valuable. Almost the entire demand for gold is driven by other speculators, rather than any underlying requirement for it. And you can see from gold prices through the last 20 years (adjusted for inflation) that they have NOT gone up, but go up and down depending on investor sentiment at the time.

I agree with this.. gold to me has no value at all, its just a block to steel from the ground! Cash only have value compared to the goods available which its chasing.. if there is a sudden increase too cash been spent, then the price of goods goes up.. If no one wants to spend money, even though they have it, price of goods goes down as companies try to get consumers to spend again as they are overstocked.. its a supply and demand thing.. Again, its to go with GDP of a country.

 

[fokas]

I've read somewhere that if all the money in the world was redistributed evenly amongst all of the earths human inhabitants, after 5 years it would eventually filter out to the same groups of people that it is at today.

Old habits die hard. And people make their own money...whether it's by printing it or not.

 

[Kenster]

I guess it goes back to my main question which really has me puzzled and that is how the US can bail out banks with billions when they have no money.

As I understand it, the US government gets money through private (ie. Borrows from the Fed) and public borrowings (ie. Borrows via treasury bonds).

Right now, the environment has been created in such a way that T bonds is the most secured place to park cash to weather through the current crunch.

This enables the US government gets trillions of public debt at minimal interest cost.

 

[gerd.]

You can lead a horse to water but you can not make it drink.

The water is a pool of wealth.

The horse is you.

No mater how much you take out there is always some left for the next horse.

Gerd

 

[Sunfish]

Slightly offtopic, but 50 billion Zimbabwe dollars are worth less than $US1 now... however I would be willing to pay more than $US1 to get my hands on a crisp 50 billion dollar Zimbabwe note, just to stick on my fridge. I'm willing to bet others would pay for the novelty too.

I know there is a market and I would like to have a few myself. What about ebay?

 

[Sunfish]

I've read somewhere that if all the money in the world was redistributed evenly amongst all of the earths human inhabitants, after 5 years it would eventually filter out to the same groups of people that it is at today.

That's a bit of BS circulated by the "haves" to convince us that we are unworthy. You can use the stats on big lottery winners and their case appears proven or you can read novels and other dramas and the case that "the idle rich" are unworthy is equally strong. I liken this to the other great myths meant to keep us low born plebs in order:

1/ Hard work never killed anyone! How the hell would they know? It most definately shortens men's lives and incapacitates many in their mid years.

2/ Money doesn't bring happiness! But they concede that it is so much easier to suffer in luxury.

 

[plusnq]

Yeah, I wonder how many of those notes are physically in Australia already (if any).

I bought mine earlier in the year on Ebay as they released each major new multi-billion $ note.

They devalued them just after so I am not sure about availability now.

Maybe I'll be able to get the USD set sometime in the future?



Cheers

Shane

 

[markpatric]

Well, interest rates from US banks have been far lower than those in Aussie for a very long time.
Cash is certainly not worthless during these times.
If I was offered cash or gold when the going gets tough I know which one I would take!, after all gold is worth only what someone will pay you for it at any given time, cash is cash and can go a heck of a long way in tough times.

The herds are all heading for gold right now this is reason enough for me to stay right away from it.

Gday Gerd that saying you posted, could be wrong but I don`t believe that is correct at all.