$$$ out of thin air?.

[boz]

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.

??? Are you saying that cash is not worth what someone will give you for it?
The Japanese and Chinese are not willing to give you much for your AUS$ these days.
Gold kept the value for thousands of years, even more then homes, aand survives wars, terrorists, diseses etc. can you say the same for cash? Ask that today to someone in Iceland or Zimbabwe. I am sure they wished they bought gold back in time.

 

[markpatric]

Well Iceland and Zimbabwe are extreme cases and really do you think this can be compared to Aussie?, the answer is a definite no to that one.
The asian nations are actually prepared to buy our goods for more aussie dollars right now, actually much more because it is so low compared to the US.
For instance if you bought an expensive item in the US being real estate or any other bulk goods when the AU$ was near 99cents right now to sell it for the US equivalent you would be way in front.
In other words if you purchased goods for import to Aussie from overseas for US$1000 au99 cents you could sell it back overseas now for still US$1000 overseas maybe a bit less to give value and you would make a fortune, your $1000 value is now over au$1400/still US$1000 on the global market, I would imagine the export markets in aussie will grow as the dollar falls and other countries get great value as compared to the US.
If in fact the AU$ does go down to 47cents as they are predicting now may be the time to buy up big in US real estate if you have the opportunity, imagine if you had bought at 99cents, you would double your money instantly if our dollar hits 47 cents and you can sell for what you paid and then convert your money back to AU$.
All aussie sellers particularly to the US and places such as asian countries where buyers had been purchasing from the US should be booming right now as these overseas countries are picking up absolute bargains in Aussie right now due to the low dollar.
If you had invested in cash or US real estate when the dollar was 99 cents you would have made a lot more than gold has appreciated in that time, you could sell your real estate for a lot less than you paid and still make money.
Cash is king, after all what do you buy your gold with?.

 

[abra]

Not sure if someone already posted this link but its section on money is ok. The rest a bit of doom and gloom

http://www.chrismartenson.com/crashcourse

Gold is priced in US $'s to the poster above by the way so it has gone up to about $1290 AU

 

[markpatric]

Exactly, and how do you realise those gains you convert to cash otherwise they are worth nothing.
By the way those gains are around half of the gains that goods could be sold for and more if they were bought with cash discount.

 

[markpatric]

I am not disagreeing with you for your average investor gold is probably good choice right now, especially if it is bought in US$.
But certainly you would not convert all your cash holdings to gold at any time.
Right now may be a great time though if the aussie dollar continues to drop.
All the same I believe the stockmarket is an absolute sham and will never go near it, I will stick to bricks and mortar thanks.

 

[boz]

I am not disagreeing with you for your average investor gold is probably good choice right now, especially if it is bought in US$.
But certainly you would not convert all your cash holdings to gold at any time.

Yes, I agree with that, on t he other hand you won't convert all your holding and assets in cash either. Gold is a good way to have a reliable idea where prices of things are and where inflation is going to head to.

 

[Bill.L]

Hi all,

This is indeed a good thread and I agree with Sunfish that it would take a large book to explain it all.

In my opinion, I think there has been some misunderstanding of some of the concepts earlier in the thread. For example money and wealth are 2 different concepts that people often think are the same. All the money in Australia (as measured by M3 money supply, does not equal the value/wealth of all the assets in the country.

Yet because someone owns a house, and can sell it for $400,000 today, they give it a monetary value of $400,000, and equate the wealth of owning the house as being equal to money.
Therefore wealth equals money.
No, sorry that is wrong.
If everyone went to sell their houses at the same time, there is not enough money to pay for them all. The price achieved for each house would be lower, unless of course the total money supply rose. That has already been covered.

Governments (via central banks in most cases) create money out of thin air, and much more often than most people realize.
Using the $Aus as the example, 43 years ago there were none in existence. They have all been created out of thin air and using printing presses. On the 14th of February 1966, when the decimal currency came into existence, these nice new notes were only worth 1/2 pound because the authorities said they were, no other reason.

Likewise, there are plenty of examples where governments turn money worthless overnight, ie they say 'old' currency must be exchanged for new by a certain date, after that date it is no longer accepted. (this seems to happen a lot during war times).

The trick with creating money out of thin air is to try and let it hold its value, so that none of your (the governments) supporters are too upset (ie wealthy contributors and voters; they, can be mutually exclusive)

bye

 

[callum.newton]

Very interesting thread...

Out of curiosity, does anybody know what the Australian Fractional Reserve Rate is? I have tried googling it but it doesn't seem to be an easy value to find...

C

 

[markpatric]

Is money really worthless if exchanged for new?, I don`t think so.
As far as wealth = cash, I think it does, there may not be the cash to support it and is this why the US and aussie are pouring money on the issue?.
I had read it predicted many years ago that this current crisis would happen and pouring money on the problem might have the effect of making the issues worse or drawing it out for an even longer period.
I don`t even pretend to understand it but I do believe a major cause of the issues is global greed and too many are privy to the secrets of compounding money and are hording too much wealth in property or stocks and living off money gained from thin air while scoffing at the working class.

 

[Bill.L]

Hi all,

Markpatric,

As far as wealth = cash, I think it does, there may not be the cash to support it and is this why the US and aussie are pouring money on the issue?.

Umm, where to start.

Firstly, M3, the measure of total money in the system, of which cash is only a small part, is $1,104,000,000,000 in Australia as of the latest figures. This is the highest it has ever been and 16% larger than one year ago. This is a tic over $1.1 trillion (with $4 billion being a tic )
Last year the "value" of all the companies on the sharemarket was $1.6 trillion. The "value" of all residential housing in the country, with an average of $200,000 per property, would be $2 trillion. Then there are all the private companies, all commercial realestate, all industrial real estate etc etc.

Obviously all the money does not equal all wealth, unless you believe that all assets are grossly overpriced and should be only worth 'all money'.
If that was the case then new money could only be created when there were a similar amount of new assets created. Banks could only create money for borrowing for 'new'. They would have to have existing deposits to lend out for established/old/used. This would apply equally to property, shares, companies changing hands.

Secondly..... nah that's enough.

bye

 

[boz]

Is money really worthless if exchanged for new?, I don`t think so.
As far as wealth = cash, I think it does, there may not be the cash to support it and is this why the US and aussie are pouring money on the issue?.

Interesting point,
I believe money is worthless if you can't exchange them with anything. In Australia there is more risk of money been worthless as made of plastic that are bad for environment and can't really clean your bottom with them. The good thing of Zimbabwe is that you can at least use them in the toilet.
There is not many things worthless, even the dog poo is good for plants.
I wonder If Australia will be better off if more citizen will go around with pocket full of cash. I think it will be very cool.

 

[dave99]

Very interesting thread...

Out of curiosity, does anybody know what the Australian Fractional Reserve Rate is? I have tried googling it but it doesn't seem to be an easy value to find...

C

There is no specific reserve rate or reserve requirement in Australia (like in the US).

Instead the banks have to basically maintain an excess 8% of capital over their total assets. That is, the bank's (risk-weighted) assets must exceed debts by at least 8% each month.

 

[dave99]

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 is the part that does my head in. They don't have to borrow anything to "get" the money. They just create an account, and write "$100K" next to it. That's a brand new $100K - didn't come from anyone.

You take it as a cheque, and give it to Joe Blow, and he puts it back in the bank again. The bank just erases 100K from your account, and writes 100K in Joe Blow's account. At no time did they need to borrow anything to do this.

The exception is they need to maintain their capital ratio. Because they increased their deposits, they need to add a little to their reserves. But not the whole $100K - maybe only $8K. They would have to borrow that small amount either from another bank or the Reserve Bank. That's the "cost of funding" they mention.

But it's a myth the bank "borrows" the 100K. When banks write loans, they create new money. Similarly when loans are paid back, the money is destroyed. Managing that process is how the money supply is controlled.

 

[crc_error]

Dave, I dont believe the bank can do that, they have to borrow the money from somewhere.. if it was as easy as your saying, they wouldn't care for deposits.

 

[crc_error]

If that was the case then new money could only be created when there were a similar amount of new assets created. Banks could only create money for borrowing for 'new'. They would have to have existing deposits to lend out for established/old/used. This would apply equally to property, shares, companies changing hands.

Secondly..... nah that's enough.

bye

But it is, if the bank gives you $500k, then you buy a house with it or you might buy a car with it.. or build a new house with it.. so assets are created when new money is printed!

This is why new money created is connected with the countries GDP.

 

[boz]

Dave, I dont believe the bank can do that, they have to borrow the money from somewhere.. if it was as easy as your saying, they wouldn't care for deposits.

Dave 99 is right, he got the point.
Before July 2007, did you have the feeling banks care about deposit that much as they did with loans, credit cards and borrowing in general? don't think so, It is not very easy to get deposit back in line with loans as as soon as you reduce the money banks borrow that will reduce the amount is deposited as well. Australia is like sleeping with a small sheet that represent savings, wherever you pull it is still too small. Deflation and recession with increase of prodoctivity will put the sheet back to the right size. The situation at moment is stable so I am not too worried about the short term.
But the risk of implosion is there and can't be ruled out in the medium-long term. The weakth is sitting within Australia's boundarys is not given that will stay there forever and investors or creditors can transfer it in other safer assets (like gold) or in different and more stable country and currencys (foreign investor in australia would be the first to consider that).
Watch NZ for that, if scenario would have to change they'll implode before australia.
How are homes standing? well, they are definetly a tangible and fisical assett! cash flow is king and that is the key.

 

[Ace73]

Dave, I dont believe the bank can do that, they have to borrow the money from somewhere.. if it was as easy as your saying, they wouldn't care for deposits.

I am pretty sure that the banks can do just that under a fractional banking system. They only have to stay within their reserve requirements which I don't know off hand.

http://en.wikipedia.org/wiki/Fractional-reserve_banking

 

[crc_error]

if they can do that, thats pritty lame.. why can't I lend someone $10,000,000 and charge interest, even though I dont have it?

 

[boz]

if they can do that, thats pritty lame.. why can't I lend someone $10,000,000 and charge interest, even though I dont have it?

of course you can, just have to make sure the guy you gave the money will spend them in your business or get someone to deposit those money eventually with you (RBA will borrow you the money for the moment)

 

[markpatric]

Looks like yes they do create the money "from thin air" but only up to a certain amount of what they have in deposits.