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posted by LaminatorX on Tuesday March 25 2014, @03:25AM   Printer-friendly

Anonymous Coward writes:

"http://www.theguardian.com/commentisfree/2014/mar/ 18/truth-money-iou-bank-of-england-austerity

Back in the 1930s, Henry Ford is supposed to have remarked that it was a good thing that most Americans didn't know how banking really works, because if they did, 'there'd be a revolution before tomorrow morning.'

Last week, something remarkable happened. The Bank of England let the cat out of the bag. In a paper called "Money Creation in the Modern Economy", co-authored by three economists from the Bank's Monetary Analysis Directorate, they stated outright that most common assumptions of how banking works are simply wrong, and that the kind of populist, heterodox positions more ordinarily associated with groups such as Occupy Wall Street are correct. In doing so, they have effectively thrown the entire theoretical basis for austerity out of the window."

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  • (Score: 3, Interesting) by buswolley on Tuesday March 25 2014, @03:28AM

    by buswolley (848) on Tuesday March 25 2014, @03:28AM (#20739)

    Crazy I just submitted this story too.
    Here is the link I submitted: http://www.ateconomics.com/2014/03/20/the-old-lady -of-threadneedle-street-fails-to-get-an-a/ [ateconomics.com]

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    • (Score: 2) by buswolley on Tuesday March 25 2014, @03:31AM

      by buswolley (848) on Tuesday March 25 2014, @03:31AM (#20742)

      But now I'm going to pause to RTFA...

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      • (Score: 0, Funny) by Anonymous Coward on Tuesday March 25 2014, @03:44AM

        by Anonymous Coward on Tuesday March 25 2014, @03:44AM (#20752)

        I just received 10 moderator points. Someone trying to shut me up?

  • (Score: 2) by mhajicek on Tuesday March 25 2014, @03:33AM

    by mhajicek (51) Subscriber Badge on Tuesday March 25 2014, @03:33AM (#20744)

    Confirmation of the obvious.

    --
    The spacelike surfaces of time foliations can have a cusp at the surface of discontinuity. - P. Hajicek
    • (Score: 3, Insightful) by buswolley on Tuesday March 25 2014, @03:37AM

      by buswolley (848) on Tuesday March 25 2014, @03:37AM (#20748)

      To you, and I am grateful. Most people think that banks operate like a household budget.

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      subicular junctures
    • (Score: 5, Insightful) by tathra on Tuesday March 25 2014, @03:54AM

      by tathra (3367) on Tuesday March 25 2014, @03:54AM (#20761)

      it isnt initially obvious, but once you know that the entire economy is based on debt, this is the only possible case. unfortunately, debt-based economies depend on growth, and growth cant continue forever. debt-based economies are not sustainable in the long term.

      • (Score: 3, Interesting) by buswolley on Tuesday March 25 2014, @04:13AM

        by buswolley (848) on Tuesday March 25 2014, @04:13AM (#20775)

        A growth based economy is necessary as long as new people are born and desire goods and services. A steady state population will lead to a steady state economy.

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        subicular junctures
        • (Score: 5, Interesting) by maxwell demon on Tuesday March 25 2014, @08:17AM

          by maxwell demon (1608) Subscriber Badge on Tuesday March 25 2014, @08:17AM (#20858) Journal

          The problem is that a debt-based economy needs more economic growth than population growth. Indeed, even if the population shrinks, a debt-based economy needs to grow.

          --
          The Tao of math: The numbers you can count are not the real numbers.
      • (Score: 5, Insightful) by The Mighty Buzzard on Tuesday March 25 2014, @04:19AM

        They're not debt-based. I keep hearing that and it keeps being full of shit. They're based on fairy farts, rainbows, and magical unicorn dung; which is to say, absolutely nothing except the willingness of people to agree on an unbacked but convenient means of exchanging value.
        --
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    • (Score: 5, Informative) by frojack on Tuesday March 25 2014, @04:52AM

      by frojack (1554) Subscriber Badge on Tuesday March 25 2014, @04:52AM (#20803) Journal

      In other words, everything we know is not just wrong - it's backwards. When banks make loans, they create money. This is because money is really just an IOU. The role of the central bank is to preside over a legal order that effectively grants banks the exclusive right to create IOUs of a certain kind, ones that the government will recognise as legal tender by its willingness to accept them in payment of taxes.

      Sorry to disappoint guys, but this is nothing new. Any one who ever took a macro economics, or monetary theory class either knew this or flunked. I'm guessing the latter happened to David Graeber.

      He just read his first introduction to monetary theory and thinks he has discovered something totally new, the deep secret "government doesn't want you to know".

      Banks have always been entrusted with the REGULATED ability to create money via loans. The difference in later times is that the regulation has gotten much more sophisticated and exacting. Those "stress tests" you've been hearing about are numerical exercises, designed to assure that the banks are living within the rules. There is nothing new here that wasn't taught in every university in the country for 60 years.

      Governments may print money, but the banking system increases (or decreases) the money supply much more efficiently.

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      • (Score: 3, Interesting) by threedigits on Tuesday March 25 2014, @09:26AM

        by threedigits (607) on Tuesday March 25 2014, @09:26AM (#20877)
        Of course, this has always been the case. All through the whole history of banking [wikipedia.org]. In fact, it wasn't until the Roman Empire that banks begun to accept deposits.

        Governments may print money

        Which is a good thing(TM), because that way people bankers don't need to issue their own notes and commerce is so much easier.

      • (Score: 5, Interesting) by microtodd on Tuesday March 25 2014, @12:11PM

        by microtodd (1866) on Tuesday March 25 2014, @12:11PM (#20913) Homepage Journal

        I was going to reply to your comment and say, with all respect, that there must be more to this. I can't believe that someone "prestigious" or whatever in the industry published a paper that's in an "introduction to monetary theory" textbook and it somehow trickles all the way up. There must be some subtle new "thing" posited in the paper.

        However, after some pondering, I had two thoughts.

        1) We just saw [soylentnews.org] a SoylentArticle discussing how most academic papers are crap

        2) I recall, when the US gov't was considering the huge bank bailout a few years back, a bunch of PhD economists took out an ad in a paper declaring it was a terrible idea and would ruin everything. Then a few days later an different bunch of PhD economists took out an ad in a paper declaring this was a great idea and just what was needed to keep everything from being ruined. It was that moment I realized that most economists must not have a clue. Maybe they understand a lot of theories and math models, but seems like its of very little pragmatic value.

        link [wsj.com]

        So yeah, maybe you're right.

        Sidenote: David Graeber is the professor of Anthropology (of all things) at the London school of Econ. What's the connection between anthropology and economics? This is an honest question. History of money/bartering? How money affects social system? Must be fun to sit around and think about cool stuff like this all the time.

        Here's some references for my Point #2, BTW:

        http://www.bloomberg.com/apps/news?pid=newsarchive &sid=aNKGD.bJwmRA [bloomberg.com]

        http://www.washingtonpost.com/blogs/wonkblog/post/ economists-overwhelmingly-believe-the-bank-bailout -helped-ordinary-americans/2012/03/08/gIQAFH7ZzR_b log.html [washingtonpost.com]

        Also also, the URL tag is broken in Soylent's slashcode.

        • (Score: 1) by Dr Ippy on Tuesday March 25 2014, @10:56PM

          by Dr Ippy (3973) on Tuesday March 25 2014, @10:56PM (#21226)
          David Graeber has written a book, Debt: The First 5,000 Years, which is well worth a read. http://en.wikipedia.org/wiki/Debt:_The_First_5000_ Years [wikipedia.org]
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        • (Score: 2) by frojack on Wednesday March 26 2014, @06:58AM

          by frojack (1554) Subscriber Badge on Wednesday March 26 2014, @06:58AM (#21375) Journal

          Sidenote: David Graeber is the professor of Anthropology (of all things) at the London school of Econ. What's the connection between anthropology and economics? This is an honest question.

          The London School of Economics (LSE) is a college/university with a name that has mostly historical significance. It teaches far more than economics, just as MIT teaches far more than Technology.

          It seems to one of the common training schools for those going into government in Great Britain, and not only those in economic fields.

          As to why an Anthropology professor is acting all surprised and mildly outraged about Banking's role in fiscal management, instead of walking across the campus and talking to those trained in the field, I have no clue.

          While your first set of Economists protested the bail out on their on volition and beliefs, I rather suspect the second set were leaned on heavily to come up with a counter-opinion.

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  • (Score: 3, Interesting) by Boxzy on Tuesday March 25 2014, @03:35AM

    by Boxzy (742) on Tuesday March 25 2014, @03:35AM (#20745) Journal

    There is no such thing as 'value' or 'worth' just what you are told things are worth/cost. Economics has always been a faith based belief system not a science. (waiting for the downmods by depressed econ graduates.)

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    • (Score: 3, Interesting) by buswolley on Tuesday March 25 2014, @03:41AM

      by buswolley (848) on Tuesday March 25 2014, @03:41AM (#20751)

      The phenomenon of faith is observable, and may be measured, neuroimaged, and subjected to analysis, and falsification... If so, why not a system based on faith?
      Really.

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      • (Score: 1) by Boxzy on Tuesday March 25 2014, @03:53AM

        by Boxzy (742) on Tuesday March 25 2014, @03:53AM (#20759) Journal

        Seriously? the phenomenon of faith in invisible pink unicorns is observable, may be measured, neuroimaged and can be subjected to analysis. Its still idiotic. Try a system based on reality.

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        • (Score: 2) by buswolley on Tuesday March 25 2014, @04:10AM

          by buswolley (848) on Tuesday March 25 2014, @04:10AM (#20773)

          OH. Please tell me how we should objectively value resources without subjective judgments of value. Besides, if taxes are compulsory and must be paid in the fiat currency, then it will always have value as long as the compulsion to pay taxes can be maintained.

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        • (Score: 3, Insightful) by maxwell demon on Tuesday March 25 2014, @08:29AM

          by maxwell demon (1608) Subscriber Badge on Tuesday March 25 2014, @08:29AM (#20863) Journal

          A system not based on any faith cannot work. Indeed, even the assumption that the laws of physics will be the same tomorrow as they were today is based on faith: There's no logical necessity that the laws continue to hold, and strictly speaking there cannot be true evidence of anything in the future.

          Note that we may actually live in a false vacuum, and a false vacuum decay front may already approach us with the speed of light right now (undetectable by us, because it moves with the speed of light, so we cannot see it before it arrives, and as soon as it arrives, we won't exist anymore).

          And no, the possibility of a false vacuum is not science fiction, but a consequence of quantum field theory when including the Higgs field.

          --
          The Tao of math: The numbers you can count are not the real numbers.
          • (Score: 1, Insightful) by Anonymous Coward on Tuesday March 25 2014, @04:49PM

            by Anonymous Coward on Tuesday March 25 2014, @04:49PM (#21048)
            Confidence and faith are not interchangeable terms.
    • (Score: 4, Insightful) by Tork on Tuesday March 25 2014, @03:52AM

      by Tork (3914) on Tuesday March 25 2014, @03:52AM (#20757)

      There is no such thing as 'value' or 'worth' just what you are told things are worth/cost... (waiting for the downmods by depressed econ graduates.)

      Heh. Shaking their heads with their hands on their foreheads is not 'depression'. Basically you've described not-supply-and-demand, a pricing structure often used by people with booths at the flea market. What any of those annoyed econ graduates would tell you is that "Value" is what you'd be willing to give up to have something. Value is not set by the seller, but by the buyer. What the seller does set is the price, in which case, he or she hopes to find the demand for it. The price goes down until that happens. (Check out Microsoft's recent music players and tablets...)

      Economics is a complicated subject because people are complicated, but it is certainly not a faith-based-belief system. (That is unless you'd like me to dust off the 'indistinguishable as magic' cliche...)

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      • (Score: 0, Troll) by Boxzy on Tuesday March 25 2014, @03:57AM

        by Boxzy (742) on Tuesday March 25 2014, @03:57AM (#20763) Journal

        You are talking about products not vague concepts like money. The two are lightyears apart.

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        • (Score: 1) by Tork on Tuesday March 25 2014, @03:59AM

          by Tork (3914) on Tuesday March 25 2014, @03:59AM (#20766)
          No, they aren't.
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          • (Score: 2) by Boxzy on Tuesday March 25 2014, @04:08AM

            by Boxzy (742) on Tuesday March 25 2014, @04:08AM (#20770) Journal

            Wow, what an amazing argument. I give in. The American economy relys on its brutal ownership of the oil industry to keep afloat. while the rest of the world is forced to buy and sell oil in dollars no bad checks will be cashed on the US's horrendous economy. If you want hundreds of examples of why this is true just look at the war history of General Smedley http://r.duckduckgo.com/l/?kh=-1&uddg=http%3A%2F%2 Fwww.wanttoknow.info%2Fwarisaracket.shtml [duckduckgo.com]

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            • (Score: 1) by Tork on Tuesday March 25 2014, @04:10AM

              by Tork (3914) on Tuesday March 25 2014, @04:10AM (#20772)
              Heh, just like "they are lightyears apart". Your link does not prove that.
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              • (Score: 2) by Boxzy on Tuesday March 25 2014, @04:24AM

                by Boxzy (742) on Tuesday March 25 2014, @04:24AM (#20782) Journal

                I never attempted to disprove your disproveable statement, I posted a more generally important concept, that what you rely on is a lie.

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                • (Score: 1) by Tork on Tuesday March 25 2014, @04:32AM

                  by Tork (3914) on Tuesday March 25 2014, @04:32AM (#20788)
                  You attempted to change direction and hoped vagueness would get you through. Please don't bullshit a bullshitter.
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        • (Score: 3, Insightful) by Fluffeh on Tuesday March 25 2014, @04:09AM

          by Fluffeh (954) Subscriber Badge on Tuesday March 25 2014, @04:09AM (#20771) Journal

          You are talking about products not vague concepts like money. The two are lightyears apart.

          If you consider currency traders, I think that money can be treated as a product. Also considering all the people that "invest" in money by saving it, it pretty much is a product.

          Of course, as a totally abstract level, if all form of trading is compared to a barter system - goods of one sort for another, money simply becomes another good to be traded.

          I don't think that the two really are lightyears apart.

          • (Score: 1) by Tork on Tuesday March 25 2014, @04:16AM

            by Tork (3914) on Tuesday March 25 2014, @04:16AM (#20778)
            They're not. Value is value, money is a way of expressing it. He wasn't actually talking about money, he was trying to save face after demonstrating his lack of understanding of the very first principle they teach you in economics 101.
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            • (Score: 2) by Boxzy on Tuesday March 25 2014, @04:29AM

              by Boxzy (742) on Tuesday March 25 2014, @04:29AM (#20785) Journal

              Value is most definitely value. When money collapses, food, building materials, fertilizer, many things remain of value. MONEY DOES NOT. the two are lightyears apart.

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              • (Score: 2) by Tork on Tuesday March 25 2014, @04:30AM

                by Tork (3914) on Tuesday March 25 2014, @04:30AM (#20786)
                Nope, that's still supply and demand. It's all tied together.
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              • (Score: 1) by SleazyRidr on Tuesday March 25 2014, @02:57PM

                by SleazyRidr (882) on Tuesday March 25 2014, @02:57PM (#20976)

                What about when someone comes up with a better fertilizer and the price of fertilizer collapses?

                • (Score: 1) by Boxzy on Tuesday March 25 2014, @03:16PM

                  by Boxzy (742) on Tuesday March 25 2014, @03:16PM (#20989) Journal

                  You are comparing replacement of one product with another product with lack of belief in an intangible faith? Let me rephrase your statement. "what happens to scientists when someone comes up with better science? Do they suddenly believe in god?" Makes no sense.

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                  • (Score: 2) by SleazyRidr on Tuesday March 25 2014, @07:21PM

                    by SleazyRidr (882) on Tuesday March 25 2014, @07:21PM (#21133)

                    I have no idea from where you pulled conjectures about the belief in God. I was making the point that the "real" assets you mentioned are also subject to price fluctuations, albeit to a more limited extent than money, owing to their more limited application.

        • (Score: 3, Interesting) by unitron on Tuesday March 25 2014, @04:54AM

          by unitron (70) on Tuesday March 25 2014, @04:54AM (#20804) Journal

          Perhaps not as far apart as you think.

          Anything only has value if you can get a buyer and seller to agree on that value, which is why anyone selling Beanie Babies needs to find a buyer other than myself.

          But the law of supply and demand applies to both "goods and services" and to "money".

          If there's a lot of money floating around out there, bread is going to be $4 a loaf instead of $2, because the increased supply of the money results in a perception that the value of each individual unit of it is less.

          If there's a lot of money available for lending, borrowers can "buy" it for an overall smaller "interest plus principal" because the lenders are competing with one another to get you to "buy" their supply rather than the other guys, but if money is tight lenders compete with each other by offering to repay a higher total.

          Supply and demand is like the broad concept of evolution--once you start looking for it, you find it everywhere, in one form or another, and they can even be inextricably intertwined.

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        • (Score: 0) by Anonymous Coward on Tuesday March 25 2014, @10:32AM

          by Anonymous Coward on Tuesday March 25 2014, @10:32AM (#20896)

          You are talking about products not vague concepts like money. The two are lightyears apart.

          You must use a mighty large font.

      • (Score: 1, Troll) by Boxzy on Tuesday March 25 2014, @04:20AM

        by Boxzy (742) on Tuesday March 25 2014, @04:20AM (#20780) Journal

        Would you like me to dust off the stock-market-is-a-scam-fixed-by-the-nsa-by-using-c orporate-espionage? or is that still a paranoid conspiracy theory in your tiny mind? We know corporations swap data with the nsa, we know they get zero days in return.

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        • (Score: 1) by Tork on Tuesday March 25 2014, @04:25AM

          by Tork (3914) on Tuesday March 25 2014, @04:25AM (#20784)
          It wouldn't do any good. How the variables get changed does not affect the assertion you made. It's like claiming a cat is a dog because it barked.
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          • (Score: 1, Flamebait) by Boxzy on Tuesday March 25 2014, @04:37AM

            by Boxzy (742) on Tuesday March 25 2014, @04:37AM (#20792) Journal

            Just because you wave an economics stick at it doesn't make it magic. Products have intrinsic worth because they exist after economic collapse. Money ceases to exist after economic collapse. Money is faith based, products are reality based.

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            • (Score: 1) by Tork on Tuesday March 25 2014, @04:38AM

              by Tork (3914) on Tuesday March 25 2014, @04:38AM (#20793)
              Nope! Again, supply and demand.
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              • (Score: 0, Flamebait) by Boxzy on Tuesday March 25 2014, @04:49AM

                by Boxzy (742) on Tuesday March 25 2014, @04:49AM (#20799) Journal

                WTF! You claim after economic collapse, money will blah blah! you idiot!

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            • (Score: 0, Troll) by Boxzy on Tuesday March 25 2014, @04:44AM

              by Boxzy (742) on Tuesday March 25 2014, @04:44AM (#20796) Journal

              I now DEMAND you prove me wrong. otherwise get fucked. So sick of BS economists talking shit.

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              • (Score: 5, Funny) by Tork on Tuesday March 25 2014, @05:21AM

                by Tork (3914) on Tuesday March 25 2014, @05:21AM (#20811)

                Well... since you so obviously do not understand Supply and Demand I don't really know that I can. I guess I can take a stab at it with a metaphor: A football stadium filled with 50,000 spectators is having a game in the middle of a hot day. At the gate all bottles of liquid are confiscated for 'security reasons'. Inside the gate the price of a glass of water is $10.00, and people are paying for it.

                You stood up and said: "See! They just make up a price and people pay it!" But the high school economics teacher behind you closes his eyes and counts to ten. He calmly says to you: "No, it's supply and demand. He cannot charge infinity, he can only charge what people will pay.. and people, right now, are paying."

                Realizing the mistake you made, you hoped he didn't hear you clearly. "No no no...", you said, "... I meant some invisible person randomly decided that these ten dollar bills are worth a glass of water!" The high school economics teacher chuckled to himself, politely said "no, it isn't", and started to walk away. But this embarrassment couldn't go unanswered, and you persisted. "The stock market is a big scam!"

                Again, the teacher smirked, and briefly explained that the stock market is just a variable in the current of an economy. The individual variables can change on the whim of what humans decide to do, but it's just the variables, faith is not relevent. At this point you stopped to pick your nose and eat a booger, then in the hot summer air the stink lines started to dance around you like a sketch of Pig Pen from the old Peanuts comic. You attempted to restate your case, but your lack of understanding of what Supply and Demand is, much to the amusement of the teacher, is preventing you from seeing that money is simply a proxy for a product being bartered. You don't understand the difference between faith and confidence.

                The teacher spent ten more minutes giving you one final lesson. He told you a little story about a theme park and the price of Coca Cola in it. You were flippant with him so he wasn't super polite in his relaying of this story to you. It wasn't his finest moment, but he felt goaded into it. You were unwilling to listen to what he said because you were dead set on not being wrong the first time. You had no room to discuss, only debate. He walked away with a shrug. You stayed behind to defend your assertion and died alone and a virgin. By the time your body was carried away, the city you live in had a bunch of Google employees move in and ticket prices jumped 800% and still managed to sell out. The teacher, after making love to his hot wife, decided to look you up to see how you're doing. Well, he didn't find you on Facebook because you have no friends, but he did find your obituary. He paused for a moment, in silence, to pay his respects. Moments later he pictured you plunking your heavily-worn credit card down at the ticket counter and grumbling about how they just make up these prices, and his moment of silence was interrupted by a snort.

                The End.

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                • (Score: 1, Flamebait) by Boxzy on Tuesday March 25 2014, @05:38AM

                  by Boxzy (742) on Tuesday March 25 2014, @05:38AM (#20814) Journal

                  Dogdammit you idiot, you invented yet another example where there is no choice but to pay. I'll go back to oil. Every country in the world is forced to buy and sell oil in dollars. This isnt a case where there is another market, Iraq tried selling oil in Euros, a week later Mr Bush decided to invade. The US relies on its ownership of the oil trade, this is NOT free trade, this is not economics, this is brute force. Your series of pretty insults are pretty, no doubt of that but seem ugly to any other country.

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                  • (Score: 0, Flamebait) by Tork on Tuesday March 25 2014, @05:43AM

                    by Tork (3914) on Tuesday March 25 2014, @05:43AM (#20817)
                    When there's no supply, demand goes up.... and you just proved it. *Sigh* Now I understand why my economics 101 teacher was bald at such an early age.
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                  • (Score: 2) by maxwell demon on Tuesday March 25 2014, @09:11AM

                    by maxwell demon (1608) Subscriber Badge on Tuesday March 25 2014, @09:11AM (#20873) Journal

                    It is power. Which is also based largely on faith.

                    Oh, you think the Iraq war disproves it? Well, there's the old quote from Carl Sandburg, "Sometime they'll give a war and nobody will come." OK, the soldiers did go there. But why? Because they had faith. Either faith in that it was the right thing to do, or faith in that the military system would have the power to punish them if they didn't go. And yes, the second thing, while true, is also based on faith: Namely the faith of those who do the punishing that they may, or even must, punish it.

                    All power is based on faith. If nobody believed Obama would have any power, Obama would not have any power, regardless of the results of the last elections, or of what the constitution says. People would just ignore him, and there would be little he could do about it.

                    And since money is ultimately a form of power, it is not really a surprise that money is also based on faith.

                    --
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                • (Score: 2, Insightful) by Boxzy on Tuesday March 25 2014, @05:47AM

                  by Boxzy (742) on Tuesday March 25 2014, @05:47AM (#20819) Journal

                  Not one word of that was a proof that value of money exists after monetary collapse and that value of products is tied to money. Face it, the barter economy will survive capitalism WHEN it fails.

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                  • (Score: 0) by Anonymous Coward on Tuesday March 25 2014, @05:50AM

                    by Anonymous Coward on Tuesday March 25 2014, @05:50AM (#20820)
                    You should read it again, for more than one reason.
                  • (Score: 0) by Anonymous Coward on Tuesday March 25 2014, @04:23PM

                    by Anonymous Coward on Tuesday March 25 2014, @04:23PM (#21033)
                    The point you're being so thick about is money is a product just like the bottle of water. When the value of money goes down it is an over-supply, demand goes down for it. I think your problem is that you think the measurement of value is money. It isn't. Money is like weight, not mass. Well not really but nobody in this thread has been able to get through to you and I really don't know how to get you to decouple those terms.
                    • (Score: 1) by urza9814 on Tuesday March 25 2014, @05:22PM

                      by urza9814 (3954) on Tuesday March 25 2014, @05:22PM (#21074) Journal
                      Money is more like a color. A dollar bill isn't money, it's currency; money is merely the number printed on that bill. Money is not a product. Currency can be, but money is an abstract concept. It's entirely possible for money to lose all value -- such as situations where inflation becomes so rampant people start desperately burning the currency itself as fuel. Sure, the currency still has value -- it can provide heat -- but nobody cares what the number on it is. A one dollar bill burns as well as a hundred. Even if you've got a billion dollars in the bank, the paper that balance is written on could be worth more than the balance itself. Products don't lose value like that. Even currency doesn't lose value like that -- a Roman coin is still worth something even without the Roman Empire. An obsolete, even broken computer can still be sold as scrap. Money itself can't do that.
                      • (Score: 0) by Anonymous Coward on Tuesday March 25 2014, @06:32PM

                        by Anonymous Coward on Tuesday March 25 2014, @06:32PM (#21108)

                        > Products don't lose value like that.

                        Yes, they do. It happens often, and frankly as a visitor of this site you should have seen it happen a thousand times by now. Value is complicated to measure and that's why it's tempting to think of it as 'faith-based', but it doesn't actually work that way. If it did we wouldn't be able to have this discussion right now.

                  • (Score: 1) by khallow on Tuesday March 25 2014, @10:25PM

                    by khallow (3766) Subscriber Badge on Tuesday March 25 2014, @10:25PM (#21215) Journal

                    that value of money exists after monetary collapse

                    How does that support your claim? Markets for concrete things can collapse as well.

                    Face it, the barter economy will survive capitalism WHEN it fails.

                    You were speaking of money not capitalism which is merely the private ownership of capital (something which incidentally can continue even in a barter economy). It's worth noting that many monetary collapses have happened over thousands of years of recorded history since the development of money. What happens is not that society permanently devolves to the barter economy, but rather that it finds new mediums of exchange and keeps on moving.

                    One merely needs to consider a few real world examples. Consider what happened to the economy in the multiplayer version of Diablo II. The game is a fantasy-themed resource extraction game. Players kill "monsters" in the game which generate a variety of loot. There is a lottery aspect to the game since a variety of items can be randomly transformed into new gear with somewhat random benefits. The game has an official currency, "gold" which is dropped by most monsters and for which virtually all items can be sold in NPC stores. But gold became so prevalent and the use of it in game so limited, that it was near worthless. Did the gaming community then devolve to the barter economy? No, they instead used certain scarce items as currency, particularly, a magic ring called a "Stone of Jordan" [diablowiki.net].

                    This is the thing that people don't get about money. It has extraordinary usefulness when it is honored as a medium of exchange. So even when markets don't have a viable currency for some reason, they often will make, ad hoc, a new one to replace that.

                    • (Score: 1) by Boxzy on Thursday March 27 2014, @02:10AM

                      by Boxzy (742) on Thursday March 27 2014, @02:10AM (#21870) Journal

                      that value of money exists after monetary collapse

                      How does that support your claim? Markets for concrete things can collapse as well.

                      Jeez, explaining the obvious gets really old. THE MARKET is just another way of saying MONEY.

                      When markets collapse, when your whole monetary system collapses, the money vanishes into thin air. Concrete things can be bartered for other concrete things. CONCRETE THINGS DON'T VANISH. Sure you can't sell them for Market price after the market goes away, but I would have thought that was obvious. The thing to do, to increase your ability to survive, is to trade in USEFUL goods and products. ie. not gold, not silver, not various futures, not shares in facebook or whatever flavour of the month BS artist is generating faith this month. Remember Apple? how the products are sub-par but the perceived value is high? MARKETING. Yes, marketing is the entirety of the 'market' there's no there there. Just a lot of hot air and a strong smell of BS. and yes, I'm prepared for another round of downmods, just shows how angry and you all are and how much you need what I say to be wrong. How many of you downmodding me are athiests? You depend on this belief system that the almighty dollar and the pursuit of profit are above all criticism yet claim that those who believe in other non-physical ideology are crazy. Lots of hypocrisy around today.

                      --
                      Go green, Go Soylent.
                      • (Score: 1) by khallow on Thursday March 27 2014, @11:24AM

                        by khallow (3766) Subscriber Badge on Thursday March 27 2014, @11:24AM (#21990) Journal

                        When markets collapse, when your whole monetary system collapses, the money vanishes into thin air.

                        Yes, I'm aware of how it works because this sort of collapse has happened before (for example, hyperinflation). But in modern times, it hasn't been hard to reestablish a currency and markets again after the collapse. One merely needs to look at real world examples to see that you haven't thought this through.

                        And MARKETING != markets. You conflate two unrelated concepts.

                • (Score: 2) by Daniel Dvorkin on Tuesday March 25 2014, @09:34AM

                  by Daniel Dvorkin (1099) on Tuesday March 25 2014, @09:34AM (#20880) Journal

                  The great thing about argument by parable is that you can make the characters do anything you want them to.

                  --
                  Pipedot [pipedot.org]:Soylent [soylentnews.org]::BSD:Linux
                • (Score: 2) by bucc5062 on Tuesday March 25 2014, @01:20PM

                  by bucc5062 (699) on Tuesday March 25 2014, @01:20PM (#20929)

                  "Inside the gate the price of a glass of water is $10.00, and people are paying for it."

                  How did it get set at $10. A serious question. Did it get set at $10 because the cost of collecting, bottling, distributing, selling, labor set the price? Or was it that the person controlling the water made up a number to see if people would buy, then kicked himself when they did for maybe he could have set it higher. For that matter, with all that demand, does the price climb as his supply dwindles then is the price set purely by how much one is willing to pay?

                  Last time I took and Econ 101 course was many many moons ago, but I do remember the concept of supply and demand (a pretty simple model in today's world). I accept that S/D impacts price, but what determines that initial value?

                  In the collapse of civilization the value of existing money collapses, but does the nature of money really go away? Money has value today so that is what we use to trade for goods and services. Could not a barter system have money? Perhaps a carpenter barters with the farmer, two chickens for a chair. the "money" for the carpenter is time, how long will it take have a value. The farmer also took time to raise the chickens, the chickens have value thus the exchange of money is time for goods as services. Overall I think a better world that would be then this swamp we live in today.

                  So, the real value is not in some arbitrary thing we call money, real value is in the time it takes to create or off a good or service. You cannot horse other peoples time nor your own so greed becomes moot.

                  --
                  The more things change, the more they look the same
                  • (Score: 1) by monster on Tuesday March 25 2014, @03:01PM

                    by monster (1260) on Tuesday March 25 2014, @03:01PM (#20981) Journal

                    Money is to the economy like the oil of an engine: Strictly speaking, it's not needed to work, but makes maintenance and performance a hell of a lot simpler.

                  • (Score: -1) by Anonymous Coward on Tuesday March 25 2014, @06:52PM

                    by Anonymous Coward on Tuesday March 25 2014, @06:52PM (#21122)

                    > A serious question. Did it get set at $10 because the cost of collecting, bottling, distributing, selling, labor set the price?

                    It got to that price by people paying for it.

                    > So, the real value is not in some arbitrary thing we call money...

                    The parable did not confuse money and value.

                    > ...real value is in the time it takes to create or off a good or service.

                    Yeah you've forgotten a fair chunk of your econ 101. The value you're talking about is the lowest number that product will reach when competition is in place. That was not part of this parable, that was probably intentional because you were trying to make the point that because people can manipulate supply and demand that it is faith based. That is not the case. Even if everybody in that stadium knows the raw cost it took to produce those bottles of water, they'll still pay that amount. That is your real value, not the cheapest price.

                    • (Score: 3) by bucc5062 on Tuesday March 25 2014, @07:32PM

                      by bucc5062 (699) on Tuesday March 25 2014, @07:32PM (#21146)

                      Okay, but you did not address my first question, how did that price get set? Who set it?

                      You have a stadium of thirsty people, check
                      You have a supply of bottled water, check
                      You need to put up a sign that says "Water for sale, ___ Dollars"

                      What do I write in?

                      what ever I feel like? What if your story started with $50 or $100. If he gets no sales how much does he go down to not just start getting sales, but strong sales?

                      You talk of real value, but you point is still not clear to me. Perhaps the definition of 'real' is the sticky point for my literal brain thinks a real value is that 'raw' cost, the cost it took to get it into the stadium before I put something on the board.
                      'Faith' value is what I write up on the board with the faith that people will want to buy. 'Faith' value will fluxuate based on demand, supply and what I feel like doing. The raw (real) value should not really change in that stadium.

                      --
                      The more things change, the more they look the same
                      • (Score: 0) by Anonymous Coward on Tuesday March 25 2014, @07:56PM

                        by Anonymous Coward on Tuesday March 25 2014, @07:56PM (#21157)

                        > What if your story started with $50 or $100. If he gets no sales how much does he go down to not just start getting sales, but strong sales?

                        I'm not sure why this is such a critical issue or, for that matter, why it is difficult to understand. Where something lands on the supply and demand curve requires testing. His choice could be educated, it could be made up on the spot, it's up to his whim. When the numbers start coming in he adjusts. That's why the buyers set the price and why it doesn't matter what number he puts first.

                        > 'Faith' value is what I write up on the board with the faith that people will want to buy.

                        I write 'blibblethorp' up on the board with the hope that people will like my price. Once they start buying I know if I was blibblethorpius. Some variables being random do not a faith-based-system-make, especially when you switch tenses to try to make your point.

                        • (Score: 2) by bucc5062 on Tuesday March 25 2014, @10:04PM

                          by bucc5062 (699) on Tuesday March 25 2014, @10:04PM (#21207)

                          Your a funny guy.

                          " His choice could be educated, it could be made up on the spot, it's up to his whim. "

                          Thank you. So a starting price is not made from anything but whimsy. That is why we are so screwed up.

                          "I write 'blibblethorp' up on the board with the hope that people will like my price. Once they start buying I know if I was blibblethorpius. Some variables being random do not a faith-based-system-make"

                          REally, we differ on what faith-based is in this regard. I feel that if someone wrote 'blibblethorp' on a board for a price I'd say they are either crazy or wanting to play a game of guess the price.

                          --
                          The more things change, the more they look the same
                          • (Score: 0) by Anonymous Coward on Tuesday March 25 2014, @10:10PM

                            by Anonymous Coward on Tuesday March 25 2014, @10:10PM (#21210)
                            > Thank you. So a starting price is not made from anything but whimsy. That is why we are so screwed up. Since the price is adjusted by actual demand, how does the first sentence connect to the second?
                            • (Score: 2) by bucc5062 on Wednesday March 26 2014, @10:36AM

                              by bucc5062 (699) on Wednesday March 26 2014, @10:36AM (#21427)

                              If you don't understand, that explains you.

                              Economics may be discussed in a pure environment separate from morality and ethics, but when practiced, those come into play, or should.

                              To put it another, it is easier for a camel to pass through the eye of a needle then a rich man to pass through the gates of heaven. Putting value above what is real invites greed which in turn invites power. As a species we have not shown that we handle power well (power corrupts and all). Look about the world, it is not really going well.

                              That is how the two sentences make sense.

                              --
                              The more things change, the more they look the same
                              • (Score: 0) by Anonymous Coward on Wednesday March 26 2014, @05:21PM

                                by Anonymous Coward on Wednesday March 26 2014, @05:21PM (#21606)
                                What does that have to do with it being a faith based system? Ethically or not, once a buyer has been found, the value has been established. Jerkiness does not mean: 'made up'
                                • (Score: 2) by bucc5062 on Wednesday March 26 2014, @08:27PM

                                  by bucc5062 (699) on Wednesday March 26 2014, @08:27PM (#21731)

                                  Somehow I feel we are talking past each other.

                                  You asked how my two sentences went together. I told you why.

                                  As I can tell, there are two values we deal with, real value and faith or relative value. So a minor correction, once a buyer has been found a value has been established. If I give water away has it lost it's 'value'? No, for it still exists, it still provides sustenance. There is a real value to it and by giving it away I am taking on that real value. When I charge a price I set a value that still could be lower then the real value or higher. When it goes above a real value then I am setting a price based on the faith that someone will pay it. When they do I concur a relative value has been established, but that is all it is, relative to what I choose to set. That value is whimsical, it is made up simply because I make a choice. Upstream from me another entity may be doing the same thing, but as I buy from them, they determine my 'real value'. You can take that all the way upstream to pulling material from the ground and making parts.

                                  The underlying point I was trying to get across is that when we value something beyond what it is really worth we create the fertile ground for greed and power. Our valuation, our determination of worth is better served when we do so under the idea of ethics and morality.

                                  --
                                  The more things change, the more they look the same
                                  • (Score: 0) by Anonymous Coward on Wednesday March 26 2014, @09:56PM

                                    by Anonymous Coward on Wednesday March 26 2014, @09:56PM (#21772)

                                    All that is fine, but the premise falls apart when the purchase has been made. Nobody will pay more than they want to. I think what's confusing you is that people *wish* things were cheaper but ultimately demand keeps the price up. It is nothing to do with faith or whimsy. That guy selling bottles of water at the stadium, he might be able to charge a hundred, but he will not be able to charge a thousand for exactly that reason.

                                    There are lots of variables, but it is not mysticism.

                                  • (Score: 0) by Anonymous Coward on Wednesday March 26 2014, @11:03PM

                                    by Anonymous Coward on Wednesday March 26 2014, @11:03PM (#21795)

                                    Hey I owe you an apology. I mistook you for the other guy whose name begins with B, that's why the 'faith-based' question keeps coming up.

                                    That's entirely my fault, I'm sorry.

                                    • (Score: 2) by bucc5062 on Friday March 28 2014, @01:07PM

                                      by bucc5062 (699) on Friday March 28 2014, @01:07PM (#22485)

                                      Well thank you and that does explain why we seemed off on understanding. SO to be clear, I'm the smarter B (lol)

                                      --
                                      The more things change, the more they look the same
                                      • (Score: 0) by Anonymous Coward on Saturday March 29 2014, @09:37AM

                                        by Anonymous Coward on Saturday March 29 2014, @09:37AM (#22857)
                                        Haha! Have a good weekend.
          • (Score: 2) by sjames on Tuesday March 25 2014, @09:40PM

            by sjames (2882) on Tuesday March 25 2014, @09:40PM (#21199) Journal

            To be fair, if it actually barks, it is worth considering that it may be a dog. It could be a seal, but that's not hard to check for. If it is a cat, it is a very sick one and should see the vet right away. Cats actually can't bark.

            :-)

      • (Score: 2, Insightful) by anubi on Tuesday March 25 2014, @06:48AM

        by anubi (2828) on Tuesday March 25 2014, @06:48AM (#20839) Journal

        Nowadays people know the price of everything and the value of nothing. [goodreads.com]

        I wish I could mod Oscar for that.

        --
        "Prove all things; hold fast that which is good." [KJV: I Thessalonians 5:21]
    • (Score: 3, Interesting) by keplr on Tuesday March 25 2014, @04:07AM

      by keplr (2104) on Tuesday March 25 2014, @04:07AM (#20769) Journal

      The worth of a thing is the price it will bring. Economics is doomed to one day be subsumed by psychology. The dismal science indeed.

      --
      I don't respond to ACs.
      • (Score: 3, Interesting) by Daniel Dvorkin on Tuesday March 25 2014, @09:39AM

        by Daniel Dvorkin (1099) on Tuesday March 25 2014, @09:39AM (#20883) Journal

        The worth of a thing is the price it will bring.

        Price is a proxy for value, and not always a particularly reliable one in the case of volatiles. It's silly to argue that a gallon of gasoline is worth precisely 8.2% more when it's $4.10 a gallon than it was a week ago at $3.78, and will be worth 4.4% less next week at $3.92.

        --
        Pipedot [pipedot.org]:Soylent [soylentnews.org]::BSD:Linux
    • (Score: 2) by mendax on Tuesday March 25 2014, @05:55AM

      by mendax (2840) on Tuesday March 25 2014, @05:55AM (#20824)

      Economics has always been a faith based belief system not a science.

      Strictly speaking, economics is really nothing more than a peculiar kind of psychology which can have a lot of math mixed in with it. But as I recall, a recent Nobel Prize winner for economics has never published a single equation in his journal articles or books. If you understand why people make decisions to buy and sell things, either it's with money or barter, you understand economics.

      --
      It's really quite a simple choice: Life, Death, or Los Angeles.
    • (Score: 5, Informative) by Thexalon on Tuesday March 25 2014, @12:00PM

      by Thexalon (636) Subscriber Badge on Tuesday March 25 2014, @12:00PM (#20911)

      That's not actually true. It's understandable why you might think it's true, but there are two things that can actually be taken into account when deciding what something is really truly worth:
      1. Its actual usefulness, what economists call "utility". For example, a house is valuable because I can eat and sleep and put most of the other stuff I own in it and be reasonably certain most of the time that me and my stuff will be a comfortable temperature, dry, and not destroyed when I'm not paying attention.
      2. What it takes to make one, what is roughly what economists call "marginal cost of production" (MCP). For example, a car is far more valuable than a sink faucet because the car takes more materials and labor to make.

      The challenge, of course, is that neither the utility or the MCP can easily be measured. So the best you can do is pick some sort of way of measuring utility and MCP. The best way we know to measure utility by the price that customers are willing to pay for something in a market where there are lots of buyers, and the best way we know of to measure MCP is the price that vendors are willing to sell at in a market where there are lots of sellers. This works really well for handling anything where there are lots of buyers and sellers: The price of an apple at the store really does reflect the work involved in getting an apple from not-yet-existing to in-your-hands at the store.

      This is far from perfect, and it gets all screwed up when:
      - There are costs that aren't paid by the sellers. For example, if I spill poisonous chemicals into the local water supply as part of my production process, I'm not paying the costs of dealing with that unless a government takes steps to force me to do so, and that allows my prices to be lower than they really should be.
      - There are few buyers or even one buyer in the market. Under those conditions, the buyers will be able to pay less than they otherwise would, because the alternative for sellers is to either accept the buyers' lower price or not sell at all. This is one of the reasons why there was a time in the not too distant past where companies loved being the only really large employer in town: that enabled employers to dictate wages, because the alternative was not working.
      - There are few sellers or even one seller in a market. Under those conditions, the sellers will be able to charge more than they otherwise would, because the alternative for buyers is doing without. Think cell phone service - all of the major carriers suck, but because everyone "needs" a cell phone these days it doesn't matter much that they all overcharge.
      - When price is part of what you're buying. The ultimate example of this has to be the $999.00 "I'm Rich" phone app, which doesn't do much of anything except announce to the world that you have the means to spend a grand on something useless.
      - When the seller can lie about what they're selling. Yes, caveat emptor and all that, but the fact is that the seller is always in a better position to evaluate whatever they're selling than the buyer is, because the seller has it and has typically had it for a while.
      - When a bubble forms. That's when something becomes valuable primarily because buyers think that somebody else will pay even more for it a little while down the road. Dutch tulips, mortgage backed securities, web company stocks back in 1999, etc.

      --
      The only thing that stops a bad guy with a compiler is a good guy with a compiler.
      • (Score: 1) by monster on Tuesday March 25 2014, @03:12PM

        by monster (1260) on Tuesday March 25 2014, @03:12PM (#20987) Journal

        MCP is quite bad at measuring the value of items, because first, it can change over time, usually to be lower, and second, because many times how much you spent to make an item doesn't translate into how much anybody is willing to pay for said item. You may have spent a lot, be in time and/or in money, and got something nobody else values at that price, or you may have spent very little and get something which other people are willing to pay a lot for.

        • (Score: 2) by Thexalon on Tuesday March 25 2014, @03:44PM

          by Thexalon (636) Subscriber Badge on Tuesday March 25 2014, @03:44PM (#21007)

          MCP is what the situation looks like solely from the seller's point of view, also known as the supply curve. If it costs me $120 to make a widget, I might sell the prototype for $60 if it turns out that it was a bad idea and nobody wants to buy a widget for more than that, but I'm certainly not going to set up a production line to spend $120 per widget to gain $60 per widget in sales in any significant quantity.

          The question of how much other people value my widget is the demand curve, and has no bearing on MCP. That's where the usefulness of the product comes in to determining the actual price.

          --
          The only thing that stops a bad guy with a compiler is a good guy with a compiler.
          • (Score: 1) by monster on Tuesday March 25 2014, @04:26PM

            by monster (1260) on Tuesday March 25 2014, @04:26PM (#21034) Journal

            Yes, but the point I was making is that if making your widget costs you $120 but the very same widget using other production methods or providers can be built for $50, what is the real MCP of the widget? That is why I think it's not a good mark for 'value'.

            • (Score: 2) by Thexalon on Tuesday March 25 2014, @04:39PM

              by Thexalon (636) Subscriber Badge on Tuesday March 25 2014, @04:39PM (#21041)

              For the purposes of pricing, $50, because the MCP, industry-wide, is $50. If it costs me $120 because I'm a really bad widget-maker, then my MCP is $120, but the industry's MCP is $50, so they'll happily sell for $55 and I'll be out of business.

              If I was a really good widget-maker, and got my costs down to $40 per widget, it will take a while before the industry-wide MCP drops to $40, which means my profits will go up by $10 until the industry adopts my methods. Once a lot of other sellers have my methods, though, then the selling price of a widget will drop down to $45, and those that fail to adapt will again lose out. This is a feature of capitalism that's definitely worthwhile, since it encourages innovation and technological growth.

              --
              The only thing that stops a bad guy with a compiler is a good guy with a compiler.
    • (Score: 1) by dcollins on Tuesday March 25 2014, @03:38PM

      by dcollins (1168) on Tuesday March 25 2014, @03:38PM (#21000) Homepage

      In many cultures, you're expected to haggle/negotiate over price. Do you need to be "told" a value, or can you decide it for yourself, or some combination?

      • (Score: 0, Troll) by Boxzy on Tuesday March 25 2014, @03:47PM

        by Boxzy (742) on Tuesday March 25 2014, @03:47PM (#21011) Journal

        When it's time to haggle then you do. I understand all you guys are pretty angry...

        Some people get mighty touchy when you threaten their faith.

        --
        Go green, Go Soylent.
  • (Score: 2) by unitron on Tuesday March 25 2014, @04:40AM

    by unitron (70) on Tuesday March 25 2014, @04:40AM (#20794) Journal

    "The Truth is out: Money is Just an IOU"

    Certainly cash as we now know it is just a "this piece of paper redeemable for a market determined fraction of a bundle of shingles or bucket of fried chicken or 50 minute hour on a shrink's couch", but even when on a precious metals standard it was "this piece of paper redeemable for a certain fraction of an ounce of gold or silver, or some other good or service deemed by the marketplace to be equal in value to that same fraction".

    --
    something something Slashcott something something Beta something something
  • (Score: 2) by prospectacle on Tuesday March 25 2014, @04:40AM

    by prospectacle (3422) on Tuesday March 25 2014, @04:40AM (#20795) Journal

    Their value is proportionate to the amount of trust there is that the "I" who owes you is good for it, and in what, specifically, they owe.

    The government has a remarkably easy time of this, since they can demand their own IOUs as payment in the form of tax, and therefore what they owe you, in practice, is to not hassle you about paying your taxes (as long as you send them enough of their IOUs back to them).

    But this business of creating money as pure debt is just greedy. It means all money has to be borrowed, and paid back at interest. This creates an artificial need to go out and earn money, to pay the interest, whether you want to or not. You might not be in debt yourself, but the money you earn comes from and goes to people who are. There is therefore a lot of stress about getting and having enough money.

    They could base their IOUs on anything, though. Anything they control (which is a lot), and which people need or want. If they based it on land-usage rights, for example, then this is something they control, and which never runs out. Every year, they magically have another year of land-usage rights that they can give out as IOUs.

    In this case they could give everyone a limited amount of free money every year (or month, or whatever), and it would come back to them, effectively as a land tax, which is effectively rent. You could therefore access the average land value, to use yourself, with your government stipend. If you wanted to use more than average-value land (as many people do), then you could work to get it, by trading with people who are satisfied with using less than average, and therefore having more money left over to spend.

    Some proportion of land-usage rights could be held back, in order to have some IOUs left over, to pay public servants.

    --
    If a plan isn't flexible it isn't realistic
    • (Score: 1) by khallow on Tuesday March 25 2014, @10:29PM

      by khallow (3766) Subscriber Badge on Tuesday March 25 2014, @10:29PM (#21216) Journal

      But this business of creating money as pure debt is just greedy. It means all money has to be borrowed, and paid back at interest. This creates an artificial need to go out and earn money, to pay the interest, whether you want to or not. You might not be in debt yourself, but the money you earn comes from and goes to people who are. There is therefore a lot of stress about getting and having enough money.

      No, I'd say interest on debt appropriately reflects the interest of the lender who takes on several risks when issuing a loan. Note that even your land-usage currency can be lent to others.

      • (Score: 2) by prospectacle on Wednesday March 26 2014, @12:04AM

        by prospectacle (3422) on Wednesday March 26 2014, @12:04AM (#21247) Journal

        I'm not objecting to people lending money at interest (why would you lend money for free?). My objection was to money being created as debt in the first place (at the top level of money creation).

        You can base money on anything that a lot of people want and which the government can guarantee. You simply print IOUs for this thing and people can trade them. If they trust their IOUs are valid, they will continue to have trade value.

        There are so many options. Money could represent specific materials, like gold and silver, or it can represent access rights like water-usage (from public water sources), land-usage, road usage.

        If it's created as debt then it can't be distributed except at interest, and every link down the chain adds more interest, which is then passed on to customers, clients, tentants, etc, whether or not they choose to borrow money themselves.

        On the other hand if money is created as something renewable (like using a specific amount of land for a specific amount of time), then it can be distributed without interest, because the amount of money in circulation is fixed to the amount of land available to use. People can trade it however they want, but it always comes back to the government eventually because demand for land never runs out.

        Any lending or borrowing that people want to do with the money after it's created, is up to them.

        --
        If a plan isn't flexible it isn't realistic
  • (Score: 3, Interesting) by Bob9113 on Tuesday March 25 2014, @05:11AM

    by Bob9113 (1967) on Tuesday March 25 2014, @05:11AM (#20808)

    The hanging point of the modern monetary theory crowd is that you can maintain low interest rates without causing inflation. If that is true, we can keep interest rates low forever and nothing bad will happen. And it seems to be working right now, at least according to CPI-U. But there's a problem with CPI-U, it focuses on a basket of urban goods, which includes things like televisions and SSD drives that have been plummeting in price.

    Historically, energy prices [wikimedia.org] are a potent leading indicator of inflation. When the price of energy goes up, the price of everything else must eventually follow, since energy is a significant factor in the production of almost everything. It could be that we are experiencing massive increases in efficiency resulting from the information revolution (including computerization and advanced automation) and price reductions from offshoring of manufacturing, and that is masking the underlying inflation that has been happening all along.

    If so, we may face one helluva reckoning. Good time to get a giant fixed interest rate loan and put it in... I'm not sure, equities maybe, but corps will take a hit if inflation comes; I guess pick companies that are not inflation sensitive. Maybe some kind of long-life commodity -- gold, maybe, but gold is already kind of high. Maybe housing, potentially the easiest play for the typical person. Upgrade your primary residence. Maybe I should do that... But I digress. (boy, oh boy, do I digress sometimes :)

    • (Score: 2) by buswolley on Tuesday March 25 2014, @05:51AM

      by buswolley (848) on Tuesday March 25 2014, @05:51AM (#20821)

      whiskey and cigarettes.
      Still, I don't buy into your inflation fears.

      --
      subicular junctures
    • (Score: 2) by Thexalon on Tuesday March 25 2014, @02:34PM

      by Thexalon (636) Subscriber Badge on Tuesday March 25 2014, @02:34PM (#20960)

      The hanging point of the modern monetary theory crowd is that you can maintain low interest rates without causing inflation. If that is true, we can keep interest rates low forever and nothing bad will happen.

      That's not their theory at all. Modern monetary theory says that right now, you can and should maintain extremely low interest rates as a way of creating investment that will get people back to work. Once there's 4% unemployment and 2.5% GDP growth and other signs that things are getting better, that's when you start raising the rates back up again to prevent an inflation-palooza like we had in the 1970's.

      This is exactly what a central bank does. The US Fed's decision to send interest rates to the floor is the biggest reasons that the US is doing much better than Europe in handling the whole financial crisis (it's bad in the US, but not as bad as, say, Spain).

      --
      The only thing that stops a bad guy with a compiler is a good guy with a compiler.
  • (Score: 0) by Anonymous Coward on Tuesday March 25 2014, @06:06AM

    by Anonymous Coward on Tuesday March 25 2014, @06:06AM (#20827)

    Of course all money is relative. A dollar has no intrinsic value, and neither does gold. Heresy? Look me straight in the eye, and tell me that when you see a picture of a gold bar you don't immediately do some kind of conversion in your head. "If I had that", you think, "I could have this".

    Food, shelter, clothing, medical treatment, companionship, some entertainment... maybe a few other things. Once you get beyond that you're happy and money is just a means to facilitate those other things. Nobody really wants money. They want the things money can buy. Some historians say that one of the earliest forms of money were tokens used to pay temple prostitutes. It makes sense. Money itself is a whore that many worship. People have been using her from the dawn of time.

    • (Score: 2, Insightful) by dime on Tuesday March 25 2014, @06:52AM

      by dime (1163) on Tuesday March 25 2014, @06:52AM (#20841)

      I can look you straight in the eye and tell you you're wrong. If you were right, the world would be a better place.

      People with real money, old money and not just "millions", don't think of the things they could have. They are the acceleration function to the economy's velocity function to your position function. They think of the ways that money can make more money. Material things can't make people earn more money for you. Only money can.

      There are many many people who do not want things. They want money.

      • (Score: 3, Interesting) by maxwell demon on Tuesday March 25 2014, @08:35AM

        by maxwell demon (1608) Subscriber Badge on Tuesday March 25 2014, @08:35AM (#20864) Journal

        They want money because money is power. Not necessarily in the political sense (although it seems to work quite well in that respect, too), but simply power as in you can get almost everything you want. More money means more power.

        Note that also power is largely based on faith. Sure, weapons give you a certain amount of power, but that only gets you so far. Look how quickly a dictator loses power as soon as the people don't believe any more in that power.

        --
        The Tao of math: The numbers you can count are not the real numbers.
      • (Score: 3, Insightful) by jimshatt on Tuesday March 25 2014, @10:52AM

        by jimshatt (978) on Tuesday March 25 2014, @10:52AM (#20901) Journal

        There are many many people who do not want things. They want money.

        You're right, but I've always wondered why this is so. Sure it's cool to have enough money to do whatever you want and still have enough left to resupply your wealth without doing any work (aka Fuck-You Money). But there are some people having more than FU-money. Why? What is the end goal?

        Getting into conspiracy theory territory here: Is the goal to have complete, absolute, totalitarian world control? And then what? I mean, I'm fine with that. I, for one, welcome our totalitarian Koch brother overlords. But they have some serious existentialistic issues to resolve after that.

  • (Score: 0) by Anonymous Coward on Tuesday March 25 2014, @07:25AM

    by Anonymous Coward on Tuesday March 25 2014, @07:25AM (#20850)

    I heard an audio presentation on this topic some weeks back.
    It was a reading of excerpts of the works of Paul Grignon. [google.com]
    If you want something to listen to while driving or whatever, grab it.

    -- gewg_

  • (Score: 0, Troll) by maxwell demon on Tuesday March 25 2014, @08:12AM

    by maxwell demon (1608) Subscriber Badge on Tuesday March 25 2014, @08:12AM (#20857) Journal

    Intentionally Opaque Underwear?
    Interesting Old Utopia?
    International Obscure Unicode?
    Intentionally Odd Unfairness?
    Incidentally Overrated Undertaking?
    International Owner's Union?
    Infernal Orwellian Underworld?

    It would really be helpful if that acronym was expanded!

    --
    The Tao of math: The numbers you can count are not the real numbers.
    • (Score: 2) by c0lo on Tuesday March 25 2014, @10:52AM

      by c0lo (156) on Tuesday March 25 2014, @10:52AM (#20902) Journal
      Read each letter aloud and interpret the sounds as a short phrase.
      What did you get?
      --
      https://www.youtube.com/watch?v=aoFiw2jMy-0
  • (Score: 0) by Anonymous Coward on Tuesday March 25 2014, @09:02AM

    by Anonymous Coward on Tuesday March 25 2014, @09:02AM (#20872)

    This is new?

  • (Score: 2, Interesting) by sce7mjm on Tuesday March 25 2014, @10:16AM

    by sce7mjm (809) on Tuesday March 25 2014, @10:16AM (#20891)

    I have studied the effects of this on a back of an envelope.

    If nobody actualy Quantitively eases then the Interest Rate becomes the default rate (the rate of which money grows with no equivelant increase in bottom level cash i.e. the amount every debtor will be short if all debts wound up tomorrow).

    A lot of economists and financial whizz-kids have a very blinkered view of finance. When you look at the total system it is purely based on perception and confidence mainly given by countries backing the system and the system backing the countries.
    But what isn't based on some sort of faith?
    That planes won't fall out of the sky?
    That the police are all out to protect us?

    Taking things on face value has been the downfall of the economy.
    It is slowly catching up, in the UK.

    Interest rates should equal the rate of Inflation which should equal the economic growth (gdp) which should equal population growth. But it is a shaky balance, and people assume a growth of 5% per annum can be sustainable, when average population growth over the last 50 years has been much lower.

    • (Score: 1) by dioptase on Tuesday March 25 2014, @04:22PM

      by dioptase (3290) on Tuesday March 25 2014, @04:22PM (#21032)

      Wrong. There is a time value to money. Here's a simple thought experiment:

      If you give me $1000, I will give you $1000 a year from now. Assume inflation is 0% and you will get the money (no default). Do you like this deal?

      No? How about if you give me $1000 and I give you $2000 a year from now? More attractive, isn't it?

      The reason there is interest is that the money could be used for something else during that time period. The lost use of that money has a value.

      So really, interest = time value + default (plus other stuff, but we've probably reach the limits of your interest)

      • (Score: 1) by sce7mjm on Tuesday March 25 2014, @06:31PM

        by sce7mjm (809) on Tuesday March 25 2014, @06:31PM (#21106)

        Yes but I don't "like" the deal because I won't make anything from it. Therefore it is perception that I should like the deal more if I get more than what I gave out. Which was my point, money is what it is perceived to be.
        I don't have money for a period of time makes me feel like I should have more when I get it back.

        If everybody charges an interest rate on loans of a limited resource, the resource COULD run out with debtors unable to recover enough to pay back the initial loan. That is where the system grinds to a halt, unless some higher power comes in to re-organise the debts.
        With money, more money can be printed to pay pack certain debts so the system can continue to move, though this has to be done with agreement of powerful parties (ie not individual depositors) to ensure confidence doesn't fall out, runs on banks etc.

        Time is a factor of course because if the rates of use of a balance a depositor has made is much less than the pay back time of a loan a bank has made to someone else then the money can continue to flow. The interest that has been paid has come from somewhere potentially out of another loan from another (or the same bank). The lack of money moves around the system a bit like the hole in a semi-conductor, we see the electrons moving about, but the lack of electron exists and has an effect as well. Every so often somebody fills in a hole or two.

        I don't pretend to understand the entirety of the system, but having a blinkered view and relying on "The Invisible Hand" to benefit the majority of people seems to me to be a fallacy. If people believe the system works it works better than when people believe the system doesn't work.

        Clap three times and say I believe in fairy's.

  • (Score: 2, Interesting) by SlySmiles on Tuesday March 25 2014, @10:24AM

    by SlySmiles (3841) on Tuesday March 25 2014, @10:24AM (#20892)
    In doing so, they have effectively thrown the entire theoretical basis for austerity out of the window
    Which really does want to ask a few more questions:
    • Assuming austerity is bad for an economy what are the reasons for implementing it?
    • All countries implementing austerity are borrowing less but still borrowing massively more than before the crisis, can this even be call austerity?
    • Every single country in the world is in massive debt, silly question, to whom?

    So really we need to move the conversation beyond the fact the central and national banks create money, that all currency in the 21st Century is fiat to understanding what our banks and governments are attempting to do and why. Why appeal to 'household budget' concepts?
    Why appeal the the 'hardworking person' (isn't everyone working 40+ hours a week hardworking or this there a special cutoff limit?)
    Why is western governments all implementing austerity and yet the balance sheets of the their banks are 10 times bigger?

    • (Score: 3, Interesting) by bucc5062 on Tuesday March 25 2014, @01:08PM

      by bucc5062 (699) on Tuesday March 25 2014, @01:08PM (#20926)

      "Every single country in the world is in massive debt, silly question, to whom?"

      that that silly a question at all. The old phrase is 'follow the money', so when Greece gets the screws turned to pay it back, pay it back to whom? And what happens when they don't? If banks own the debt can they not just foreclose? Take over the country or is that the end game?

      --
      The more things change, the more they look the same
    • (Score: 1) by monster on Tuesday March 25 2014, @03:28PM

      by monster (1260) on Tuesday March 25 2014, @03:28PM (#20995) Journal

      You are hammering the nail in the head with those questions, because it has become a matter of morals, not of economic policy.

      They are using charged words, like 'easy money' (easy for whom?), 'confidence' (in what?) and 'fiscal responsibility' (is depressing the economy of the country responsible?) to mask their view that by allowing inflation to reduce the burden of debts, it's encouraging moral hazards like overspending. In their view, it's The Grasshopper and the Ant, and Grasshoppers must be punished.

  • (Score: 4, Interesting) by Daiv on Tuesday March 25 2014, @11:17AM

    by Daiv (3940) on Tuesday March 25 2014, @11:17AM (#20904)

    If anyone wants the layman's explanation of money/the economy, check out Planet Money from NPR. This crew goes to great lengths to explain all the complexities in the world of finance in ways any average listener can understand. http://www.npr.org/blogs/money [npr.org]

    Check out their podcasts for explanations on the go, great stuff!

  • (Score: 1) by migz on Tuesday March 25 2014, @02:48PM

    by migz (1807) on Tuesday March 25 2014, @02:48PM (#20969)
    For a good exposition on the topic, for free (as in beer) try What Has Government Done to Our Money? by Murray N. Rothbard [mises.org]. It has a weird political slant, but the exposition is very enlightening. Easy to read, and only starts getting REALLY wierd around chapter 10.
  • (Score: 0) by Anonymous Coward on Tuesday March 25 2014, @04:16PM

    by Anonymous Coward on Tuesday March 25 2014, @04:16PM (#21028)

    Just consider what might happen if mortgage holders realised the money the bank lent them is not, really, the life savings of some thrifty pensioner, but something the bank just whisked into existence through its possession of a magic wand which we, the public, handed over to it.

    OK, I've considered it. Nothing would change. The article later alludes to a revolution that might occur re:Henry Ford's quote, but I don't see it. What are people going to do? Stop paying their mortgage? OK now you're arrested by the cops for squatting in someone else's house. Then what will you do? Fight the arrest? Good luck, you'll just be killed. I don't understand what the author honestly thinks is going to happen once people realize it's all a sham.