Money...

Money...
  • 1680
  • 40
  • 17

My Recent Posts

Something we use every day but think little about is money - but what is money?

A fundamental principle of money is that it is an exchange equivalent, it exists to enable or simplify trade. It is also an arbitrary unit, it can be anything, from jewels, to precious metals to pieces of paper.

Some people will call money a debt and the English pound notes carry a statement making them a debt obligation by the Bank of England, but that would place an inherent value on money.

Incidentally the view whether money is a trade equivalent or a debt leads to a slightly different treatment of it. Where it has value by itself (a debt) it become something to speculate with, where it is a means of trade it becomes just a tool in life.

Whichever opinion you chose, in the end either only has the value that the recipient ascribes to it.
This means if you offer me a 20 Pounds note, I could still value it at less than 5 Euros,  even when the official conversion rate is somewhere around 20 Pounds = 22-24 Euros.
In fact, back when European countries had their own currencies, it was possible to pay with the Deutsche Mark instead of Dutch Gulden in some places - at a premium (to cover the cost of exchanging and a surcharge for the convenience). 
 

 The next aspect of money is inflation and deflation. Some people decry inflation, but the existence of inflation and deflation are necessary evils - and will exist with or without monetary policy.

The original logic was that inflation will prevent people from hoarding money and wealth for a long time and make use of it. Deflation on the contrary will make people save money as they expect to be able to buy items sooner, thus small inflation was considered desirable.

Inflation itself can come about in two ways, either by the government printing more money or buy an upward shift in both living costs and wages. Conversely, one can argue that a drop in the cost of goods is also a form of deflation assuming wages do not drop in parallel.

In the end, a currency cannot remain stable unless we create a table of prices for items maintained by the government and even then it would not be stable due to changes in wages, productivity, etc.

 

Some people will advocate a return to the gold standard as opposed to weighing currencies against economic performance, yet that will still offer the same issues and can put small countries with small gold reserves at a disadvantage with no other justification.

Some people will advocate currency experiments and local currencies exist in Europe, however these only have a very limited range. Trade has gone global and having a currency only valid within a few km defeats the purpose of having a currency in the first place. If we add in exchange mechanisms we again end up with the current financial system of central banks. Thus we cannot get around national currencies - not yet anyway.

One potential candidate would be bitcoin, but one must question how the system will develop in the long run. With the number of coins artificially limited, there will be a point when deflation sets it which could cause problems. (Japan has a deflationary economy for a number of years which meant that the price of Japanese products rose on the global market.)
We actually do not know what effects an inherently deflationary currency would  have on global markets.

So where does this leave us:

Our monetary system has problems, mainly speculation in the form of investment banking. 
But nobody has been able to offer an alternative system that would offer the same conveniences in life that would not end up being manipulated in the same way as current currencies are.
Whether we like it or not, we are stuck with our current monetary system and all we can do is try to limit the number of legalized "exploits" that enrich the few at the cost of the many.

We have a system that is inherently broken, but we have no better system to replace it with...

So, any ideas? 

Comments

Detlev Conrad Mielczarek Added Aug 5, 2013 - 8:30am
And you are correct, that was the origninal intention with money - but that begs the question, why did we go wrong?
(We know where we went wrong: Spiralling interest payments and specculation.)
Johnny Fever Added Aug 5, 2013 - 11:48am
A monetary system is a set of policy tools and institutions through which a government provides money and controls the money supply in an economy.

In other words, as seen by the definition above, it has nothing to do with speculation by investment bankers. My recommendation, if you care about the health of our montetary system, is to have the Government spend less of it so they don’t need to print so much.
Johnny Fever Added Aug 5, 2013 - 11:50am
Depending on how much the Government prints, you might be better off carrying around chickens.
Detlev Conrad Mielczarek Added Aug 5, 2013 - 12:05pm
Money is more than just policy. Just look at every alternative currency - for example bitcoin. Bitcoins are not issued by any government and through their nature deflationary. Yet I can assure you that if we all switched to bitcoins, we would see the same economic problems - caused by speccualtion.

Government issued currency is the practical implementation we live in which also offers a guarantee for our currency (though that guarantee has only any value if the government can honour its obligation) - which is actually the Anglo-American view of money being a debt.
Plus, there is nothing to stop you from issuing certificates on say concrete for your payments - which actually happened when Island went through a financial crisis. http://www.theguardian.com/technology/2013/jul/07/how-would-you-like-to-pay-bitcoin

You seem intent on attacking governments when the flaw is in the system. Incidentally, governments were not massively printing money before the financial collapse - quantitive easing, the policy by which money is printed was a response to the market failures. (Though a failed response.)
Detlev Conrad Mielczarek Added Aug 5, 2013 - 12:06pm
Would we really?
Today I ask for one chicken for a loaf of bread but tomorrow I want two because I notice you have many and can afford to pay more.
Is that any better? It is also inflation - just by a different mechanism.
Johnny Fever Added Aug 5, 2013 - 12:22pm
My comment to Steve was not disputing the existence of inflation. Perhaps two chickens will equal one loaf of bread in a future where the Government doesn’t stop printing money.
Johnny Fever Added Aug 5, 2013 - 12:28pm
The “flaw” in the system was the Government’s involvement in the housing sector. Would you like me to name the various programs the Government financed/passed into law which created the bubble? I’m in no mood to debate the financial collapse as I’m very familiar with your ridiculous theories. I was just providing you with the definition for the term “monetary system”.
Detlev Conrad Mielczarek Added Aug 5, 2013 - 12:33pm
And even without the housing sector you will still have a crash. May I remind you of the tulip specculation in the Netherlands?

You seem to think that all that is wrong about money is the government but even without government the system is inherently flawed. And there is nothing ridiculous about it.
Detlev Conrad Mielczarek Added Aug 6, 2013 - 8:16am
So why do bubbles always occur when there is a lack of government regulation?
The tulip boom in the Netherlands had no government intervention - nor did the dotcom bubble. One could analyze the other crashes as well.
You also seem to have no concept of how Central Banks and Governments work. Incidentally, Central Banks are by law independent of the government (as a lesson from the great depression) though in practice will repsond to government needs/desires.
A public vote (democracy) can also very well influence monetrary policy - it does to some extent in Germany.
(It the cliche-filled ranting of tabloids that stir up anger against the fellow Europeans in economic trouble which causes delays. If instead the public were widely supportive we would have a different solution a lot quicker - BUT that would require an informed debate rather than cliches.)

As to "responsibility" - that term is laughable when it comes to the organization of currency. Managing your own finances, yes - a currency, no.
Matthew Dovell Added Aug 7, 2013 - 1:31am
"So why do bubbles always occur when there is a lack of government regulation?"
But bubbles also occur when there IS regulation. The dot com crash was the eight of IPO's and venture capital in the USA. Companies formed with very little money trading to sky high levels. There was plenty of regulations but speculation led to saturation. Now it can be argued that t

Bubbles to me boil down (no pun intended) to these items
1) Someone makes good money doing something new that is fairly easy
2) More players start moving in
3) There is a lack of quality standards that confuses the heck out of the consumer
4) Money dries up. Some large company takes a loss which causes a domino effect. Confusion continues to set in
5) From the ashes there is consolidation, buyouts, bankruptcies etc.

There's plenty of stock regulation at the moment with Sarbanes Oxley and yet Apple has tanked from the 700 level. Why? Because plenty of people put their money into it and then wanted to pull out of it..that's why. No corporate scandal. Being publicly traded means we know what percentage of what companies are owned by others so if there is a loss in one section it can cause selling to recapitalize. Anyone working at Bloomberg and CNBC would easily say "duh" to that but the complexity can get pretty large with this back and forth.

Bubbles do exist with the government pumps them. For example renewable energy is subsidize meaning it gets easy money from the government. Obama's policy is to get it cheap, not create lasting companies. So in subsidizing the supply we see plenty of companies be born, compete the heck with one another for the real purpose of shutting down and lowering the prices of production. So yes regulation can create bubbles. It gets even worse when governments start subsidizing the same industries which is exactly what is happening with the solar market.
http://blogs.wsj.com/corporate-intelligence/2013/05/20/the-solar-story-becoming-a-solar-bubble

Sometimes bubbles can be even smaller on the scale of a town. I know of a small town where they have eight places to get your hair cut/done in the span of one mile! Think about that for a moment...eight. So who caused this? Apparently there's some really low incentive that was created of a water waste rate and it spread like wildfire. It's a low cost industry where people learn under someone else and then start their own. In all due respects what specifically can be unique about eight places to get hair cuts to ensure they all survive? The same can be said about nail salons which are on about every street corner of the USA. It could also be argued that the agricultual subsidy in the USA contributed to higher obesity rates decades later. A "food" or "sweetner" bubble if you will created by the government.

As for central banks yes they can be considered independent of the government but the fed reserve chief is still appointed by the president and confirmed by congress. Right now there's a huge debate about who is going to replace Bernanke. Supposedly Obama wants Lawrence Summers but that might not be a good idea.It sounds like there's a civil war in the Executive Office over this choice because he has a fair amount of connections and would end up following the same line was Clinton and Bush did with Rubin and Geitner. To note Reagan pretty much can be said to have fired Volker back in the day. read the book Secrets of the Temple by William Grider. It is not a conspiracy laden book but it does take a honest look at policies and their ramifications. The US tried some democratic elements prior to the central bank with the whole free silver movement but it was a minor footnote.
Detlev Conrad Mielczarek Added Aug 7, 2013 - 8:48am
Thanks for your comment Matthew. As to regulation - I suppose there is also the topic of "good/useful regualation" etc. but you broke it down into the key puzzle pieces. (Many laws are very specific, especially tax laws, which by closing one loophole open up a few more... - same goes for accounting, stock markets, banking etc.)
However, what one remains with is that the flaw is in the system of money itself - yet it is the best we have.
Mike Haluska Added Aug 7, 2013 - 3:26pm
Inflation is different than a rise in prices due to market conditions. Drought may cause wheat to go up one year and adequate rainfall may cause prices to fall - this is NOT inflation. Inflation has one and only one cause - the government adding money beyond the amount of wealth actually created - period!
Detlev Conrad Mielczarek Added Aug 7, 2013 - 5:13pm
If wages increae with price increases you also have inflation.
Incidentally, free market specculation also creates inflation by creating money "ex nihilo".
If you hold stocks of a company valued at x and it is valued at 10x 1 year later, there is 9x more money in the system out of nowhere. This is not a problem if this was applicable to only "real money transfer", i.e. only used in the context of puchases with "hard cash" but unfortunately stocks get used just like currency is too - most frequently in company takeovers and bonus payouts.
Mike Haluska Added Aug 7, 2013 - 6:00pm
But what causes wage AND price increases across the board? You have cause - effect backwards! If the inflation rate was Zero, the only way a stock can increase its value (long term) is to CREATE MORE WEALTH. How does a society create wealth? There are only 3 ways:
1) Manufacture things
2) Grow things
3) Transport things
Every other form of business (service industry) simply takes money from one person to another.
Detlev Conrad Mielczarek Added Aug 7, 2013 - 6:19pm
Thank you for your comment - and you do indeed touch on one of the causes of the issue.
But, let me play the devil's advocate here - on purpose.
The money is only created at the Central Bank - the Central Bank decides how much "actual" (still just a number on the screen) is in circulation. So if you go to your retail bank, if they do not have the money, they need to loan it either from another bank or the Central Bank. By that logic, if the Central Bank were to not issue new loans, there should be no inflation. But even if it does not issue money, there will still be some inflation - less, but still some, or maybe deflation depending how the market develops.
Detlev Conrad Mielczarek Added Aug 7, 2013 - 6:29pm
Cause and effect are a difficult question - what came first, the chicken or the egg?
Though I never said inflation causes an increase in stock but rather that an increase in stock value has the same effect as inflation because stock is handled and traded like money.
The topic of "wealth" has also become extremely specculative:
If you produce say a hammer for me, there is a clear gain for me - the wealth is the gain of a tool - and I can value your skill, but in contrast, look at many "web companies" - for example "social networks". What is their value? It is completely arbitrary - and do they really create wealth? There will be some benefit, some downside, but how much is simple communication worth? How much is privacy worth?
But even coming back to the example of you making me a hammer, what is its value? 10€, 20€? Do you consider yourself an artisan and decided it should be richly decorated to be worth 100€, 200€? What does someone else value it at? So wealth becomes a very specculative topic - which means the "wealth" stays constant, but its evaluation changes. That is the issue with stock.

Incidetally, I don't think it would be possible for the inflation to ever be zero - precisely because as you point out, for example manufacturing things causes wealth. Thus we have "more wealth" in the sytem, but "more wealth" over the same population would mean either everybody gets richer or the value of everything declines (inflation).

A side note: We also cannot create out of nothing, so when we manufacture something we take the resources from somewhere - they might be effectively infinite due to abunance (within our lifetime), but technically everything on planet earth is finite, so how do we facture that into our wealth equation?
How can we evaluate something's value? Lithium was not of much worth until it is needed everywhere for batteries. The Spanish called a silvery metal platinum, little silver, but it is more valuable than gold.
Matthew Dovell Added Aug 8, 2013 - 1:03am
Well something certainly has shaken up the mindset of the goverment managing the money. A federal judge has ruled that Bitcoins are currency.
http://techcrunch.com/2013/08/07/bitcoin-clampdown-continues-as-federal-judge-says-its-a-currency/ How the government would attempt to regulate it is beyond me.

I would argue that the efficiency of less currencies is hard to resist. Having traveled to Europe and Asia frankly I would not want to go to bank every time I cross a border. I might have eight different countries currency in the form of change (although much of it is now Euro based). As commodities have become priced in dollars it is hard for some to not want dollars. Oil is priced this way as is gold.
Detlev Conrad Mielczarek Added Aug 8, 2013 - 8:36am
'The central banks create money for "Quantitative Easing" as they like to put it. Its still the same only under a different name. “Creating money out of thin air”.'
I agree with you here.

'Other banks create money out of thin air for the purposes of engaging people and companies into a pre-determined debt cycle.'
With this statement I have a problem. "Retail Banks" or "Investment Banks" have no mandate to create money out of thin air. The only way then can create money is either by specculation (the issue of shares being trade and handled just like actual currency) or by loaning money from the Central Bank. A retail bank cannot say "today there is 100 million that I will let people borrow" - that is only something a Central Bank can do, at least in theory.
A quick to look over link on this topic would be appreciated though if you have one handy.

As to finding a way out: In the long run we have to unless we want to continue with a boom-bust economy where every boom leaves the "rich" richer and the "poor" poorer until total catastrophe such as revolution or world war which see the fortunes completely destroyed for a new cycle to begin. I suppose bringing in transparency into the actual amounts of money floating about the market would be an initial step. Right now nobody knows how much money exists - there are estimates, but due to the nature of the markets, such as stock markets, nobody knows how much actual money there is.
Detlev Conrad Mielczarek Added Aug 8, 2013 - 8:41am
Well, technically every bitcoin has a trail attached to it. And it is a currency - it was always meant to be a currency, though I agree, regulating bitcoin will possibly prove impossible.
As to currencies: Individual national currencies have benefits and drawbacks at the same time. Quantitive Easing devalues a currency which in theory supports export - which is great if you have buyers. A single currency simplifies trade between partners and makes it cheaper too.
The merrit and disadvatage of currencies would be enough for a book. The Euro is a success story overall, BUT "we" failed to consider the differences in national economies that have lead to the problems of today. Incidentally easilty solved if we had a central discal authority, elected by the peoples of Europe. However for that to happen we need a lot more transparency in European processes as well as less prejudice in nations.
Detlev Conrad Mielczarek Added Aug 9, 2013 - 8:42am
Ok, I finally got round to looking at the link. A number of interesting quotes, but they lack depth and unfortunately I don't have the time available to do the equivalent of an economics degree on this topic.

I will speeculate a bit here - but I suspect, the "money out of nothing" from banks is actually part of the system itself and its inherent flaw. If banks act within the legal frameworks they are supposed to adhere to, a loan or a credit has to be backed by something - and there are various definitons what may be used and what may not be used. Stock forms a part of the banks capital - and from what I understand, stock can be used to underwrite debt. Now the value of stock is just market expectation, it can be x on one day and 2x on another day, however depending on whether it is x or 2x, you can underwrite different amounts fo debt. I.e. when the value of stock changes, assuming stock is used like "hard currency" (in our system it is), this can create money out of nothing and swallow money into nothing.

The topic of extending credits is another one: I would not equate extending a credit with creating money. Assuming I loaned you x (in hard currency) which you are supposed to repay me in 1 year, if I extend it to 2 years because your financial situation is not ideal, I have not created any money as the money in the system is still x (this is assuming no interest, but interest would make no difference to the logic if it is "hard currency").
However what can cause issues is that fact that debt itself is specculated with - including the whole infrastructure that comes with it, i.e. insurance, etc.
It is an interesting topic, but also a very messy one.
Matthew Dovell Added Aug 11, 2013 - 1:37pm
Certainly there is nothing wrong with trying to establish a medium of credit however it depends on the specific intent. For example I know of some areas which established local currencies that gain faith when vendors that are local sign on to use them. To a point the intents are well but the ultility naturally is dependent on who signs onto them. From what the federal government stated is that as long as it does not look like a dollar and can be converted into dollars then it is fine. Years ago there was a group called Norfed that went a bit too far. Great looking notes but they looked way too government like to the point of almost looking counterfeit.

The issue I see with QE's and central banking to a point is that it seems like many of them are doing the same things at the same time which makes the impact much larger. There are many more players on stage today so there is a reluctancy to stop current actions and start new ones or just outright stop.
Detlev Conrad Mielczarek Added Aug 12, 2013 - 11:41am
Wage increases vs. currency devaluation: In practice, for the average working population, wage increases are only enacted to compesate inflation, in this respect you are correct, however if you look at the exorbitant payment increaes at management level (even for non-performance), there is no way those can be justified with inflation.
Also, if you perceive to be without competiton, you are able to raise the fee you charge for your service (hence your wage) as well.

As to this statement:
"Governments are inherently inflationary and their intereference with money brings tyranny and chaos."
Just that private business causes the mess that the government then tries to (whether successfully is another debate) correct.
Incidentally the government also does not create as much money through quantitive easing as the so-called "free market" creates from specculation in stock exchanges.

Or to turn the table around: Name a better system that has been shown to work or that has similar safeguards.
The issue of economic collapse is an old one - as is inflation and deflation. It is not an issue of government but a problem inherent in money and how we handle/deal with it.

If you attack a system, it would be good if you could offer an alternative - not one based on groundless assumption but one supported by economic data (ideally of the past or from local economic experiments).
Detlev Conrad Mielczarek Added Aug 12, 2013 - 12:26pm
The obvious question, link?
Detlev Conrad Mielczarek Added Aug 12, 2013 - 12:31pm
While I agree with your observation, I disagree with your conclusion:
You are correct that the money "printed" by government goes into the stock market - and its "ex nihilo" creation of money. However if the government were not to issue any money or you had a "hard currency", you would still have people investing in stock markets and creating money in the stock market.
Money is just a "measure" for the "value". You would need to get rid of the stock market to remove effect, not modify the currency.

As to riches through resources: In the short term yes, I agree. But there is the question at what costs and what are different things worth? What is more valuable, wildlife or oil? Science or trade?
This incidentally comes full circle, because what I value a lot, you might not value at all, thus changing the definition of "rich" in the eye of the beholder.
Detlev Conrad Mielczarek Added Aug 12, 2013 - 12:46pm
Thanks for your comment - I was wondering when you would comment (after out last exchange).
And as you disagree with my view, I do with yours:
"When I give money to buy a house it is because I value the house more than the money that I spend on it so there is no equivalence."

Do you really value a house more than money just because you buy it? Is it not more a matter of neccessity - one needs a place to live (or one wants to "make" money selling/renting out a house)?
A house you lived in may be worth more than its market price to you due to memories - but that is a different issue.
The exchange of money for physical goods/services does not mean we value the physical goods/services higher - but just that we partake in an economic interaction. You cannot infer any estimation of value from the fact that a transaction takes place.
Maybe you would point out that many people buy houses as their pension or retirement saving - and they do (in the UK) but that does not confer any extra value onto the building. The Germans for example prefer to save money instead.
Money can loose its value through inflation and the house looses its value if there is no buyer, just look at what happened to the housing market in the US and the UK after the 2007 crash, house prices dropped.

As to the topic of currency: Currency has always been the domain of the "local ruler". The Roman Emperors had coins issued as did the monarchs of Europe. Goldsmiths may have created coins - but only at the request of the local authority.
Currency needs a foundation, a central authority to organize it - for example a state or a nobleman or a system of, let me say "sufficient trust" (Bitcoin for example). If a random goldsmith were to offer me a gold coin, what good would it do me? None. I cannot eat it, nor do I know who else will accept it. In a village of 10 people you might agree on a local currency through mutual agreement, however scaling it up to nations would be impossible.

As to the topic of inflation: I will have a look when I get the time (it has been a while since I got to sit down to enjoy a book...), but I suggest you look a bit into the history of currencies.
For a start, I would like to see how you would explain the tulip bubble in the Netherlands - which I believe is widely considered to be the first stock market crash.
Detlev Conrad Mielczarek Added Aug 12, 2013 - 1:21pm
Thanks - I will have to look at it at some point.

As to this part: "Don't make the mistake to believe that in a free market you need someone to fix/regulate the prices." - "Boom bust economy" is the only thing that springs to mind - as well as the rich getting richer at the expense of the rest of the population (because in a free market you can pay a pittance as a wage - who tells you you cannot and people have to eat to live, thus have no choice but accept such work... Dark days ahead in such a system...).

And just on the topic of economics: Any model is only as good as its underlying assumptions - if the assumptions do not hold true, the model becomes worthless.
I am sure the people in the Federal Reserve and Bernanke thought they understand economics - before the financial crash. The People at the Bank for International Settlement in Basel knew the crash had to come - nobody listened...
(I cannot find the Spiegel article right now - it was years ago that I read it.)
Detlev Conrad Mielczarek Added Aug 12, 2013 - 1:27pm
And here is the issue:
Of course there is no equivalence between flour and eggs - they are different materials, BUT because we for example trade 1kg of flour for 5 eggs, does it mean that either of us values the other as more valuable? Not neccessarily. We can also value them as equivalent in value - i.e. a fair trade.

As to the tulip bubble: I was referring to it as an incidence of inflation and economic collapse without a lot of regulation in a fairly free market.
If we go on the way we do (both stock markets and governments) there will indeed be problems ahead - how soon is anybody's guess.
Detlev Conrad Mielczarek Added Aug 12, 2013 - 2:48pm
Where have I mentioned Deutsche Bank? Nowhere.
I mentioned the Bank for International Settlement in Basel - a significant difference.
Also, what GDP does Deutsche Bank have? Deutsche Bank is a private bank - nothing more.
Detlev Conrad Mielczarek Added Aug 12, 2013 - 7:06pm
If you do not agree with the message, shoot the messenger?
The International Bank for Switzerland is located in Switzerland - and they are very much aware of what direction the global economy is heading (I might get round to digging up the article yet).
If you want to discuss German finances, you should take the historical perspective into account as well - especially the events after world war I.
Incidentally, on the same notion you could argue that many other European countries also have war debts - here and there - you can dig up past history, but I am not sure how much it helps to resolve the issues of curerncies.
If you really want to get into a name calling match, there are plenty of other points - what about the fraudulent rating of American mortages? What about Greece joining the Euro with the help of Goldman Sachs by hiding the state of their finances?
As to the military, NOBODY is denying Greece the right to have a navy - incidentally, the military was the ONLY branch of Greece politics that was allowed to continue to spend excessively despite all others being forced into austerity.... (That's a different debate) - Add to that, Greece has relative to the population one of the largest (!!!) militaries in Europe.
As to the Deutsche Bank: With current EU legislation banks are required to have a testament. The state can always to not to pay and let a bank collapse, as the US did with Lehmann Brothers.
And the state of German finances and Germany's EU role: Germany as a country never asked to be in the position of "paymaster" - it has ended there because it is one of the few solvent countries in Europe.
Now there are many good reasons to argue that austerity in Greece is a bad choice - however things have to change (e.g. the issue of tax evasion and administrational issues).
As to the point of German industry: Germany does not decline to return money, it is more an issue of an export heavy industry - coupled with the fact that there is not a lot else to buy outside of Germany, but that is a different problem, not an issue of money.

But I suppose that is another tactic... shoot the messenger if you don't like the message.
Mike Haluska Added Aug 12, 2013 - 8:49pm
You're a bit confused by the Stock Market, my friend. There are two distinct actions the Stock Market (NYSE, etc) takes:
1) Initial Public Offering - where a stock first gets introduced to the public and raises money for the issuer
2) Ordinary Trading - where an existing stock gets traded
No additional currency gets created by the US Treasury in either case! Stocks may rise or fall in value over time, but overall it is a zero sum game. Someone's loss is someone else's gain.
Mike Haluska Added Aug 12, 2013 - 8:54pm
The conversion of raw materials (which many times are relatively useless in their natural state) by human brains, muscle and desire is what creates wealth for the converter - provided the products he created have a market demand for them. It's that simple.
Detlev Conrad Mielczarek Added Aug 13, 2013 - 8:31am
The Bank of International Settlement is not so much a traditional bank - it is the "Club" of National Central Banks. They keep an eye on all of the world's economy - and they will issue a warning when they see a problem, whether the others listen is another debate.
Incidentally, that is what happened pre-2006/08 when they were very much aware that a crash was going to happen - as incidentally all the "investment bankers" in London knew equally well.

I have not researched settlements after World War II - I am sure every country has its skelletons there. (Nazi gold in Swiss banks for example...) - Having said that, these sums are comparatively small considering the problems banks are causing today.
(I could also ask, do the German's owe the Polish anything for splitting their country into pieces four times? Or maybe for world war II destruction?)

Now regarding the statistics and Greece: Eurostat was not given a mandate to verify the accuracy of the statistics supplied by member states at the time. (I think they can do so now.) At the time they were only allowed to receive data submitted by the member states - without the means of verification.
A flaw in the system. As to Greece - the problem was twofold, Greece wanted to be a member but there was also a will to have Greece as a member, i.e. the rest of Europe was to some extent willing to turn a bling eye to warning voices.

As to Northern Rock: It was the only feasible solution unless you advocate people loosing the money in their accounts. On the other hand, clearly defined "investments" where people are aware that they are taking a risk (even a small one) are up for debate.
On this note, you might remember the case of Iceland where the UK government guaranteed the money of UK citizens in the accounts, but Iceland in a referendum voted not to pay for the failure of their bank.
Result: The UK government is left with the bill - then again, I cannot fault the people of Iceland for not wanting to pay for the greed of the English (who "invested" in Iceland due to the promise of large returns).

As to the last point: Armaments are only a small part of Germany's export - the same is true for Russia or the US. They may seem like a large part of exports, but in terms of actual monitary value, they are not. As long as the "exporting nations" retain an edge in their respective fields - e.g. engineering, they will have customers for quite some time to come, at least a few decades more.
(Ironically, Germany's industry did not really suffer during the 2007 crash - there was a bit of a dent but not major crash - everybody still needs manufactured good - in the long run at least.)
However, if Germany looses its engineering edge the country will be in trouble - incidentally, that might or might not happen before the global need for manufacturing reduces.
Detlev Conrad Mielczarek Added Aug 13, 2013 - 10:32am
... I can only shake my head reading this...
Not all countries presented fake statistics - some did. Still, two wrongs don't make it right. Just because someone else fakes their statistic, it is no excuse for faking your own statistic.

Reagrading customers: German industry still has a lot of customers - industry rather than individuals. As I said before, there was a slight slump but overall it is business as usual, no collapse and no severe problems. The bigger issue occurs when countries such as China catch up and offer the same product at significantly lower prices (see solar) but that is another issue.

The "middle paragraph" is just nationalist ranting. Germany is not taking any revenge - if you believe that you should possibly start reading a bit more - non-nationalist literature.
Incidentally, you would find that there is not a lot of public support for German government funding of Greece - the government has to justify the help. (And it is justified by the otherwise catastrophic impact on the Euro.)
The next point you COMPLETELY ignore is that it is not Germany alone that decides which policies countries are supposed to implement (for the better or worse). It was was a joint decision on the EU level - so if you want to complain, write a letter to your EU representative, because that is the correct address. (And potentially the IMF as well?)

Lastly: The common request is NOT that countries like Greece (or Portugal) pay, BUT that they clean up their administration and improve their financial situation. Greece's administration as a mess - that was a fact.
Now if you want to debate the effects of austerity, I agree that it was and is a disaster (especially as it takes money from the wrong part of society) but things had to change.
Ideally, tax the rich - make the administration more efficient and reduce it size.
Detlev Conrad Mielczarek Added Aug 13, 2013 - 12:23pm
May I advice you consult a map?
"Lichtenstein is right in the heart of Germany..."
Lichtenstein is a country between Austria and Switzerland!!!

As to the administration - look here: http://www.theguardian.com/world/2012/sep/09/greece-tax-evasion-professional-classes
Do you tax the owners of shipping companies by now or is that still tax free?
If you deny that there are issues in the Greek administration then you are a part of the problem, not the solution.

"...Greece that helps them and pays for them all the time."
So why does Greece get more out of the EU pot than it pays in? Greece does NOT pay for the EU. Now I won't debate that Greek should get EU money given that the Greek economy is weaker than that of other EU countries, but it helps to look at actual numbers.
http://www.theguardian.com/news/datablog/2012/nov/22/eu-budget-spending-contributions-european-union

"Germany lost a lot of customers. She will lose even more because of various reasons. Their economy is in bad state and it will worsen."
What are you reading? There is the potential of long term issues - mainly pensions, care for the elderly and stagnant wages, but overall the economy is doing well.

I really suggest you diversify your reading - because right now it just comes back to a lot of nationalist drizzle - blame everybody else but yourself.
The problems within the EU are mainly home made - at least those leading up to financial crash.

Oh and what is yellow press, because I never heard that term before.
Detlev Conrad Mielczarek Added Aug 13, 2013 - 12:25pm
Yout have a point there - BUT lets assume the conversion pollutes the environment along the way. (Gold mining, especially extraction from the ore, bauxite mines (for aluminium) are two examples.)
Does the extraction of raw materials make you wealthy then? Or does the destruction actually make it a loss business?
Detlev Conrad Mielczarek Added Aug 13, 2013 - 12:27pm
"Stocks may rise or fall in value over time, but overall it is a zero sum game. Someone's loss is someone else's gain."

Only if stocks are exchanged for hard currency - but stocks are traded like currency based on their current market evaluation, this creates effectively extra money/currency in the system.
Detlev Conrad Mielczarek Added Sep 7, 2013 - 2:54am
Thanks for the comment Dme.
The current system implodes the very moment some entity big enough becomes insolvent - such as the subprime crisis where home owners could no longer repay their loans.
A similar effect occurs if a state becomes insolvent.
 
Incidentally, the issue is not so much insolvency when a state can no longer pay, but a lack of trust in the currency.
 
And all that goes back to excessive borrowing and debt fuelled by excess money derived from speculation.
Detlev Conrad Mielczarek Added Sep 7, 2013 - 8:05am
@Dme: The whole "financial industry" in its current form is a timebomb - everybody does it, nobody does anything to change the system.
Incidentally, a crash is inevitable in out current system - it is only a matter of time when it happens...
 
I have also looked over your article - one thing that springs to mind is that scientific notation would be easier to read. But that's me.
 
As to the topic of the financial market and banks: The very moment one product is regulated or banned, another springs up in its place...
Detlev Conrad Mielczarek Added Sep 7, 2013 - 11:34am
I once had a paper to read - during my maths degree - on credit default swaps: the basis is the most simple implementation of probability, but they thrown in one term after the other and it gets convoluted...
I think that is the case with most financial topics - a basic idea is represented as complex as possible to keep the prying public out and to make regulation difficult.
 
As to the interest bets being set up: I am not sure whether it is set up to fail or whether it might not be more a matter of banks thinking they can make a lot of money.
A university in Munich (not sure which one) set up an experiment once to simulate a stock market with economics students, they were given a certain amount of "money" and one key piece of information: At a point in time all stock would become worthless.
The system exhibited the same bubble we know from real life stock markets - everybody tried to get as much out of the system - despite being told it will fail.
Based on this, I would actually question the rationality of stock markets - however the system only "works" (to some extent) if the participants are rational...
 
As to credit default swaps: They featured in European news.
Detlev Conrad Mielczarek Added Sep 9, 2013 - 2:54am
@Dme: I'm not sure I would bet on a timeframe - while bubbles are inherently unsustainable, I am not sure one can estimate when they will burst.
 
Certainty that something happens is different from certainty something happens within a specified timeframe.
Having said that, the financial services operate on the idea that failure will occur "in the future", when prudence would suggest you operate on the notion that failure (especially of something like the financial market) is around the corner - especially given our knowledge of the workings of financial markets.
 
 
 
 

Recent Articles by Writers Detlev Conrad Mielczarek follows.