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Politics : Foreign Affairs Discussion Group -- Ignore unavailable to you. Want to Upgrade?

To: Maurice Winn who wrote (116187)	10/4/2003 5:03:51 PM
From: Lazarus_Long	Read Replies (1) \| Respond to of 281500

got people spending money that they didn't really have I was about to ask how you can spend money you don't have and then it came to me: plastic. That's one way. You charge and the bank has to come up with (at least immediately). Where does the bank get it? Well, it is allowed to loan some multiple of its capital. Net. It hopes (mostly correctly) that by the time it receives the bill for your purchase, someone else will have paid some other credit card bill and it will have the cash to pay yours. What happens if you don't? If enough people don't, the bank gets caught in a cash flow (liquidity) crises and fails. At that point, the Feds move in, shut it down, and pay off off its net indebtedness to creditors, printing money if needed. Another way that stock market valuation can translate into real $$$$ is if you put up the stock as security for a loan. Then you get some fraction of its market value in $$$$. Or you can leave in a margin account, where its increased value can be borrowed against to buy more stock whose current owner gets real $$$$. I think CB is wrong. I think irrational exuberance can result in real $$$$ changing real hands. And if the alleged value of that stock evaporates, there are real consequences.

To: Maurice Winn who wrote (116187)	10/5/2003 12:25:17 PM
From: Ilaine	Read Replies (3) \| Respond to of 281500

Hi Mq - the essay I linked wasn't any great part of the Magnum Opus, for that I have to gird my loins and study up on the French and the Gold Standard from 1926-1930. I've been waiting for Moure's masterful dissertation on the gold standard which has finally come out. eh.net www3.uakron.edu I am afraid I have been dragging my feet while I went off on various tangents, including trying to understand what money is. I have a very hard time understanding why bills of exchange, hawala, hundi, banker's acceptances, bills of lading, and such, are not money, per se. I think they probably are, otherwise the governments wouldn't call hawala and hundi "money laundering". They're money that don't need governments. Anyway, history tells us that really bad depressions need governments and central bankers acting in concert, screwed up foreign exchange rates, screwed up bank reserves (typically bank panics), high tariffs, and maybe some creative destruction (paradigm shift in technology) all at once. Once upon a time the onus of all this would fall on blue collar workers, but after they got the vote, the governments and central bankers had to spread the pain around in order not to lose their own heads. That's my thesis, in a nutshell.