Have you Ever been Swept Off Your Feet?

In both cases – whether the bubble was inflated with positive or negative energy – the participants in the bubble are being swept away further and further away from actual physical reality and start to see everything either ‘extremely negatively’ or ‘extremely positively’ – neither experience is grounded in reality – because the physical is neither positive or negative – it just is what it is.

And Then You Crash – Meconomics

In this little series, we’ve been investigating the phenomenon of inflation, how we in our daily lives participate in ‘inflating our reality’ and so, how we are on a personal level participating in the same principles/dynamics that we see playing out on a bigger scale when it comes to inflation, speculative bubbles and financial market crashes.

Welcoming New Life with Living Income Guaranteed

Comfort, security and nurturing are all things we wish are present when a baby comes into this world. Yet, these conditions are not a reality for many babies, as parents themselves like these things in their lives. In Pietermaritzburg, the capital of KwaZulu Natal province in South Africa, 3 to 5 babies are…

Humanity Washed Ashore

This was an excerpt of just one of the stories about the boy. Over the last few days, dozens have been written and published on various major news sites. What is more striking than the content of the posts, is the comments that are left on these articles. What is humanity’s response to such images, to such news?

Voting Fun – What does it Feel Like to Have a Say?

Now – before such increased direct political participation is a reality – let’s do a little test to see what it feels like. So – here are some mock-questions where you’re asked to give your input. Imagine that this relates to your direct reality (eg. your town) – and your answer has a weight that influences the outcome of the decision. Of course, in reality…

31 August 2012

Day 84: Fiscal Policy and the Budget

So - what tools does the government have available to intervene in the economy?

These tools are:
- Government spending
- Taxation
- Borrowing

Every government specifies how they will make use of these tools in the budget. So - the budget will reflect a government's policy in terms of what types of results they wish to achieve and how they will practically do that. The main points that are given attention within the budget are government spending and taxation. For instance, the government will specify how much funds will be available for education, for healthcare, for military training, etc. - as well as what types of products will be taxed, by how much and how incomes will be taxed. Looking at a government's budget will give you an idea of what the government deems to be important and what not. The budget is in essence a plan in terms of how the government wishes to regulate the demand and supply for goods and services in the economy.

We have already discussed monetary policy extensively in previous blog-posts. The budget and all the tools a government has available are referred to as 'fiscal policy' ('fiscal' comes from the word 'fiscus', which is what the public treasury was called in ancient Rome). Monetary policy - as carried out by the central bank - and fiscal policy are attempted to be carried out in harmony to prevent the one policy from counteracting the other one.

In this blog-post we'll introduce you to the 'general idea' of how governments utilise the tools of government spending, taxation and borrowing - after which we'll discuss each point individually.

What will a government generally do when the economy is in a recession?

Firstly - what is a 'recession'? Recession is when the economy is doing 'bad'. Compare the economy to the human body - where exchanges take place, blood flows, organs interact with each other and each cell has certain requirements in terms of the sustenance that it requires in order to function properly. A recession is when the economy is 'ill' - where fluids don't move through the body effectively and resources/sustenance are not reaching the participating cells in an effective way. Signs of a recession are a fall in income, total production, investment spending, business profits and inflation - and a rise in unemployment and bankruptcy.

So - with the understanding of the word 'recession', we ask the same question again: What will a government generally do when the economy is in a recession?

When in a recession, the government will pursue 'expansionary' fiscal policies so as to stimulate economic activity. 'Expansionary fiscal policy' can be translated into: an increase in government spending and a reduction in taxes. Increasing government spending and reducing taxes are both policies to increase the money supply - eg: increase the amount of money in circulation in the economy.

When applying expansionary fiscal policy, a budget deficit is usually created - because governments increase what they spend, and decrease what they earn. The difference between what is spent and what is earned (the difference between what goes out in the form of government spending and what comes in in the form of taxes) is called the 'budget deficit'.

The opposite can also occur - when an economy, instead of being in a recession, is expanding too quickly. In those cases, all prices will rise (inflation) and industries in other countries will become more competitive in comparision, leading to balance of payment problems (where more money leaves the country than comes into the country). In such a situation, the government will attempt to pursue 'restrictive' or 'contractionary' fiscal policy. This can be translated into: a reduction in government spending and a raise in taxes. The idea here is to withdraw money out of circulation.

This all sounds really neat and simple - but in practicality, it's not that clear-cut. The problem is that there is usually quite a big delay between what happens in the economy (for instance a recession) and the response of the government (for isntance expansionary policy). Sometimes - by the time the government is aware of the recession and starts implementing expansionary policies, the economy may have already started expanding by itself and the governments' measures are pointless, or even make matters worse.

30 August 2012

Day 83: Nationalisation and Privatisation


Nationalisation refers to the transfer of ownership of an industry/sector/company to the government. It then becomes publicly owned. Most 'conservative' economists have a consus that nationalisation most of the time works as a synonym for 'economic failure'. The reasons why will become clearer as we look at the point of Privatisation.


Privatisation refers to the opposite of nationalisation, where the transfer of ownership moves from the publict sector to the private sector.

There are several points economists usually refer to in support of privatisation:

1. Selling off public enterprises to the private sector will give the government an influx of money which they can use towards financing their expenditure or any debts/deficits they may have. This way for instance, instead of using tax money, they could use this 'new money' to finance their expenditure and lower tax rates.

2. The second point refers to the well known 'government is inefficient' opinion, whereby economists always see the private sector as more efficient than the government. Accordingly, it is thought that the government should only involve in those industries where there's little to no profit involved and let the private sector handle the rest.

3. The third point refers to the idea that since government owned enterprises are inefficient, that they run losses and that these losses are an important source of budget deficits and other fiscal related issues.

4. As part of 'government inefficiency' state-owned enterprises are seen as bureaucratic, ineffective, not meeting consumer wishes and a burden to the taxpayer. Due to lack of competition they are also seen as lacking creativity, bad investment decisions, poor financial management, low levels of productivity and a lack of accountability to the public.

5. Since private enterprises are more profit motivated, they will attract foreign direct investment and consequently increase the country's foreign exchange reserves. Additionally, due to increased investment, privately owned enterpises will be more easily able to adapt to the ever rapid changing economic/business environment.

6. Since public enterprises are state-owned, they do not pay any tax. So another reason which gets put forward is that the government can increase its income throught selling off its enterprises as they than become part of the tax base.

7. The money the government receives can be used towards increased spending on hoising, education, health, transport and so on.

There are also some cons which are considered:

1. Enterprises which have been privatised are not necessarily going to find themselves in a more 'competitive' environment, and thus not become more 'efficient'

2. Publicly owned firms usually have to take into account possible external costs or benefits (since they are working with a bigger sphere than just 'the one company' that they own). Privately owned firms won't do this since their 'sphere' is quite limited.

3. Publicly owned firms will usually be more 'public' driven than 'profit' driven -- so they will for instance make sure that there are particular infrastructures in place in poor areas, even though these areas aren't "productive" in the sense that the people who live there have little money to offer. Privately owned firms would not make such 'bad business decisions' and will go where the money is. Since they are 'profit' driven instead of 'people' driven, they will work within those areas where there is money and where people can pay for their services. So either privately owned companies will 'move away' from those areas or 'up the prices' -- both which will affect those with little money in a negative way.

4. Trade unionists are generally against privatization. This is because within the whole 'government is inefficient', how the government employs people is also seen as inefficient. Privately owned enterprises want to 'squeeze the most' out of everyting and so they will try to have the least amount of people employed to do the same amount of work (as this results in higher profits since less wages need to be paid out). As such, when enterprises get privatised, one of the first things that happens is massive job cuts.

Privatization often forms part of one of the basic components of Structural Adjustment Programs. This will be further expanded on in blogs to come.  
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29 August 2012

Day 82: Government Failure

Previous blog-posts would have made it clear by now that the market is not perfect and never will be - and this is something many economists are willing to admit. However, they believe that governments are able to 'adjust' the market when necessary through acts of intervention. Within this blog-post we're having a look at the problems related to government intervention, or otherwise: 'government failure'.

In terms of government failure, let's discuss three major weaknesses of governments and how they attempt to manipulate the economy, namely:
- Politicians
- Bureaucrats
- Rent-seeking by interest groups


Politicians are those who are elected by a population to represent their interests in government. However, in most democracies, people only get to voice what they want politicians to do on their behalf at the moment of election. After that, politicians can pretend to represent the people, but they can pretty much make decisions that suit their personal interests. Due to the desire for power and wealth, they wish to remain in their current position or progress their careers for more influential positions and do this, they need people/more people to vote for them. Therefore, politicians will have a tendency to take the limited time they are elected for to satisfy their voters in the short-term in order to 'prove' that they are the right choice - without considering long-term consequences. They'll implement programs and organise interventions that have clear benefits to particular people, of which the costs and disadvantages are vague or ignored. Another tendency is to make decisions that will give a small group a whole lot of benefit, while a large amount of people accrue relatively small costs.


Bureaucrats are not even elected by the population. They are 'civil servants' and are responsible for the supply of goods and services by the government. They, thus, have quite a lot of power and, just like politicians, often use this power to pursue personal gain. They'll attempt to maximise their salaries, power or prestige. For instance, the defense  establishment often exaggerates the military threat so that a lot of money is allocated to this department and this, obviously, allows them to increase their salaries.

It is claimed that bureaucracies are often inefficient because there is no competition to keep each other in check. In terms of simply overseeing the efficiency of bureaucrats, it is claimed that this is mostly impossible and for some reason it is very difficult to fire inefficient bureaucrats.

Rent-seeking by interest groups

Due to politicians' sensitivity towards buying votes, they are easily manipulated. Interest groups will attempt to pressure/persuade/seduce governments to use their ability to intervene in economics in a way that benefits them - and these attempts are often successful.

28 August 2012

Day 81: The Role of Government in the Economy

In one of the previous blogs, we explained how there's different degrees of government involvement in different economies.

The information within this blog will specifically relate to the role of government within the context of a free market system approach.

Supporters of the free market system see the private sector as way more efficient than the public sector/government because of its 'competitive nature'. So keep this in mind when reading the blog.

The role of the government within the economy is considered within four points:

  1. The first point is that the government should not get involved in the production of good and services lol.
  2. The market system / economy does however need the government in terms of providing a form of stability and certainty through laws, rules, regulation, monitoring and enforcement. These points need to be in place for firms and consumers to make contracts. Also think about for instance property and copyright laws.
  3.  Markets do not always produce efficient outcomes, and sometimes the government requires to intervene to 'correct' the market failure (think Bailouts)
  1.  It's generally acknowledged that markets produce relatively efficient outcomes but not equitable ones. So when society wants a higher level of equity as for instance in the form of a more equitable distribution of income -- then this requires government intervention. This is seen as a controversial topic within economics as our system is designed in a way where there is mostly always a trade-off between efficiency and equity

There are generally five ways in which the government can intervene within the economy:

  1. A first way is through public provision of goods and services such as infrastructure and 'national defence'. This is done through either public ownership or by public financing within the production processes of the private sector (eg subsidies). In recent years it also has become more popular for the government to hire the private sector for the provision of public goods.
  1. Another way in which the government can intervene is within its position as a market participant. The government is the largest employer of labour within the economy and as such it can through for instance its wage policies and other practices achieve certain objectives.
  1. The government can also influence the economy through its expenditure/spending. Besides influencing the economy through its spending patterns of goods and services, it can also engage in something called 'transfer payments' -- these are basically payments where the government doesn't receive anything in return. Examples are subsidies, child support grants, disability grants
  1. Another method is through taxation. Although taxations' primary purpose is that of government income, it can also be used to manipulate the economy (eg sin taxes on tobacco, alcohol or lower tax rates for smaller businesses). In those cases taxes function as incentives.
  1. As mentioned before, the government is important to the economy for a rule of law point of view. Through laws and regulations the government can also impact the economy. Here consider minimum wages, anti-tobacco laws, minimum prices, etc.)

27 August 2012

Day 80: Monetary Policy - Part 3

I commit myself to educate people in what money currently exists as and showing that money itself is a scam and that those who benefit from the scam are obviously not the 'common man', but the few elitist groups such as bankers who are able to suck all the money towards themselves while ripping the common man from his money, his car, his home, his children's tuition fees and all that's required to live a dignified and fulfilling life.

I commit myself to see through the charade and assist others to see through the charade of the apparent generosity of banks in trying to 'help you out' by giving you a loan - where something that doesn't belong to them is lended to you and where you, on top of that, have to pay a fee for their apparent generosity because they're taking 'such a big risk' in giving a helping hand - instead I commit myself to show how, if each puts in the effort, with many willing and committed hands, we are able to provide each one with all necessities and commodities that are required for each one to attain their fullest and most absolute expression as life.

I commit myself to design an economic system based upon life, for life - where, if a mistake is made - it is realised that it is just that: a miss-take - and that the necessary support and assistance requires to be provided for a person to learn to make more educated and informed decisions that will adequately support them and their families - where it is common sense that a person cannot be judged on missing a take, but requires to be forgiven and requires to receive another chance - so that with each miss-take, a person sees and realises the opportunity to grow and expand themselves - instead of seeing mistakes as something that must be avoided and something that causes each one to live in continuous fear - because one cannot 'afford' to make mistakes due to the mercilessness of of greed.

I commit myself to stop considering myself as an individual being that only has to think about his/her own needs - but to realise that I am part of the human race, part of this world, part of life - and as such, I am not only responsible for taking care of myself, but of taking care of my fellow human beings and all fellow life-forms that we share this Earth with - and thus I commit myself to push for a new world of equality and not stop until all beings are taken care of and provided for in a way that allows them to discover and realise their full potential as an inhabitant of this physical planet.

I commit myself to living in this physical reality and stop entertaining fiction such as thoughts, beliefs and opinions - so that I can realise what truly MATTERs and so that as I, within this realisation, take responsibility for all of the physical reality - make sure that it does not suffer under the dominion of mind-creations of personalities, opinions, self-definitions, desires and wants - but to instead focus myself and my entire beingness within the physical as the true God - who, despite continuous abuse and despite our slaughtering of its children, has never stopped supporting us, has never abandoned us and has kept on taking the hits and blows of our delusions.

I commit myself to educate people in understanding real care and real love by pointing at the Earth that is here, still waiting for us to realise that we are a part of it - and not stopping until it is entirely destroyed by human kind - and thus, I commit myself to face my fears and stop my selfish desires so taht I can assist in avoiding the disaster of the end of Earth and the destruction of our chance to manifest Heaven on Earth.

I commit myself to show people that we are not in fact waiting for God, that we are not in fact waiting for saviours to ascend us to heaven - but that we are only waiting for ourselves to leave our selfishness behind us and work together towards the creation of a real Heaven - not somewhere up in the clouds or in a different dimension - but right here on Earth - with that which is already here, already available, but waiting for us to be seen, to be realised.

26 August 2012

Day 79: Monetary Policy - Part 2

I forgive myself for accepting and allowing myself to think that it is normal that banks are able to lend out money they don't have and, on top of that, charge an interest fee - which means that, when the bank wants to collect money owed to it - it will receive funds from various different individuals plus interest - and as such sucking all the funds towards itself, out of people's wallets.

I forgive myself for accepting and allowing myself to think that the story of the money supply is really as simple as it is as how it is presented in economic textbooks - while, in actual fact - money doesn't just 'get created'. Because when a loan is given and some positive number is written in a person's account - at the same time a negative number is created: as debt - and thus, even though it seems that money was created, it did not, because the debt must be paid - and the debt must be paid to those who created the money out of thin air: the banks.

I forgive myself for not accepting and allowing myself to see and realise that the apparent 'generosity' of banks in 'wanting to help you out' with buying a new house or a new car, is attached to a day of reckoning, where outstanding funds are collected and if the moneys can't be paid - the bank will take everything you own and you are left with nothing - and herein there is no mercy or generosity - only the actual reality of the situation: Greed.

I forgive myself for not accepting and allowing myself to question a world where each one apparently has the right to a decent life, but where, if one is unfortunate or has made a bad decision in life - one can end up in a situation where one's house, car and all valuable assets are taken away, becaues the bank is trying to mitigate its losses and what that means to you is really irrelevant as you are just one little player in their big money-making scheme.

I forgive myself for not accepting and allowing myself to realise the absolute abhorrence of the nature of the human race if we think it is okay and acceptable and normal that wealth and money come before each one's basic human rights - and where we don't even stop to think what it means if banks have the ability to take away people's houses just because a person doesn't have enough money - instead of realising: who the fuck cares how much money a person has - each person needs a house to live in - as a human being, it is a simple common sensical point to take care of one another and make sure each one has a fucking roof over there head - who the fuck are we if we can't even fulfil such a simple, basic point?

I forgive myself for accepting and allowing myself to define a person's worth according to the number in their bank accounts, instead of realising that a number is just that: a number - it doesn't even refer to anything real, it is just a digital picture - instead of realising the value of the person as a physical human being and treating each person as such - an equal - because we all breathe, we all shit, we all eat, we all piss - and therefore no-one can say that they are better than another from a physical stand-point - we are all the same - and therefore, any value system must consider our actual physical reality and recognise the equality of reality - instead of entertaining the inequalities of all the fictional parts that we perceive to form part of reality, such as money, opinions, thoughts, beliefs, etc. - because if our value system only considers fiction, then we disregard the physical reality - and this can be measured in fact, as we see the status of the physical world deteriorating each day, with more species going extict, with more air and water being polluted, with more land becoming unarable, with weatherconditions increasingly becoming more erratic, with natural habitats being destroyed each day.

25 August 2012

Day 78: Monetary Policy - Part 1

Now that we know what is involved with the supply for money and the demand for money - let's have a look at one of the policies used to influence the money supply in a certain economy.

Note that there are several policies, but we limit the discussion here to the accommodation policy.

Accommodation policy

In The Demand for Money - Part 1 it was mentioned how the interest rate will influence the demand for money. If the interest rate goes up - and thus, loans become more expensive - the demand for money will go down and, in turn, the supply of money will go down as well. Why do I say that the supply of money will go down if the demand for money goes down? Because money is mostly created through loans and loans are only created when there is a demand for it. We therefore speak of a 'demand-determined money supply'.

If the interest rate of individual banks has such an influence on the money supply - then what influences the interest rate? What influences the interest rate is the repo-rate.

The repo-rate

What is the repo-rate?

When banks are having liquidity problems - meaning: they don't have enough cash - they will usually borrow funds from other banks on 'the interbank market'. However, if all the banks are simultaneously experiencing liquidity problems, they turn to the central bank. We say that the central bank acts as 'lender of last resort'. Borrowing from the central bank is done by means of repurchase agreements. A repurchase agreement is the sale of securities together with an agreement that the seller will buy the securities back after a specified period of time - for instance, 7 days. So, in terms of banks requiring liquidity: they will sell securities to the central bank - with the money obtained from the sale, the individual banks relieve their liquidity shortage. However, the indivudal banks must agree to repurchase those same securities from the central bank after, for instance, 7 days. You can see that repurchase agreements are in essence the same thing as a loan - where money is given to the individual banks (in exchange for securities) and the individual banks have to pay this money back after a specific amount of time (after which they also get back their securities).

Now - in the same way as individual banks charge a 'fee' for their lending services by charging interest, so does the central bank make use of the repo-rate. The repo-rate is basically the interest rate that the central bank uses. It means that the amount at which the individual banks repurchase the securities from the central bank, will be higher than the initial amount. And this higher amount is determined by the repo-rate.

So - what does the repo-rate have to do with the money supply?

Well - we're dealing with a domino-effect. If the repo-rate is high, it means that it costs a lot for individual banks to get funds.
If banks are faced with higher costs, they will 'pass the cost down' to their clients, by making their interest rates higher as well. And if the interest rate is higher, the demand for money will go down, as it becomes less interesting for individuals to get a loan at a bank, knowing it will cost more to pay the loan back.

On the other hand - if the repo-rate goes down, individual banks can afford to lower their interest rate as well and will do so to become more competitive. With lower interest rates, the demand for money will go up, and thus also the supply for money, because it is more interesting to take out a loan at a low cost (low interest rate) than at a high cost (high interest rate).

So - the accommodation policy refers to the decision of the central bank to make the repo-rate higher or lower. Because - if the repo-rate changes, other interest rates will follow and if the interest rate changes, the amount of money in circulation changes.

For instance, if the central bank wishes to avoid inflation - it can raise its repo-rate, which in turn raises interest rates, which will refrain people from taking out loans and increasing the money supply to a point where all prices increase and keep on increasing.

24 August 2012

Day 77: The Demand for Money - Part 3

I commit myself to establish a world economic system whereby the Demand for money is equalized among all Living Beings -- where one has the right to Money based on Life

I commit myself to expose that Economics is not scary at all, as all it is, is a bad joke using foreign terms -- which in itself are also jokes -- as this economic system we currently live in and as, is not real -- as it values illusion over reality and is willing to sacrifice what is real as the lives of plants, animals, humans and the planet to chase an unsustainable dream

I commit myself to the development and establishment of a Down to Earth Economic System -- which deals with REAL ISSUES such as PEOPLE STARVING

I commit myself to the establishment of an Economic System which can be taught in school since it won't be a failure as it actually achieves to eliminate poverty, starvation and War -- as this is the only honourable type of economic system worth teaching as passing on to our children

I commit myself to expose that our current Economic System is a complete failure and should, just because of that, be withdrawn from being taught until we have a proper Economic System in place which we can be proud of

 I commit myself to show that our current economic system only cares about humans as far as the thickness of their wallet goes and will forsaken everyone else

I commit myself to show that our current economic system is completely inadequate and that we do not have to put up with its inadequacy

I commit myself to the establishment of an Equal Money System so all may be Equal Participants within the Economy -- as it should be since the Economy affects each and everyone of us

Cast your Vote @ EqualMoney.org !

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23 August 2012

Day 76: The Demand for Money - Part 2

I forgive myself that I have accepted and allowed myself to create an economic system which only cares about the small segment of the population that has wealth of receives an income

I forgive myself that I have accepted and allowed myself to have created an economic theory which will only explore mechanisms and dynamics within the realm of those with money -- while leaving half the population out of the game just because they don't have money and are now apparently 'not good enough' to be considered within the economy game

I forgive myself that I have accepted and allowed myself to have created an elitist economic system, which only cares about those who have money and the choices they make -- whilst leaving everyone else in the cold

I forgive myself that I have accepted and allowed myself to have created an economic system and discipline which will only work with a fraction of the population -- while at the same time making it a 'global system' which affects EVERYONE -- without every seeing or realising how arrogant that is

I forgive myself that I haven't accepted and allowed myself to see and realise, that if I am going to be working with a Global economic system, that this economic system should encompass everyone on the globe -- not because they have money, but because they are here and just because of that they should be treated as equally valuable participants

I forgive myself that I haven't accepted and allowed myself to see and realise that imposing a system globally unto everyone's lives while not allowing everyone to participate equally is very, very nasty

I forgive myself that I have accepted and allowed myself to preoccupy myself with theories about how the demand for money changes based upon the values of those who have money -- while not everyone has money and so not everyone can survive in this world -- which really makes my theory a stupid joke as it is incomplete, as not everyone has been considered

I forgive myself that I haven't accepted and allowed myself to see and realise that any economic system which fails to provide for everyone is a complete failure and should not be taught as it is completely inadequate and not worthy of being taught to our children -- as they will believe that this is the best we can do while we can do so much

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22 August 2012

Day 75: The Demand for Money - Part 1

Within the previous blogs, we've looked at the Supply side of Money [Day 71: The Money Supply - Part 1, Day 72: The Money Supply - Part 2]. Within this blog we'll be looking at the demand side of things.

At any point in time, people can hold their wealth in various different forms, such as 'real assets' with include things such as property, "valuable items" such as paintings, rare carpets, antiques, etc. and 'financial assets'. Within financial assets we can further distinguish between money and bonds.

Bonds are a financial tool where the debtor promises to regularly repay the owner interest and will pay back the capital amount at a certain date. Governments for instance work with bonds to finance some of its expenditure.

Within this context, the demand for money is the amount that the different members in the economy plan to hold in the form of money balances. Remember that the demand for money is not the same as the ‘want’ for money. So within the context of the ‘demand for money’ – we are only looking at those members of the economy who have an income / possess wealth. You can read up on the concept of Demand within Day 49, 50 and 51.

When looking at the demand of money we are looking at a few factors:

·         Money for the purpose of transactions
·         Money for the purpose of precaution
·         Money within speculation

These three points refer to functions money can have. Money is a universal tool for transactions, you need money readily available for you to do your groceries, for companies to pay their workers, etc. People also save their money for unseen events and expenditures.

When looking at the speculation point within money, we are basically looking at the trade-off between holding wealth as money, which is a flexible form as it can be exchanged at any time for something else– and holding bonds – which are more inflexible, but on which one can gain interest. The demand for money is thus directly related to the function it performs, and what function the wealth owner prefers best.

So depending and the person, and their circumstance – they will either prefer to hold some/most of their wealth as cash and demand deposits – or as bonds on which they can gain interest.
Within this, the particular interest rate which is being applied plays a role. A person might want to keep their wealth in the form of cash / demand deposits because he/she values the liquidity of money in this form more than bonds at an ‘x’ interest rate – but if the interest rate suddenly goes up, the person might change their mind as they can see that they could be making more money through having bonds, and so will forego the liquidity of cash for bonds (until the interest rate drops again). Within the concept of ‘supply and demand’ – we saw that prices are the main determinants which direct supply and demand for goods and services. Within this context, we can view the ‘interest rate’ as a price being put on loanable funds. And so, as the price goes up (high interest rate being paid out) – the more people will be willing to move some of their wealth in in the form cash/demand deposits – to holding it in the form of bonds.

(There are various interest rates, such as the repo rate, interbank lending rate, prime rate of banks, rates on deposits, mortgage rates, government stock rates,… and so the list goes on. At this point you do not require to know what all these different interest rates do/mean – all you need to know is that there are different ones. And that although there are different ones, they will follow the same pattern in their movement (up or down). So when we speak of ‘the interest rate’, it should be seen as a ‘representative’ rate for all the individual rates which are in play.)

When I first heard about 'the demand for money' -- I immediately went within myself 'Oh cool, now we are going to learn how the money supply has to adapt to the amount of people and levels of poverty -- because if there's more people / a lot of poverty obviously a lot of money is demanded because these people require money so they can access basic resource in order to sustain themselves'. So I was in for quite a disappointment when I learned that the 'demand for money' has got nothing to do with people and them being able to take care of themselves. It only cares about those who have money and how they act within their self interest in terms of whether they want to be flexible with their money or want to make money out of money. No consideration whatsoever for real issues -- a very big disappointment indeed.

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21 August 2012

Day 74: The Money Supply - Part 4

I commit myself to design an Economic System that allows and assures a stable life for each one, as the value of money stands equal to life - and thus, a system that one can actually trust, a system that is an actual platform of support for life to flourish.

I commit myself to reverse my trust - from placing my trust in an economic system of instability, chaos and inequality - to an economic system of stability, transparancy and equality, a system that is founded within and operates according to the principle of what is best for all.

I commit myself to give all power back to the people - away from elite individuals such as bankers who throughout history acquired the power to influence the course of the world without requiring to consider what is in the best interest of all, but only what is in their own best interest.

I commit myself to expose the nature of international relations where each one competes with every one else to obtain the best result for themselves without caring about the consequences in other places and I commit myself to expose how the major powers in the world have taken advantage of those with less resources/money through forcing them into positions of continued dependence.

I commit myself to establish an economic system that is not split or separated into two sides - where all live on the same plain - the plain of equality - where, in order for some to live a decent life, there is no need to sacrifice the many and doom them to hell on Earth - but instead, we bring Heaven to Earth for all equally.