Yakk

I'm Bob.

I say to Charlie "I want to buy a Tractor". Charlie says "sure, 10000$".

I say "I'm good for it -- but can I pay you 300$ per year (3%) for 10 years, then pay you the 10000$?"

Charlie says "sure, your credit is good with me!".

Charlie then goes to Alice. "Hey Alice. I need some spare parts. I have a note here from Bob that says he'll pay me 10000$ in 10 years -- can I swap for some parts?"

Alice says "sure, I'll give you 7000$ in Parts for that".

Alice then sells the Bob debt to Doug for 7000$ in metal to make Parts with.

Doug then sells the 7000$ Bob debt back to Charlie to buy a Truck.

Notice that Bob Debt(tm) is acting like cash. That 10000$ note says "this is a promise to pay 10000$ on the 1st of Janurary 2017 made by Bob".

If Bob is well enough known to make good on his debts, that promissary note is as good as cash. Now, imagine if Bob was a bank.

The Bob note would act as cash.

Working hard, without any other knowledge, isn't worth shit. You need to work hard at something useful to be worth it. How useful is it? Well, how much is he getting paid for doing it?

Those people clearly had the chance to be highly educated, right? So, they knew what they where getting into -- they chose a path that lead to 11.50$ per hour jobs. I'm guessing that they felt that the personal fullfillment from their job would make up for the poor wages.

If they chose, they could have gone off and gotten a marketable degree and made more money. But they chose to follow a path of self sacrafice. I believe in respecing people's choices.

Now, there are people who didn't have the opportunity to choose what to do with their lives. There you have a point -- but saying that people who had the chance to get a masters degree, and chose to enter a profession where they wouldn't get paid much?

I strongly suspect a good chunk of CEO pay comes from the "rockstar" effect. Ie:
1> If your CEO says "I quit", it hurts your company.
2> If your CEO chooses to embezzle, it really hurts your company.
3> If your CEO slacks off, it hurts your company.
4> If you pick someone without a history as your CEO, and they screw up, you are sued.
5> If you pick someone with a history as your CEO, and they screw up, you are much safer.
6> People will be willing to sacrafice alot to even look like a good CEO candidate.

There could be 50 people who would be perfectly competent at being CEO. But once someone is selected to be CEO, you can't go back. That person has now been dubbed "rockstar".

If you don't pay them that much, they can take their newly CEO'd CV and try to get a job somewhere else. Because they now have a CEO history, they are far more qualified to be a CEO than they where when you hired them. So you have to price your salary for CEO defensively. But so does everyone else. So you have a lovely war over CEO salaries.

By paying your CEO lots of cash, they have far less incentive to use their control to make themselves some money.

Lastly, by paying your CEO lots of cash, it acts as a very efficient motivator for your lower-level management. They feel "if I work really hard, harder than anyone else, I too can become CEO". For every 1$ of CEO salary, you can get more than 1$s worth of total motivation from the pleeb management.

It is like a Hollywood star. Almost everyone of them is a talented actor or really beautiful person. But for everyone of them, there are 100s of equally talented and beautiful people who slaved day and night trying to get that break and never did. Once they got their break their name and their face got value.

Not all pricing is because "that is what your skills are worth". Sometimes there are two jobs -- one counts the beans (and has to be paid enough to not steal beans), the other shovels dirt. It might not take much skill to count beans, but you need to pay that job more in order to make the bean counter more likely to be honest. And other times merely giving someone a job increases their value, regardless of their skills.

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Last edited by JHVH : 10-29-4004 BC at 09:00 PM. Reason: Time for a rest.

aceventura3

You would have to take the role of buyer at the moment of purchase to determine what someone's skill are worth. If my employer thinks my skills are worth $1 million, and signs a contract with me good for the million. That was the price, that was the worth, even if that is not what you would pay. If I add $1 million in value to my employer is another issue. At the end of the contract he may find my skills were worth $10 million, or $0. In a free market you get a true measure of worth. In a controlled market you don't. For example: If the government says I Have to use Union labor at an inflated wage, then you have a situation where not all pricing is what your skills are worth.

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Yakk

If you define X as X, yes then X is X. If you define "X is worth what would be paid in a free market", then yes free markets pay everyone exactly what they are worth, no more and no less.

Proof by defining terms so you are correct isn't interesting.

Second, note I mentioned "why your skills are worth".

Notice the use of "ability" in your post.

If it is Buffet's reputation that makes him worth the money, then his ability has nothing to do with it. If you pay a CEO a high salary with golden parachutes not because of the CEO's unique skills, but rather to ensure he doesn't go up and quit on you half way through the contract -- that isn't what the CEO's skills are worth, that a the cost of having a corperate structure with a CEO at the head.

Yes, if that is how you define the terms.

But what do you mean by a free market -- I notice you didn't mention "regulated free market". In a free market, any idiot can see the economic benefits of claiming, buying or forming a monopoly, especially a natural monopoly.

The labour laws don't force anyone to hire someone from a union -- they usually just prevent you from hiring a non-union employee for the reason. You won't hire another employee unless you expect them to make you more money than it costs you to hire them.

To the buyer (employer) at the moment of purchase (when they hire another union employee), the value of the employer is at least as high as the salary offered. That was the price, that was the worth.

So by "free market", do you mean a market with free competition? Monopolistic competition? Natural monopolies? Oligopolies? Cartels? Patents? Copyright? Trademarks?

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Last edited by JHVH : 10-29-4004 BC at 09:00 PM. Reason: Time for a rest.

pan6467

I don't exactly count cult of personalities CEO's. Oprah just took over what Phil Donahue did, and because of her sex and perhaps race (oops did I go there) she became an entity made by her own PR... much like the Beatles. People looked to her for advice, a movement of some form in culture. She provided that.

I truly do not believe she is as powerful as people or the press portray her to be.

Once upon a time Michael Jackson had more money than God also.....

He also came from a generation where education was well funded and valued by the government and citizenry.

Have no idea, can't comment on it.

That was in the 80's.... look around today and tell me we have that going on now.

Look plain and simple.... say I own a widget company.... my widgets are better, last longer, are more reliable, easier to fix than my competition's. However, I have to pay higher wages for better workers, so my product costs more.

Now, people can afford my product, but they want to also make money last longer so even though my competitions widgets only last half as long, people buy them.

But my saving grace is my employees. I pay them enough to buy my widgets and they pass on to their friends the value of having my widget for twice as long, and how it is easier to maintain.

But, then I decide I need to cut prices, but in order to do so I need to layoff people and pay less..... well those I laid off are pissed and hurt and buy my competition 's product to get back at me, their friends do the same and I start losing even more business.

So I cut more jobs and lower wages again..... but as I'm doing that my competition went overseas for very cheap labor, upgraded their technology to equal mine.... and now there are no advantages. No matter what I pay my workers my competition can pay less.

The communities that needed my workers and my factories taxes to keep education up.... are now broke and education decreases to bare minimum.... and I can't upgrade my own company now because there isn't anyone truly able to keep up technologically with the competition.

My widgets start becoming obsolete and I have to go from being a great paying, good benefits employer to being someone who pays workers barely enough to survive....

But the saving grace for me is in the process of lowering wages, firing people, destroying the communities, destroying the educations, ruining area economies.... I get huge paychecks and raises and bonuses for "saving the company".

That's where America stands today...... and thus the richer will get richer and the poor will get poorer.


As for Yakk:

That's how it worked at one time.... but now Bob may not be in business for 10 years, so you really can't count on his credit.... if Bob defaults, then Charlie defaults, then Alice defaults and Doug.... till eventually everyone defaults....

And if "Bob" is a bank and someone defaults and he needs the money to pay the interests and CDs and honor his accounts and can't.... then you are truly fucked... cause he needs to find help fast.... if he forecloses and calls in the loans he gave, but still can't honor his own debt..... game over.

But in the above example you gave, I don't see how "Bob" could have been the bank.

What you are describing is a beautiful and intricate domino design.... unfortunately what you fail to show is the effect of the first domino falling will have on the last domino.

It's like saying ok, my widget company needs a loan, I am worth a million, so I borrow against my worth now from you. You go to Ace, tell him you need some cash.... Ace says "ok, you have Pan's note and your own so ok."

I default. the collaterol you had of mine that you used is now worthless... Ace comes to you, says, "um Yakk, I see Pan went under, I need to see more collaterol from you now."

You don't have enough to cover your loan.... Ace forecloses on you.

The person financing Ace, says, "Ace where's my money?" Ace can't raise it, he defaults.... and so on and so on.

Look at the rate of bankruptcies, foreclosures and credit writeoffs the past 10 years.... see which way the trend is going.

We're mortgaged out, no savings, creditally maxxed out and living on a bubble and someone has a needle waiting to pop it..... when that happens..... we're all done, rich, poor, capitalist, communist, EVERYONE, except the person or group holding the titles to everything.

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I just love people who use the excuse "I use/do this because I LOVE the feeling/joy/happiness it brings me" and expect you to be ok with that as you watch them destroy their life blindly following. My response is, "I like to put forks in an eletrical socket, just LOVE that feeling, can't ever get enough of it, so will you let me put this copper fork in that electric socket?"

Yakk

Yes, that can happen. But people delt with it and factored the that into the cost of the debt.

Why not? He gives a note saying "In 1 year, I will pay you 1000$". He doesn't have the 1000$ now, but he believes he will have it in 1 year if you ask for it. You also believe the bank.

Anyone can make up bills of credit, and if they are creditworthy they will have some worth. If they are less creditworthy, then they have less worth, all the way down to junk bonds.

The top end banks are very creditworthy. They hedge their bets, they behave in regulated fashons that says the government will cover some of their deposits if they go under, and in general are pretty damn safe. Not perfectly safe, but safer than any banking institution the world has ever seen.

With enough fudge room, the loss from dominoes falling isn't that huge. Remember, only 1 person has the debt at any one time. Suppose they have 1000 different people's debts and 30% of them default -- so long as they factored in that default rate, everything is fine. If the default rate is higher, they can use their credit to pay off some of the extra.

The current currency system of the world is based off of this, except we get bills of credit from the government and/or from a central bank in the end.

Or you simply sell him, or a third-party loan buyer, Pan's note.

Or Ace factors in the chance that Pan goes under into his rates.

Ace, if smart, lent to more than 1 person, and charged interest rates high enough that even if some of them default he can pay off the loan.

Sure, credit is easy to get. At the same time, you still make lots of money by lending cash. So long as the banks don't have a large number of bad loans on the books (every foreclosure is a bad loan cleared off the books) -- and by large, I mean "larger than expected" -- things work.

I'm not morgaged out. I have savings. My credit is nowhere near maxxed out. My investments are relatively globally based (although I am not invested enough into developing countries).

So who is this "We"? There are people who are morgaged out, who have no savings, who live on credit. There are other people who make lots of money providing credit to those people.

And remember, a title is worthless. You need an orderly society to enforce your title, and you need your property to be able to produce something you actually need.

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Last edited by JHVH : 10-29-4004 BC at 09:00 PM. Reason: Time for a rest.

ASU2003

He did have to live in the subway system, and I'm sure that he would have appreciated some basic social services that would have treated him (and his son) as a human even during the poor years. But, it did give him the drive to get a job and make money. But a lot of people that get down have other problems that good basic medical services, rehab, consoling services and education could get them back on their feet.

As for other people that have become CEOs from nothing, I would say Bill Gates, Steve Jobs and the two Google guys plus a lot of tech and internet people have been able to turn ideas into their own companies. Yes, this is still a good country for doing that.

The problem is the second generation CEOs are usually the ivy league business school MBAs, with a few other upper management jobs for experience. They write these contracts that the shareholders basically have to approve (who else will they get?), and they get a golden parachute if the company fails or if they are fired. These are rarely the lower and middle class people getting these jobs (unless they started a huge business before).

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Back to the original topic, are you thinking that the problem is the Fed Reserve creates a billion dollars, and then pockets the interest? Doesn't the interest from that new money go towards paying the interest in people's bank accounts, plus the operation of banks? Inflation is a problem in my mind, and what most Americans are facing as their money is worth less and less. (though we don't care about that, most people would rather make 40k in 2007 dollars instead of 25k in 2001 dollars). They would instantly think 40k is more, it must be better. If you are buying electronics, shoes and cheap stuff at Wal-Mart, the 40k is better, those prices are down from 2001. If you are buying houses, health care, or traveling around the world, the 25k with 2001 prices would be the better choice.

I don't know, it's been a while since I learned about the banking system in the US.

pai mei

http://video.google.com/videoplay?do...451279&q=money
Minute 13 - how banks work.
You will never see a banker saying "I cannot lend you anything I lended out all my money"

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One day there will be so many houses, that people will be bored and will go live in tents. "Why are you living in tents ? Are there not enough houses ?" "Yes there are, but we play this Economy game"

Dilbert1234567

that video has many fundamental misunderstandings of the banking system.

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Yakk

*sigh* -- in case you didn't notice, they mentioned "at one point, people used feathers".

Also note that at 15 minutes, the creator of the video fails to divide by 9. 10,000$/9 is not 9,000, it is 1,111$.

...

So, let's note that the money lent out by the bank is also borrowed from someone -- be it the government or a depositor. The central bank of the state controls the interest rate of borrowing money by issuing governent-backed bonds.

That interest rate is set based on policy -- typically keeping inflation under control.

Next, note that when a borrower defaults, the bank is screwed. They have to make up the difference.

The supply of money is kept under control this way -- the price of new money is determined by the interest rate. This creates a supply-demand system, and those who want and can justify capital more than others get access to it.

If people stopped wanting to borrow money, they could just reduce the price of borrowing money. If you could borrow money for 0.1% annual interest, you would be pretty damn tempting.

Note that at minute 25, there are issues. It ignores the growth of the economy. The economy grows exponentially, just like debt. You'll notice at 26:30, they don't make the world "bigger" -- which is dishonest. The economy everything is working off is growing really damn fast.

And "natural resources" are not the fuel of the economy -- at least no fixed resource. The multiplier factors of "improving" natural resources is where economic growth comes from, together with increasing abilities to find and extract natural resources. As time goes on, more and more of the economy is service-based (ie, not resource based) -- and one could imagine a world in which nearly none of the economic activity exists in the "real world", it is all information services.

The monetary system is designed to facilitate exponential growth. Exponential growth means your standard of living gets better and better.

And it contains peak oil claims that it will happen right now. Considering this is about the 8th peak oil scare in the last 100 years... Could we be at the peak of the peak oil scare scare frequency?

I'll note rather cutely that the video contains a rather lot of medium-subtle jew-baiting.

Gave up at 37 minutes. Tired of it.

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Last edited by JHVH : 10-29-4004 BC at 09:00 PM. Reason: Time for a rest.

Dilbert1234567

oh thank you yakk. i wish i had time to pick it apart, i made it to minute 3 before the smell was unbearable.

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pai mei

It's "lent" not "lended" sorry for my english, I am from Romania. We have banks here too. Exponential growth means exponential destruction of the environment and exponential mining for resources. It means "better living" and now we are living in that golden age, just before we realize the planet has a finite surface

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One day there will be so many houses, that people will be bored and will go live in tents. "Why are you living in tents ? Are there not enough houses ?" "Yes there are, but we play this Economy game"

Dilbert1234567

well thats half true, no resource is finite, all get replenished at a certain rate, this rate is extremely slow in some cases like oil. when trees are cut down, new trees are planted, we currently have the same level of forestation in the US today, as we did when European settlers first arrived. luckily for all of us, we have these really smart people called scientist, who are working on technology so that we can keep expanding .

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Yakk

If you want to be dirt poor and starving to death, you are allowed to. Right now. Nothing is stopping you.

Because that is what exponential wealth creation has done. Taken what used to be "well off" and made it "dirt poor" -- people who where in the top half of their societies wealth curve, even as recently as 1000 years ago, would be considered dirt poor and starving to death today.

Note that exponential growth of the economy doesn't mean you will extract and produce an exponential amount of goods.

We don't create horseshit anymore, industry isn't fueled by wood stoves, and transportation isn't bottlenecked by the supply of tall trees to build masts. Technology progressed, and better alternatives where found.

The power plants of today generate insanely more power than the ones 100 years ago, and generate ridiculously less pollution per unit of power produced. Smog in north american cities has plummitted when we noticed it was a problem, and starting making cleaner burning cars.

Exponential wealth creation is not exponential stuff -- it is exponentially better stuff. It does mean we get exponentially better at extracting resources, and rather than leaving the resources in the groud we do did them up and use them -- but that isn't why we are getting exponentially wealthier.

The planet earth has a finite surface -- but humankind has only touched a fraction of the resources earth can provide. Assuming improved technology, there is a ridiculous amount of resources that can be extracted from the earth -- I mean, our deepest mines are only a few miles deep, and the earth has a radius of 1000s of miles. We haven't even started deep ocean mining. And then there is asteroid mining.

We know how to get more resources than we currently extract, but the stuff we are grabbing is the easy stuff to get ahold of. Why are we grabbing the easy stuff? Because it is a waste to go after the hard stuff when there is easy stuff we can extract.

The fact of the matter is, when you talk about "sustainable development" you are talking about a moving target. As technology progresses, the level of development we can sustain grows. And we are consuming non-renewable resources to fuel the economy right now, because mankind has learnt that in 20 years we will have technologies that make large numbers of todays problems and key resources quaint.

London isn't buried under a mile of horseshit, dispite what people predicted. They stopped using horses.

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Last edited by JHVH : 10-29-4004 BC at 09:00 PM. Reason: Time for a rest.

pai mei

The system is 2000 years old, that is why it's legal. I said legal, I do not talk about any conspiracy here.

People do not know because they never asked, most do not even know that the question exists
http://video.google.com/videoplay?do...451279&q=money

http://www.basicincome.com/basic_banks.htm


Solution : take away this power to create money from the banks. The state alone must have this power. We will borrow money from the state, then when we return them the state(we) will be richer, not some bankers, and the state will be able to use those money for something like tax cuts
Everytime a bank makes a loan, new money are created out of nothing, with a click of the mouse the money appear on some credit card. People will work to give back those money or they will lose their mortgage or something. The perfect theft.
Yes our society needs new money to grow, no the power to create them must no be in the hands of private people. The state must do this
Imagine me lending out money I do not have = jail
Bankers have done this for 2000 years, because it is so old , that is why this system is legal. Today it is called "fractional reserve banking" and they say it is useful for "flexilble money suply". Yes it is, no private people must not control it. The state must have control over it, and we will profit when we borrow and when we return the money

Yakk

How do you decide how much money should be created and loaned out, on a second-by-second basis?

What happens when the government lends money to people who can't afford it, and too many of them default?

How does the government choose who gets to borrow the money from the government?

Do you want to make it a crime to create an "IOU" of any kind?

You can create your own money right now. Write up a bunch of IOUs that say "I will pay you 5$ on __DATE__." Figure out how much people will pay you for them. Use that money you get to make a profit -- maybe lend it out to people. If your credit is good enough, you can lend people IOUs instead of cash, because 3rd parties will accept your IOUs in exchange for goods and services.

To give an example of something like this happening in the real world, Canadian Tire corperation in Canada gives out "canadian tire money", which are paper bills that can be exchanged for goods from Canadian Tire.

There are businesses that accept this money at face value on some special occasions: a local burger joint chain that lets you pay for one particular kind of burger with canadian tire money, a drycleaners that accepts canadian tire money on tuesdays, etc.

Those IOUs from Canadian Tire can be exchanged for goods and services with 3rd parties. Canadian Tire sometimes objects to this, and sends cease and desist orders.

...

So, what do the banks do? They solve the second-by-second problem, and generate incentive for people to figure out who should have the newly created money. If they are wrong and they lend the newly created money to someone who can't pay it back, they lose money. Even though they created that cash, the debts that they don't collect on cut into their profits.

And if they find someone who is more creditworthy than other lenders think they are, they can make a good profit lending money to them.

If their profit is too large, the person borrowing can possibly find a better rate from some other bank: the banks compete over what rates they charge individuals. Doing so is profitable to the other bank -- because if the rate from bank #1 is too high, it means that bank #2 can make a profit by stealing the customer and charging the customer less interest.

These problems that the banks are solving are not easy problems. The profits the banks get from this process are, effectively, their incentive to solve these problems.

If you had a centrally regulated money creating and doling out process, you'd have to solve these problems in any case: to do so, you would have to provide an incentive for people to solve the problems.

It has been shown in history that when solving the microeconimic "pricing problem" in any reasonably complex situation, using the market works pretty damn good. You have to watch out for macroeconomic market failures and tweak the system, but trying to beat the market on the moment-by-moment and solution-by-solution level tends to be pretty damn inefficient.

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Last edited by JHVH : 10-29-4004 BC at 09:00 PM. Reason: Time for a rest.

host

roachboy, I think this is a good spot to break the "money" and fiat currency issues out of the "Bush is a Socialist" thread.

I posted this earlier on this thread:
I agree with your description of Ron Paul. I think it is revealing that a "flake" is the only representative with oversight responsibilities who even came close to challenging Greenspan's "nonsense", during his long tenure as Fed chairman....

Sun Tzu

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