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Old Jul 21, 2013, 06:32 PM   #126
NewishMacGuy
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Originally Posted by chown33 View Post
Is there any currency in the world today that's backed by gold?

Is there any currency at all that isn't fiat money? E.g. backed by silver, something else?)

AFAICT, all the major reserve currencies are fiat money. None of them are backed by anything except their respective government's say-so.

So if all the currencies in the world today are fiat money, it's not just the US government or the US people in a fiat pickle, it's the entire world.
No.
No. - No major ones at least.
Yes.
Unfortunately, yes.

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Originally Posted by gsugolfer View Post
I work with banks for a living. I have a pretty good idea of what sort of cash they typically have on hand.

Also no one would ever pay for a house with cash. The funds would be wired to a lawyer's trust account for the closing.
And I have been banker for 20 years. Banks don't keep very much cash on hand at all (recognizing that that depends on what you think is very much).

And it is a shame that no one pays for big things with cash anymore. We should.

Let's say that you wanted to buy a Ferrari on a whim with cash. Chances are good that your bank branch won't have enough cash on hand for you to be able to withdraw and pay. They really don't keep much cash on hand.

>
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Old Jul 21, 2013, 06:36 PM   #127
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Originally Posted by NewishMacGuy View Post
And I have been banker for 20 years. Banks don't keep very much cash on hand at all (recognizing that that depends on what you think is very much).

And it is a shame that no one pays for big things with cash anymore. We should.

Let's say that you wanted to buy a Ferrari on a whim with cash. Chances are good that your bank branch won't have enough cash on hand for you to be able to withdraw and pay. They really don't keep much cash on hand.

>
Then we obviously have differing definitions on "very much". Let's say you're spending $300,000. I've never been to a bank with less than that on hand, and I work with smaller banks (under $150MM in total assets). The lowest amount of any bank I've been to was still over $450,000.

What size bank do you work at and how much cash do they keep on hand?
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Old Jul 21, 2013, 06:52 PM   #128
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Originally Posted by splitpea View Post
Let me ask you this:

What gives gold it's value?

It's not about any inherent usefulness or value, or we'd be using carbon steel or silicon wafers or sheep as currency.

Gold has value because people agree to use it as a medium of exchange and are willing to exchange something of value for it because they know they can turn around and exchange the gold to someone else for something of value.

Guess what? The same goes for paper currency -- I'll let someone buy something from me in exchange for dollar bills because I know that I can turn around and buy something I want in exchange for those bills.

That's what gives them value -- not trust in a specific government. Currency is not about how much yellow metal you can get in exchange for a piece of paper. It's about removing friction from commerce by having an abstract medium that represents value so that every exchange doesn't have to be a barter.

Why is an abstract exchange medium more useful than barter? Two reasons: one is that with barter much more time is spent assessing the value of the items to be bartered (is that sheep really a fair exchange for a new coat?) -- currency permits an easily quantifiable value to be placed on each exchange. The second reason is that what I have to trade may not be something currently needed by the person who has what I want. With currency, that person can take the money and purchase *anything* he/she wants.

And that works whether it's metal or paper representing the value being exchanged. Metal was originally used because it was assumed to be in finite supply, not easily faked, and resistant to wear, not because of any inherent value. The finite supply assumption wrought havoc with inflation whenever new gold/silver mines or extraction methods were discovered; it caused deflation (with its associated economic perils) when economic output increased without the supply of metal increasing at the same time.

Paper now (technically linen) can be kept in finite supply by a government that isn't totally out of its mind (note that finite doesn't mean never increasing, but does mean not increasing what's in circulation by an order of magnitude all at once); it's reasonably (and increasingly) well protected against forgery; and it's resistant enough to wear to last decades (and worn bills are constantly being shredded and replaced by fresh ones by the treasury). Moreover, it's much easier to adjust its availability to match increases in economic output, and to avoid random massive inflation caused by geological windfalls.
One measure of suitability for use as a medium of exchange that you're omitting is the most important one - a significant marginal cost of production. If the cost to produce 1 unit of the medium of exchange is virtually the same as the cost of producing 100 or 1000 (etc) units - as it is with paper money - the currency will eventually be debauched until it is valueless, all the while stealing productivity from the users of the currency and transferring it to the makers of the currency.

In order to make good money, the proposed currency should have a relatively positively sloped and non-zero marginal cost curve. Paper (and electronic) money doesn't which is why it doesn't make good money, which in turn, is why everywhere where you find fiat money, you also find legal tender laws.

>

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Originally Posted by gsugolfer View Post
Then we obviously have differing definitions on "very much". Let's say you're spending $300,000. I've never been to a bank with less than that on hand, and I work with smaller banks (under $150MM in total assets). The lowest amount of any bank I've been to was still over $450,000.

What size bank do you work at and how much cash do they keep on hand?
I have worked at some of the largest banks in the world throughout my career - though admittedly not in the consumer banking side.

Given my experience, if you walk into any bank where you have an account with significant deposits and ask for $250k in cash (which is a lot in some senses, but not really a lot in the bigger picture), it's 50/50 whether you'll get your money, unless you call ahead a few days in advance and tell them that you're going to make a significant withdrawal.*

>
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Last edited by NewishMacGuy; Jul 21, 2013 at 06:56 PM. Reason: *Caveat - IN THE US.
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Old Jul 21, 2013, 07:19 PM   #129
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Not if you use cash.

Otherwise you are, unfortunately trapped within a scam of a banking system, as you point out.

And TBH you're still trapped even if you use cash - and that cash is FRNs - just less so.

>
Right, and what jobs pay in cash?

Let me correct that statement. What legal jobs pay in cash? Loan sharking, prostitution, drug dealing and gambling do not count.
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Old Jul 21, 2013, 07:21 PM   #130
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Right, and what jobs pay in cash?
That is unfortunate. It would be better if all of them did.

>
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Old Jul 21, 2013, 07:26 PM   #131
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That is unfortunate. It would be better if all of them did.

>
No thanks, I don't want to be walking around downtown St. Louis with well over a grand in cash on me every payday.
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Old Jul 21, 2013, 08:44 PM   #132
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No thanks, I don't want to be walking around downtown St. Louis with well over a grand in cash on me every payday.
If you fear theft, then the banking system is the LAST place where you want to keep your money. True the theft is non-violent, and it happens more slowly when you do keep it in the banks, but the theft is also more persistent and more certain.

>
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Old Jul 21, 2013, 08:46 PM   #133
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If you fear theft, then the banking system is the LAST place where you want to keep your money. True the theft is non-violent, and it happens more slowly when you do keep it in the banks, but the theft is also more persistent and more certain.

>
What in the world are you talking about?
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Old Jul 21, 2013, 08:59 PM   #134
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What in the world are you talking about?
If I had to guess I would say he's talking about bank fees or prior bank bailouts. I don't think the profound tone allows the other person to carry on a real discussion though.
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Old Jul 21, 2013, 09:42 PM   #135
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Originally Posted by chown33 View Post

AFAICT, all the major reserve currencies are fiat money. None of them are backed by anything except their respective government's say-so.
Not completely. The engine that makes fiat money work is the taxation system, and, as long as people pay their taxes, fiat money works -- arguably, significantly better than, for example, the gold standard.

So, the question you have to ask is, can the government enforce taxation? If it can, then, fiat money works perfectly well.

Quote:

So if all the currencies in the world today are fiat money, it's not just the US government or the US people in a fiat pickle, it's the entire world.
Only those countries where taxation has collapsed.

Quote:
Originally Posted by NewishMacGuy View Post

Unfortunately, yes.

---------

And I have been banker for 20 years. Banks don't keep very much cash on hand at all (recognizing that that depends on what you think is very much).

And it is a shame that no one pays for big things with cash anymore. We should.

Let's say that you wanted to buy a Ferrari on a whim with cash. Chances are good that your bank branch won't have enough cash on hand for you to be able to withdraw and pay. They really don't keep much cash on hand.

>
Why should they keep enough money on hand to buy Ferraris and houses? It makes no sense for people to walk around with that much cash on them.

Quote:
Originally Posted by NewishMacGuy View Post
That is unfortunate. It would be better if all of them did.

>
Why?
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Old Jul 21, 2013, 10:08 PM   #136
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Originally Posted by NewishMacGuy View Post
If you fear theft, then the banking system is the LAST place where you want to keep your money. True the theft is non-violent, and it happens more slowly when you do keep it in the banks, but the theft is also more persistent and more certain.

>
I haven't paid a dime in fees to my credit union for my accounts there. And the big banks who I have credit cards with pay me to use the card because I collect the cash back and pay my balance in full each month. Never paid a dime in interest either.

If you're paying fees for a checking/savings account, you need to find a new bank. Likewise, if you're paying interest on a credit card, stop spending money you don't have.

<
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Old Jul 22, 2013, 06:14 PM   #137
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I haven't paid a dime in fees to my credit union for my accounts there. And the big banks who I have credit cards with pay me to use the card because I collect the cash back and pay my balance in full each month. Never paid a dime in interest either.

If you're paying fees for a checking/savings account, you need to find a new bank. Likewise, if you're paying interest on a credit card, stop spending money you don't have.

<
All of this. Don't get me wrong, banks absolutely deserve to be able to charge for any of their services (including deposit accounts), but I won't use an account that charges fees.
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Old Jul 23, 2013, 10:05 AM   #138
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Originally Posted by gsugolfer View Post
What in the world are you talking about?
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Originally Posted by thekev View Post
If I had to guess I would say he's talking about bank fees or prior bank bailouts. I don't think the profound tone allows the other person to carry on a real discussion though.
Not fees. Banks should charge fees for their services.

When you deposit your money in a bank, the bank lends that money out (which is not a bad thing in and of itself), but rather than lend your actual money, it lends roughly 9 times that amount. In that process it creates new money, and that new money diminishes the purchasing power of your saved money. Thus, the more money we put into the banking system, the less it is worth. That's a simplified explanation - if you want to continue the discussion I can elaborate.

>
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Old Jul 23, 2013, 10:42 AM   #139
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Not completely. The engine that makes fiat money work is the taxation system, and, as long as people pay their taxes, fiat money works -- arguably, significantly better than, for example, the gold standard.

So, the question you have to ask is, can the government enforce taxation? If it can, then, fiat money works perfectly well.
Well yes and no. Our fiat money is not issued by our government and it is thus not directly backed by tax proceeds. Our fiat money is issued by our central bank, which is basically just a bank cartel - kind of like OPEC - that controls the production of money - like OPEC controls the production of oil.

Now the method by which the central bank circulates that money is largely via the purchase (either permanent or temporary) of government bonds. Since the government doesn't produce a freely traded good, banks will be reluctant to lend it money unless it can seize the productivity of its citizenry (taxes). So, much like plantation owners of old, the government relies on seizing the productivity of its citizens/chattel to obtain credit from banks. Indeed we are the collateral for the US government debt and the taxes are just the mechanism to transfer our productivity to the debt-holders through the government.

Back to the money.

As the government debt is backed by the human collateral of the US citizenry and the government has sufficient power to harvest it, few (until recently) have questioned the ability of the government to repay its debts. So the central bank (which is BY FAR the largest holder of US government debt) will accept that government debt and in return creates fiat money to pay for it. That money then finds its way from the first recipients (the primary dealers) to the rest of the participants in the economy via further lending (and leveraging).

Note that the central bank could buy whatever it wants to create and inject money into the economic system, government bonds are just the most convenient because the government is powerful enough to seize whatever it wants - and it always helps to have friends like that owe you money.

In the end this system only works better than the gold system for the banks.

>
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Last edited by NewishMacGuy; Jul 23, 2013 at 10:48 AM. Reason: Added that central banks doesn't have to buy government bonds..
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Old Jul 25, 2013, 03:02 PM   #140
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Cenk Uygur on The Young Turks dissects the corrupt practices of banks like Goldman Sachs by not only screwing over the so-called free market but also the average person.


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