a funny question about money..

a funny question about money..

Where does it come from?

Surely all the money that exists in the world today didn't always exist.

If a country is poor, can't they just get their currency factories to make more?

It sounds like such a daft question, but I really am interested because it wasn't always there.

Re: a funny question about money..

Nass thats too intelectual for 9 0clock on a sunday night man

Im thick as fuck and i may be making this up.....


But i think if a country starts making more money and its in circulation, then it decreases the value of the currency in regards to other countries money.

A lecturer at college sed that a country can only print money to the value of gold it owns at the central bank or sum schpeil like that

exactly.

you can't just print more money.

That would mean for the same amount of actual, total value there is more money, hence making a weaker currency.

A poor country can print all the money it wants but it wont make any difference unless the demand is there

But you got your answer :groovy:

example beeing Germany before Hitler came to power.... the more they printed the less it was worth!

people could have hundred of notes but there worthless.

apparently coins dont apply, theyre worth theyre weight in copper or whatever

Not necessarily....

Money in a capitalist economy is really just a general good, something that lets us exchange any good for any other. If there was no money in the economy ( assuming all other factors equal, ie no change in productive trends ) the country would be no "worse off" in terms of how much it would produce and therefore how much people could consume ( standard of living, aka GDP by PPP or how much the average individual can consume and how much he / she gets out of doing so ).

The function of money is to act as a catalyst, allowing coal to be turned into oil ( sell the coal, buy the oil ), etc etc ad nauseam.

This allows a (capitalist) economy to function, as exchange rates (prices) are set up between resources. Say one resource, coal for instance, is unduly more expensive than others, the higher price acts as a signal for producers to move into the market and produce more coal, creating competition and forcing prices down until prices meet costs and everything is efficient (in theory at least).

So, printing more money should have no effect except to cause inflation, as each piece of money represents less resource, right?

Well - maybe. The thing is, more money affects how people think and spend ( they anticipate higher future consumption, even if it isnt coming, as most people don't understand money ).

So they spend more relative to saving, thus stimulating growth in a slack economy but producing knock on inflation.

As for money representing anything - it doesnt. Our money is non fiduciary - it used to be linked to gold but is now purely speculative, that is it is worth what people are prepared to exchange for it - the whole thing is based on trust that you can exchange the money for something else, so it doesnt matter if it is in itself worthless.

Impossible to explain in detail without economic knowledge, but thats my best attempt to put it in non technobabble :/

Harry

A SPELLING MISTAKE!!!!!

damn

aye, you'd like end up having to take a pillow case full of bank notes down the shops to buy a loaf of bread.


love bank notes tho...they are like so worthless really if you think abuot it...they are peices of paper that say that the cheif cashier promises to pay the bearer £5 or whatever...(not sure what it actually says, long time since i held so much as a five pound note)

and the backs of the new ones are shite! the old ones were like proper etchings, like queenie still is on her side of the note, but the backs are just computer generated and all liney in such a crap way.

My poor head! :spangled:

so technically notes aren't actually worth anything, its only the gold they represent that is worth anything. my college lecturer once told me that, well fucked my head up :spangled:

Now I know how people feel when me and Andy go on about Chemistry/Medicine :spangled:

Didnt really answer the thread did I...

The bottom line is if a country starts randomly printing money, they are going to drastically increase their demand for foreign goods, increasing supply of their currency and thereby devaluing it to the point where the purchasing power of the country is the same and all that has happened is that the exchange rate has changed such that exchange rate x domestic price is a constant, in foreign currency. Therefore, nothing changes, except local growth stimulation followed by inflation.

Harry

Didnt really answer the thread did I...

The bottom line is if a country starts randomly printing money, they are going to drastically increase their demand for foreign goods, increasing supply of their currency and thereby devaluing it to the point where the purchasing power of the country is the same and all that has happened is that the exchange rate has changed such that exchange rate x domestic price is a constant, in foreign currency. Therefore, nothing changes, except local growth stimulation followed by inflation.

Harry

:think:

steps:

1. everyone in the country has 2x the cash.
2. So they try to spend this cash as before, buying 2x as much of everything, including foreign goods.
3. To buy foreign goods, they must sell their pounds to buy the foreign currency, in order to purchase ( say ) german goods in Marks they must buy Marks, etc. This transaction is usually seamless to the user ( automatically done when you buy online, etc.
4. As 2x as many foreign goods are being bought, 2x as many pounds are being sold.
5. To sell 2x as many pounds, you need to sell them at a lower price ( think of trying to flog the pounds as fast as possible). This price is the exchange rate: to sell the increased number of pounds, you must reduce the exchange rate ( ie less marks can be bought per pound ).

So, in total we have:

Before printing: Amount spent on imports x exchange rate x price of goods = amount of imports consumed.

After : (Amount spend on imports X2) x (exchange rate /2 ) x price = amount of imports consumed.

Clearly, both are the same

The thing is, speculatory effects, domestic changes in production, non perfect competition in the global markets and differing rates of elasticity of demand for pounds cock this calculation up, it being a hardcore simplification.

Think I'm fighting a losing battle here arent I

harry