Economic Thoughts

I would like to start a mix of different topics(primarily economics/for now)

First a story my teacher told our class…

“There is a very old economic example (author unknown).  An advertisement was placed in the newspaper to purchase a guaranteed roach killer.  Send $5.00 to an address listed and the roach killer would be sent to you in the mail.  Subsequently, upon receipt of the $5.00, the buyer would receive to this pieces of balsa wood with the directions to squish the roach between the two pieces of wood.  You guessed it, the end result was a millionaire plus.  The GDP increased because it was an increase in the sale of a final good.  I am not sure the social side of economics benefited since most people did not use the wood.  It wasn’t illegal since the product did exactly as advertised.  Economic growth is often discussed in relationship to jobs creation, which assumes an increased need for labor as the result of job growth (Marcia Wajsko).”

Basically this story illustrates that you literally should be wary of advertisements or anything you hear.  

Next is random economic principles/thoughts… perhaps you will learn a thing or two

Describe how actual reserves are calculated.

According to the textbook, “a bank’s reserves consists of currency in its vaults plus the balance on its reserve account at a Federal Reserve Bank (p.693).” The daily reserves fluctuate since people deposit and withdraw money; for example, when someone makes a deposit the bank’s reserves increase, and when a withdraw is made the reserves decrease. The interest rate is important in calculating the reserves. To calculate the excess reserves we simply take the actual reserves and subtract the desired reserves.

Explain the difference between required reserves and excess reserves.

Required reserves is what a bank must have as a back-up which is regulated by the Fed. In succinct terms, a minimum amount.

The desired reserves is when the bank itself has a certain goal as to how much they want to have in their reserves. Desired reserves can be higher than the required amount since the banks borrow the money. The desired reserves are based upon the company’s daily business involvement. The desired reserve allows banks to loan money since it typically is above the required minimum standard.

How do reserves affect the amount of loans a bank can make?

The textbooks states, “When the [bank]… is short of reserves [it] must destroy money by decreasing the quantity of loans (p.702).” So when a bank has excess reserves it will be able to loan more. Open market purchases create the excess reserves. And when a bank has excess reserves they can lend that excess as long as they maintain the minimum amount of required reserves. Lastly, the book illustrates it in simple terms by stating, “ With more reserves in the banking system the supply of… loans increases, the demand for…loans decreases…interest rate falls…when the Fed sells securities in open market…buyers pay for securities with… reserves and money… with smaller reserves…supply of loans decreases(p.703).” The amount of loans depend upon the amount of excess reserves.

 

In order to change the interest rate we must change the quantity of money. When there is an increase in the money supply there is a decrease in the interest rate, and vice versa. The lower the interest the more people borrow, invest, and spend.

 

In general, the politicians have the ability to increase inflation while decreasing unemployment; nevertheless, it is a demanding task. Expansion is the primary mode of achieving such a policy. The textbook illustrates, “In an expansion, the unemployment rate decreases and the inflation rate rises (p.796).” Although the Fed has the power to produce more money, and change the interest rate there are consequences. Inflation is bad, and so is unemployment, and it seems that both will be hard to balance, or achieve. Or as Samuel Jackson in the movie Jumper said, “There are always consequences.” To me it seems we have to choose between low unemployment or inflation. In succinct terms, there seems to be a trade off to choosing either option

While in South Korea I noticed that when I paid with cash I would receive a discount. I later found out that many Koreans avoid credit cards so they do not get taxed as much, and save money on their businesses. Would that be illegal in the states? I just found it interesting.

Also in Korea I noticed that there are businesses everywhere you go… such as family restaurants, and in United States we have to have a specific location for businesses, and that seems rather limiting. I understand that there are safety regulations, but it can be managed; in addition, it can create more jobs for food inspectors and food critics, etc. There will also be more competition and the consumer would save/spend more. An example is when I got the same thing at two different restaurants, yet the family restaurant price was cheaper, and I would say their food was better too.

I’m also curious about what will happen with the “time bomb” of social security because according to the textbook, “economists… estimate this debt was $80 trillion in 2010 and that it grows by $2 trillion a year (p.820).” This will be the talk of the future. I will guess that the benefits will be cut. Will the people who contributed to the system get reimbursed or screwed? It does not seem that those involved in the creation, and change of social security thought about the long term effects. Seems like people lack common sense.

 

We have to pay a tax even on the things we buy. If you add up income tax and the tax on the goods we buy it is rather high. Man there is so much bullshit in the world. Lastly, why do high schools not teach the students about how the system works, and how to operate in it well? When I got out of high school I realized I had to teach myself about taxes which shows that in some ways school had failed me. If you ask a random person on the street how taxes work they will not be able to give a direct answer. They may be able to tell you in a vague manner, but they will not know much.

 

Why use credit cards and get into debt? It is practically slavery… wait it is slavery

 

I think it is rather sad that lottery winners get taxed as well, and why? They won the money, so why should they be taxed. It’s like an Olympian winning the gold medal and they have to pay a tax on it. Also many lottery winners apparently lose all the money in a matter of months, so there is almost no purpose for the government to tax them.

Would you rather buy a TV and a car on credit and put yourself into debt where you live in one shitty place hating your life? Or would you rather travel the world… meet great people, explore, and create experiences? Yes traveling is stressful, challenging, and you will end up broke but you will grow, and perhaps you will figure out what you want to do. Marc Cuban grew up broke now he is successful. Just ponder it.

Sorry for such a mixture of a discussion guys. I’m just curious, and would like to challenge you to think about the way we are living and why. It is important to question, and challenge the status quo.  It seems rather easy to not think about these things. To me sometimes life seems like a rat race. Take time to yourself. Challenge yourself; just promise you will question things… Do not just accept things challenge them.

 

Citations:

Bade, Robin. Parkin, Michael. Foundations of Economics. New Jersey: Pearson, Addison-Wesley.  2009.  Print.

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