Economics & Banking: How Do They Work? (part 1)
President Harry Truman was credited with the statement, "The buck stops here!" But is this really true? Let's look closer:
Let's take a simple village where citizens don't have much to do. Let's say that we give 100 bucks to Clyde -- a treasurer -- who then loans out money to the businesses of the village.
Katrina owns a spinning wheel and weaves cloth. Keesha is a seamstress and makes clothes. Garry uses leather & urethane to make shoes. Felicidad makes great cornbread and Olga can supply paper such as napkins and plates. Bob can produce a crude manner of making light bulbs and needed wiring. In total these 6 individuals borrow 60 bucks from Clyde. Each one gets 10 bucks to start their business.
The last 40 bucks go to 2 businesses. Abel & Butch need 20 bucks to make a windmill which grinds cornmeal and provides electricity for the light bulbs. Now children can learn how to read in their beds each evening in the village. Joining in this are Juan & Efrem who have a method of bringing potable water to the citizens. They receive the last 20 bucks. Since water is essential -- all are grateful. [In these last two business there are 2 co-owners.]
One might say that the buck stops at 100 bucks because that is what was allocated to the bank. But does it?
Since the bank has to make money as well; by decree, Harry Truman has the bank charge 5% interest on the original 100 bucks. Each business of the village must pay back to the bank 5% more than it borrowed from it.
Do you see what happens?
The supply of money has increased in this village system by a little more than 5%. When the businesses make their profits they then have to pay back the 5% to the bank as a cost of doing business.
There is a limit -- a finite number -- which now makes the total supply of money more than 100 bucks. In fact -- in estimation by using calculus -- the total money supply is closer to 108 bucks. Almost magically the money supply is greater; but now, if you will, consider the benefits:
There is more commerce and positive activity in the village. Even though more money has come into the system, there is still a 'stimulus' which has added more business activity. "Clyde, the treasurer, has done good!" so they say! People seem happier -- others have sustenance!
The problems which come to our village are 'cautionary' problems:
(a) If the money supply goes up too quickly over the pace of productivity, then there will be inordinate inflation.
(b) If work slows down, then there will be reasons leading to deflation.
But these problems can be dealt with using a slow growth maintenance of the economy. Interest rates must match the productivity of our village. In some cases we also have to consider nearby villages and how they affect our village's economy.
Other problems surface when the banks make and keep too much money. Because of certain considerations banks are able to make even more money by either:
(1) Swallowing the money supply and making scads of bucks.
(2) Without regulation -- by offering different loan rates to different individuals or businesses, and finally by
(3) Adding on fees and/or penalties for other services.
Although banks need to make money, they also should know that as part of the system they also need to be regulated -- just as we regulate the power company and potable water businesses in our village. For the good of each village and our total society, we must have the major conglomerates be able to serve each individual part of the system. Banks are just as socially important as power and water systems !! All of our residents must be considered.
By knowing the nuances of certain subjects along with banking issues I am able to represent a community. See more about commerce in my next post. Please also check out the essays in all of my blog. Thank you !!
With discernment, should you now be willing to cast a 'Write-in' vote for me for U.S.House from Delaware then click on this link: electionsncc.delaware.gov/use_vm/writ...
I end this essay with the knowledge that there will be more. Next I will write a shorter second piece which stresses other considerations in our 'global' village. I also have to listen to others' input as well. We all do!
Thank you for your patience.
"The buck stops" when we all get at least a morsel to eat -- if you think this way -- then you are not in a self-centered way of thinking! Should you believe this way then Godspeed to you! If you do not believe in the gods then just say a 'human' "grace!" We'll talk later!
Thank you!
Sincerely written;
Respectfully submitted,
Robert N. Franz
See: amzn.to/1R1Oayq
or check linkage: amazon.com/author/rf3rd
You may also 'Like' me at:
@The Stigma of the Mentally Ill: Bob Does Everything Backwards
Let's take a simple village where citizens don't have much to do. Let's say that we give 100 bucks to Clyde -- a treasurer -- who then loans out money to the businesses of the village.
Katrina owns a spinning wheel and weaves cloth. Keesha is a seamstress and makes clothes. Garry uses leather & urethane to make shoes. Felicidad makes great cornbread and Olga can supply paper such as napkins and plates. Bob can produce a crude manner of making light bulbs and needed wiring. In total these 6 individuals borrow 60 bucks from Clyde. Each one gets 10 bucks to start their business.
The last 40 bucks go to 2 businesses. Abel & Butch need 20 bucks to make a windmill which grinds cornmeal and provides electricity for the light bulbs. Now children can learn how to read in their beds each evening in the village. Joining in this are Juan & Efrem who have a method of bringing potable water to the citizens. They receive the last 20 bucks. Since water is essential -- all are grateful. [In these last two business there are 2 co-owners.]
One might say that the buck stops at 100 bucks because that is what was allocated to the bank. But does it?
Since the bank has to make money as well; by decree, Harry Truman has the bank charge 5% interest on the original 100 bucks. Each business of the village must pay back to the bank 5% more than it borrowed from it.
Do you see what happens?
The supply of money has increased in this village system by a little more than 5%. When the businesses make their profits they then have to pay back the 5% to the bank as a cost of doing business.
There is a limit -- a finite number -- which now makes the total supply of money more than 100 bucks. In fact -- in estimation by using calculus -- the total money supply is closer to 108 bucks. Almost magically the money supply is greater; but now, if you will, consider the benefits:
There is more commerce and positive activity in the village. Even though more money has come into the system, there is still a 'stimulus' which has added more business activity. "Clyde, the treasurer, has done good!" so they say! People seem happier -- others have sustenance!
The problems which come to our village are 'cautionary' problems:
(a) If the money supply goes up too quickly over the pace of productivity, then there will be inordinate inflation.
(b) If work slows down, then there will be reasons leading to deflation.
But these problems can be dealt with using a slow growth maintenance of the economy. Interest rates must match the productivity of our village. In some cases we also have to consider nearby villages and how they affect our village's economy.
Other problems surface when the banks make and keep too much money. Because of certain considerations banks are able to make even more money by either:
(1) Swallowing the money supply and making scads of bucks.
(2) Without regulation -- by offering different loan rates to different individuals or businesses, and finally by
(3) Adding on fees and/or penalties for other services.
Although banks need to make money, they also should know that as part of the system they also need to be regulated -- just as we regulate the power company and potable water businesses in our village. For the good of each village and our total society, we must have the major conglomerates be able to serve each individual part of the system. Banks are just as socially important as power and water systems !! All of our residents must be considered.
By knowing the nuances of certain subjects along with banking issues I am able to represent a community. See more about commerce in my next post. Please also check out the essays in all of my blog. Thank you !!
With discernment, should you now be willing to cast a 'Write-in' vote for me for U.S.House from Delaware then click on this link: electionsncc.delaware.gov/use_vm/writ...
I end this essay with the knowledge that there will be more. Next I will write a shorter second piece which stresses other considerations in our 'global' village. I also have to listen to others' input as well. We all do!
Thank you for your patience.
"The buck stops" when we all get at least a morsel to eat -- if you think this way -- then you are not in a self-centered way of thinking! Should you believe this way then Godspeed to you! If you do not believe in the gods then just say a 'human' "grace!" We'll talk later!
Thank you!
Sincerely written;
Respectfully submitted,
Robert N. Franz
See: amzn.to/1R1Oayq
or check linkage: amazon.com/author/rf3rd
You may also 'Like' me at:
@The Stigma of the Mentally Ill: Bob Does Everything Backwards
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