Moola, moola

Money

Moola, moola

Mmm…

Money

Moola, moola

Mmm…

Copyright © 2000 by David Beck

Money is only a tool used to make economic exchanges

easier.

•It always must represent

something for it to have value.

•Chiefly, it is a reflection of wealth held by its owner.

•Thus, it is a claim.

I can claim to be worth this much!

Historically, money has been almost anything. Examples:

•Stones.

•Seashells.

•Animal skins.

•Cigarettes.

What is the

new trendy

Mostly precious metals has been the consideration behind money’s value.

•How did bank notes develop? Coins were once used having full content of metal.

In 1913…

•The federal government

established the Federal

What backs up your money today?

•We used to be on the gold

What backs up your money today? First…

• The U.S. government—

its strength and stability.

“The full faith and credit of…”

Secondly… (Mainly!)

• The productive value

behind that money.

• It must represent wealth in some way.

What are the three functions of money?

1.

Measure of value.

2.

Store of value.

Here’s a challenge for you…

Answer this question specifically: How much exactly is a dollar?

What are the notable characteristics of money?

1. Durable—it must last.

2. Portable—it must be easy to carry around.

3. Divisible—change must be able to be made with it.

More characteristics…

1. Unreproducable—it can’t be easily reproduced.

2. Transferable—it can be given from one to another.

3. Adequate-but-limited—it should be in good supply but not too

And one more characteristic…

1. Stable—it cannot change its value too abruptly.

This is the trickiest characteristic of them all.

What kinds of money are there today?

M1

• Currency and coins in

circulation—1/3 of money. • Demand deposits, used as

More money out there today…

M2

• Savings and money market accounts.

How are banks and the

government involved in all this?

•Government monitors $$$ as it goes through the banks.

•Banks are expected to have a

Basic idea of banking

• Banks use a portion of its deposits to lend and charge interest—the “price” of the loan.

• Loans are only as good as the

What if a bank goes under? ☹

•FDIC was set up to insure depositors.

Banks can actually create money.

• Annie puts $10,000 in the bank, and the bank can then loan out 9,000 of it. ($1000 on reserve)

• Henry gets a loan for $9,000, and puts it in his bank, which can loan out 8,100 of it.

• Peggy gets a loan for $8,100 and puts it in her bank, which can loan out 7,300 of it.

Look! “Created” money!

Perfectly legal, too!

$24,400!

7,300

8,100 $9,000

$10,000

Original deposit Total of $$$ out there now

Wow! Is that for

real?!

And it keeps growing with every loan

This, however, is really the practice of usury!

(Remember that?…)

•Usury is manipulating the money supply to take

advantage of borrowers. •Remember when all this

started, with the goldsmiths

Think about it…

•What do you think happens

after the goldsmith lends out

that gold?

•Pretty soon, guess

•They just got rid of

the gold altogether!

They did it through one of the most

powerful institutions in the world…

(And a very scary one because so many don’t

really know

what it does, and what it can do!)

“All right already!

Money

Moola, moola

Mmm…

The central bank of the U.S.

•It is the Federal Reserve

System. For short: The Fed.

The Fed

• It is run by the Federal Reserve Board of Governors.

It’s leadership: 7 officers, each with 14 year terms. one appointed every two years.

• The Chairman: Ben Bernanke,

a very powerful individual.

• The system is divided into 12 districts.

What is the nature of its power?

•It manages the

flow of money in and out of the

economy.

•It has control

over the reserves

But note that…

•It wouldn’t have that power if

people didn’t borrow.

What are its significant responsibilities?

•Clears checks. •Regulate banks.

•Recommend consumer laws.

•Maintain currency.

What is monetary policy?

•The tool for managing the money supply.

•The Fed wants the right amount

Monetary policy

•When $ is put into the economy, then

•You hope to get more

employment ☺

Monetary policy

•When $ is taken out of the economy, then

•You hope to get less inflation ☺

•But you may also get

What is their goal?

How the Fed uses monetary policy

Goal More

employment ☺ (but more

inflation ☹)

Objective

PUT $$$ IN

Using monetary policy

Goal

Less inflation ☺ (but more

unemployment ☹)

Objective

Take $$$ out

The U.S.

What are the three ways the Fed tries to do this?

What are the three ways the Fed tries to do this?

Sell

Government Securities

Buy

Government Securities

Buying and selling of government securities

The Fed

Treasury Bills

(These are really just

Buying and selling of government securities

The Fed

Treasury Bills

(These are really just

What are the three ways the Fed tries to do this?

Sell

Government Securities

Buy

Government Securities

What are the three ways the Fed tries to do this?

Increase

Sell

Decrease

Buy

What are the three ways the Fed tries to do this?

Raise

Increase

Sell

Lower

Decrease

Buy

What are the three ways the Fed tries to do this?

Raise

Increase

Sell

Lower

Decrease

Buy

Open Market Reserve Ratio Discount Rate

What are the three ways the Fed tries to do this?

Raise

Increase

Sell

Lower

Decrease

Buy

Open Market Reserve Ratio Discount Rate

The Fed mostly…

Buys or sells government

securities.

Changing the discount rate

affects the interest rates

Even more than that, The Fed relies on…

People borrowing.

We live in a debt-based

society.

What do you think would happen if everyone paid off their loans,

What this means is that the way the Fed really works is that…

In responding to

people borrowing money, it writes a check with no

“real money” in

And who borrows?

People like you and me borrow

But also!

Congress

What is the pledge from each for their loans?

They put up their wealth and

productive value

The evidence (it isn’t pretty…)

❑ Outstanding consumer credit

(including mortgage and other debt)

in U.S:

$9 trillion

❑ Credit card debt alone in U.S:

$735 billion

❑ Average U.S. household owes

More money, coming up!

One other way the Fed may

influence monetary policy is with…

• Moral suasion.

• This is simply the idea

that when the Fed speaks, people listen!

The idea is…

•If interest rates are higher, then fewer people will

borrow money.

•Therefore there will be less

By the same rule…

•If interest rates are lower, then more people will want to take out loans.

•There will then be more

Ahh, but keep in mind…

The Fed is not all powerful! It still must deal with the

laws of supply and demand

Errgh! That’s not very encouraging…

It isn’t? Ahhh, but did you

know that there are a number

of things you can do about all this?!

There are! Let’s find out…