Central Banking system, Fiat money and Fractional banking system

[hanera]

Just some background info for those who want to know more about the movement against central banking system. I am not supporting or against the system, I am not that smart and competent to evaluate. I only know how to float with the sea of society.

Central Banks Enrich a Select Few at the Expense of Many

[pandeyathotmail]

If I have reorder the three in the descending order of danger
to the economic well being of the society, I will list them
in this order (the most dangerous comes first).

1. Fractional Banking
2. Central Banking
3. Fiat Money

[pandeyathotmail]

Is there a way to move the notes I wrote on this topic in other thread to this one?

[hanera]

quote and answer here.

@pandeyathotmail

Anyway, The following two have been common and persistent theme in my writing:

(1) Protecting the of purchasing power of money.

(2) Not forcing a saver to be an investor.

Saving and Investing are two different kind of activities. A saver spends less than income and keeps the balance to spend some other day. A saver expects that the money saved will not loose purchasing power over the time. This is how the money has worked for thousands of years before the governments (through the central bankers) learned to debase currency and steal from the purchasing power of savers. Inflation is a taxation by stealth.

An investor spends money into assets (financial or non-financial) in hope of some returns on the amount invested. Investors, by definition, understand the risk and willingly put money at risk.

The governments over the world, by design, have been killing the purchasing power of the money. Thus unwilling savers are forced to be investors, and most of them do badly, either through poor returns or loss of principle. Actually, most people would benefit if money retained purchasing power. For them, the gains through investment does not compensate loss.

I did not bring economic contraction and expansion into this discussion because these have existed even before central banking and fractional banking came into being.

[pandeyathotmail]

Thanks. A little more help. What steps do I need to take If I want to move the note where I defined money and its function? More precisely, how do you quote from another thread?

[hanera]

First select the text, a quote will pop up, click it. It will go into the reply mode. Write a few words.
Go to the thread you want to re-post and type reply, choose reply here.

[marcus335]

So the only data is the growth of the fed and US bank balance sheets. Then they throw a bunch of opinions out there.

[hanera]

@marcus335

So the only data is the growth of the fed and US bank balance sheets. Then they throw a bunch of opinions out there.

You can be more sarcastic Those who miss the stock and RE rally since 2009 are bitter. They thought the Great Recession would last a lot longer. I also thought it would last pretty long, the saving grace is I dumbly held on to AAPLs.

[marcus335]

People who panic sell always lose out. Anyone who didn’t lose their job should have kept buying. That means 90% of people should be thrilled with the results.

[pandeyathotmail]

@marcus335

What do you think is a good investment then? It seems nothing has a high enough return with low enough risk for you. Has there ever been a period in history with the economic conditions you want? It’s way more productive to learn the game and be good at it then trying to convince the world to play a different game.

People mix the words investment and speculation frequently on this forum and elsewhere in the financial media.

An investment should (at least try to)
(1) protect the principle
(2) pay a definite return commensurate with risk taken.

Speculation on the other hand involves spending on unproven idea in a hope of significant return. Both principle and return are at risk.

@hanera asked
First thing first, why do you want to save $ or invest?

Can I ask a counter question? Can I just be saver and not be an investor? Should I forced to invest when I do not have inclination, time, or aptitude to be an investor? Or should I be forced to buy a SP500 index fund with historic return of 2-4% and with chances of seeing your principla fall to half and never recover or recover after long time.

Can you define for me who is a saver and who is an investor?
If you can define a saver, then you can also answer the
question, should every saver be an investor also?

@marcus335
What do you think is a good investment then? It seems nothing has a high enough return with low enough risk for you. Has there ever been a period in history with the economic conditions you want? It’s way more productive to learn the game and be good at it then trying to convince the world to play a different game.

I do not think there is an investment that is not risky.
But, the question even more fundamental is should one be
forced to become an investor?

Creation of FED has led to deterioration of money in US. Now you might ask what is money?
The classic definition of money is anything (could be a pebble) that provides these four functions:

1. medium of exchange
2. measure of value
3. accepted universally
4. store of value

Do you think US Dollar or any known currency passes this test of money? Basically, the FED has killed the 2 and the 4 function of money. The USD does not measure or store value any more. That is why people are forced to invest. So, to answer your question, the period before creation of fed (1914) or even before decoupling of gold with dollars (1971) , people who did not want to be a investor did not have to be an investor. The money saved was good for hundreds of years because it did not loose value (purchasing power) the way it did after these events.

[marcus335]

By your definition, only bonds and CDs are investments. They pay you interest and pay back the principal at a given date. Stocks would always be speculation. Why don’t you just buy bonds? You can buy treasury bonds that yield a fixed percent plus inflation.

It’s interesting you complain about being forced to be an investor. Meanwhile, tons of people live in countries where they can’t be an investor. It’s a huge advantage to live in a country where anyone can be an investor.

[pandeyathotmail]

@marcus335

By your definition, only bonds and CDs are investments. They pay you interest and pay back the principal at a given date. Stocks would always be speculation. Why don’t you just buy bonds? You can buy treasury bonds that yield a fixed percent plus inflation.

It’s interesting you complain about being forced to be an investor. Meanwhile, tons of people live in countries where they can’t be an investor. It’s a huge advantage to live in a country where anyone can be an investor.

The investment (CD, Bond, real estate, liens, antiques, or gold or whatever) has to match the investors profile (understanding of market, liquidity, risks, rewards, investment time horizon, and time an investor can spend on tending his investments ). The tragedy of modern banking system is that savers have been pretty much sidelined and decimated to keep some bankers and politicians happy and electable. In some countries you are even penalized for being a saver with zero and negative interest rates.

[marcus335]

You really think CDs require investment knowledge? Treasury bonds are pretty simple too. All the other stuff only matters if you don’t hold to maturity. Trading them requires investment knowledge. Holding to maturity doesn’t.

There are no savers. Seriously, you can lookup the data. There are investors and debtors.

[pandeyathotmail]

@marcus335

You really think CDs require investment knowledge? Treasury bonds are pretty simple too. All the other stuff only matters if you don’t hold to maturity. Trading them requires investment knowledge. Holding to maturity doesn’t.

There are no savers. Seriously, you can lookup the data. There are investors and debtors.

You need to know how much CD will pay. What is the default risk of the bank if over the insured amount? Fixed income assets have to valued based upon inflation risk, default risk, interest rate risk etc.

[acre]

The long term risk is that the US can’t sell its bonds at all.
Why would anyone buy a 30 year bond - or even a 10 year bond - if there is reason to believe that the principle will hardly buy anything when the bond matures?
Another long term risk is that, in the welfare state we have become, if people can’t save for their futures then there will be many, many millions depending on everyone else’s taxes in their old age.
Both these risks could cause currency debasement to snowball. And forcing everyone into the stock market - regardless of their degree of sophistication - only worsens the situation.

[marcus335]

Wow. Ok, just hide all your money in gold under your mattress then. Everything is too risky.

[Elt1]

Living in the macro world of economics will make you miserable and broke. Don’t wait to buy RE, buy RE and wait. Or just buy index funds if you are afraid of RE. Or only spend your money on fun stuff and enjoy life.

[pandeyathotmail]

I prefer living a nice life today. One in hand is better than two in bush.

[pandeyathotmail]

@pandeyathotmail

If I have reorder the three in the descending order of danger
to the economic well being of the society, I will list them
in this order (the most dangerous comes first).

1. Fractional Banking
2. Central Banking
3. Fiat Money

I listed Fractional Banking as threatening.
I do not want the banks to become investment houses.

After QE4, courtesy of the FED, Banks to become investment house (and take higher risk).

Fed to pare back ‘Volcker rule’ to expand bank investment in venture capital, securitized loans

The regulation prohibited U.S. banks from engaging in short-term proprietary trading of securities, derivatives, and commodities. The rule also limited banks from owning “covered funds” that in many cases involve pooled investment vehicles.

Fed to pare back 'Volcker rule' to expand bank investment in venture capital,...

[marcus335]

How does it impact you?