A Question About Money
 

Just thinking, after that fake $20 thread.

how exactly does money work?

not about how we use it to buy stuff, but for a countries wealth.

Why cant a country just manufacture piles and piles of money?

im sure it has something to do with resources like oil and gold and stuff, but how exactly does it all work?

Short question. The (complete) answer is rather elaborate. I suggest you look it up.

Here's one for you:

How does the sun work? I know it's hot, but they have told me it's not burning. What's with that?

biggrin:

Don't answer this, I know how the sun works in detail

I never asked purely for an answer, otherwise i would look it up myself but i cant be arsed.

The Sun is also a mediorce newspaper which should be renamed tits, guns & football.

[quote="Captain Bunny":bd886]I never asked purely for an answer, otherwise i would look it up myself but i cant be arsed.[/quote:bd886]

Why start a thread then.

Why did I respond anyway.

eek:

you produce too much money and you produce inflation, thereby lowering the cost of each dollar (or pound) and that can't be a good thing. in 1930s germany, I believe it cost a billion german marks for one dollar. some astronomical money.

Yep, inflation is the biggest reason. Finite supplies of money are another reason trade deficits arent really that big a deal. If we run a large trade deficit with japan, we pay in dollars (usually). Now japan has all these dollars that dont work at the 7-11. Maybe they can spend them in a few places, but for the most part those dollars will make their way back to the US, mostly thru trade. Maybe they use them to set up a business here. they still need to pay locals to do he work. Weak dollar/strong dollar doesnt really matter either. Weak dollar means are goods are now priced more competitively overseas, we can now produce cheaper in a relative sense. Strong dollar, we have more purchasing power, but imports will increase.

dollar isn't too strong right now and it doesn't look to improve soon in this global economy we are creating for ourselves with the war in Iraq. lots of boycotted American goods in Europe and elsewhere to protest these actions

[quote="Old Reliable":e0f94]dollar isn't too strong right now and it doesn't look to improve soon in this global economy we are creating for ourselves with the war in Iraq. lots of boycotted American goods in Europe and elsewhere to protest these actions[/quote:e0f94]

I havent really noticed. All I have heard about is the french boycotting the french owned pepsi and mcdonalds. This too shall pass.

Err, do you think the pay in paper dollars? Maybe they pay in dollars, but in the currency dollar. For example: They pay like 1 million dollars, but the Japanese business man receives x million yen on his bankaccount. Depends on the rate, of course.

No way they're sending a man with twelve suitcases full of dollars, man.

Take an economics class. I took macro last year. While I've managed to erase 90% of it already via Coors Light, I can tell you that it was really complicated. There are several systems in place to prevent large sums of money to be over produced and systems to determine the "value" of money. oOo:

No, its not a large suitcase, there are clearing houses and deposits with the federal reserve bank. Banks are required to have certain levels of cash reserves. If someone deposits a huge sum electronically, there is a required amount of cash reserves that need to be associated with it. Thats where the fed comes in. They have these huge piles of paper (used to be gold) that never move, they just get new account numbers associated with them.

The money supply is finite. They cant keep converting yen to dollars forever. At some point they would have to pay in yen if they want to continue to buy. Where are we going to spend yen? Possibly anywhere, but most likely in japan.

I am sure some of this is technically incorrect, but that how I remember it.

And by the way:

The dollar isn't too strong, Reliable said. I can add that the Euro isn't too strong either. Both currencies are dropping in value on the world market. The dollar is dropping more rapidly, so, relatively, the value of the Euro is increasing in relation to the dollar.

If you're really interested, look for a book or paper that discusses the position of America in the global economical market. Look for subject as: Indebtednes of American households (76% of gross national product) and the capital flow to America. You'll be surprised at the way the economy works in the US. 'Chronic deficit' are the two keywords. 'Paid' by the rest of the world by investing savings on the New York stock exchange (about 1500 billion dollars a day). This making America the centre of the mondial capitalism. May seem as a flame to some (American) people here, it's not intended as one. It's just how it works.

At pest: Yes, you are partly right. Since the abolition of the system of Bretton Woods (for every dollar there is one dollar in gold), the currency is purely an abstract symbol.
Don't know what you mean by 'fed' (federal government?); what I do know is that the American banks don't not have reserves for Japanese accounts. They require an amount of money to make the transfer, but once it's gone, it's gone. The dollars become yen.

Edit:

By the way, I'm off now, gone for the weekend being. I might be wrong on some subjects (although I think I am quite right); I will and can not reply.

By fed I meant federal reserve.

I cannot put a finger on any validation, but I disagree about a yen *poof* becoming a dollar. Maybe to the end user it appears that way, but there are transactions behind the scenes to make the rest flow.

Money can only be created in two ways - it is either printed or the creation of wealth thru lending, which is more complex than I want to type.

Edit: And have a good weekend.