tag:blogger.com,1999:blog-30643134.post299350128003231591..comments2023-12-26T01:10:26.319-05:00Comments on Accrued Interest: Do Not Pass GO, Do Not Collect $200Accrued Interesthttp://www.blogger.com/profile/05096191765979971184noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-30643134.post-75412494128887196412009-11-03T14:07:38.995-05:002009-11-03T14:07:38.995-05:00Let's try an even simpler Monopoly game exampl...Let's try an even simpler Monopoly game example. I see it as more real-world, easy for anyone to get their head around example. <br /><br />4 players. Regular game. All properties have been bought through regular play. Everyone is more or less even. Then player 'Bob' is handed an additional 10 $500 ($5000) Monopoly money. Bob is owner of a large construction company that just won a contract for 10 prisons. Bob has the additional money - which was *added* to the economy, not borrowed from the other players; the other players didn't get a contract. <br /><br />Bob goes to work, starting by buying up properties from the most hard up player. After a bit of time, Bob has many additional properties; the other players have fewer. The average sales price of the properties has increased by ($5k / 23? properties). <br /><br />Bob got the money first, so he was able to take advantage of pre-inflation prices. Chances are someone has few properties and therefore income potential. Properties now cost a lot more for everyone. Bob doesn't care; he just got another contract to help rebuild Iraq (due to college connections that have made their way into power). Bob just got an injection of $20k (again, non-borrowed) this time around...<br /><br />Welcome to the real world.Duanenoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-26089603935204563382009-05-23T02:45:31.622-05:002009-05-23T02:45:31.622-05:00I am learning - and this post was a great thought ...I am learning - and this post was a great thought provoker. Thanks.Kaushal Trivedihttps://www.blogger.com/profile/03917669548585523614noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-75849552830475966952009-05-11T00:00:00.000-05:002009-05-11T00:00:00.000-05:00I am a freshman econ major. This is by far one of...I am a freshman econ major. This is by far one of the best blog posts I have ever read. I have it bookmarked and go back and read it multiple times. Thanks.GS751https://www.blogger.com/profile/12104712741442133837noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-13701647209041296472007-05-07T11:38:00.000-05:002007-05-07T11:38:00.000-05:00The difference between Anon's point and RW's point...The difference between Anon's point and RW's point is just from when you measure it. Bottom line is that the money supply didn't decrease in all that, it just didn't increase by as much. <BR/><BR/>Will:<BR/><BR/>In theory, interest rates are the price of money. In order to facilitate current consumption beyond current income, you have to "buy" more money by borrowing it. If there is more demand than supply the price (interest rate) should go up. <BR/><BR/>But the private supply of borrowable funds still have to come from someplace. Assume the Fed never prints money. Banks can lend out all but a small percentage of their deposits. Let's say that reserve requirement is 2% to make the math easy. So a bank with $100 million in deposits makes $98 million in loans. But see, that $98 million in loans came from depositors, not from thin air. If you will remember Macroeconomics 101, this is why Savings=Investment. Because in order for banks to loan the money, someone has to be putting the money in the bank to begin with.<BR/><BR/>Back to the real world, the Fed allows banks to borrow money to make their reserve requirement. So in essense, to the extend the Fed wants to increase the money supply, it prints money and lends it to banks. In essense, the Fed has become a depositor at that bank: they put in money and get back interest, just like Mrs. Smith's savings account.<BR/><BR/>I think Will's idea would stand if we went to a completely private money supply, where we used bank notes instead of Federal Reserve notes. I think all but the most hard core libertarians/conspiracy theorists agree that fiat money is superior to private money because of decreased transaction costs of assuring we have "good" money. That debate is interesting, but entirely academic, since we aren't going to private money any time soon.Accrued Interesthttps://www.blogger.com/profile/05096191765979971184noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-76279681198500191782007-05-03T16:26:00.000-05:002007-05-03T16:26:00.000-05:00Lately I have begun to rethink the monetarist expl...Lately I have begun to rethink the monetarist explanation for rising prices.<BR/><BR/>At its core, money is just a medium of exchange. If there is more demand for money, the money supply will increase -- whether it is done by the government or the private sector. The private sector can increase the money supply by simply trading more -- even during "ancient" times, credit instruments, commodities, etc., were used to facilitate the exchange of goods. <BR/><BR/>Therefore, given the choice, I think that inflation is caused by supply and demand for goods and services as opposed to supply and demand for money.Willhttps://www.blogger.com/profile/02940220213614602065noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-72318433695210661972007-05-02T09:07:00.000-05:002007-05-02T09:07:00.000-05:00The way I learned it Anon, inflation is just the o...The way I learned it Anon, inflation is just the opposite of that: Your 300K loan was created from thin air and the Fed prints money to match it (M increases); i.e., M is still $150K higher after you mail your keys to the bank.<BR/><BR/>Confusing stuff, eh?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-30194672195357223232007-05-01T12:16:00.000-05:002007-05-01T12:16:00.000-05:00I take out a 100% LTV mortgage on a house I purcha...I take out a 100% LTV mortgage on a house I purchase for $300,000.<BR/><BR/>Doesn't work. I jingle mail the keys to the bank, and the bank ends up selling the house for $150,000.<BR/><BR/>Question: it would seem to me that $150,000 just disappeared, never to be heard from again. Is that correct?<BR/><BR/>In other words, if a huge equity piece of the economy suddenly shrinks in value, we get deflation.<BR/><BR/>Help.Anonymousnoreply@blogger.com