Linux at NASDAQ OMX
Linux at NASDAQ OMX
Posted Oct 26, 2010 7:37 UTC (Tue) by butlerm (subscriber, #13312)In reply to: Linux at NASDAQ OMX by cmccabe
Parent article: Linux at NASDAQ OMX
Philosophically speaking, however, I don't see why anyone should expect to earn interest on a risk free transaction. Any interest you earn (in real terms) on an FDIC guaranteed savings account comes by courtesy of a federal guarantee, a guarantee that will have to be made good by the taxpayers every generation or so. Banks, as we know them today, are fundamentally unstable institutions. Earn interest today, pay for it in increased taxes (or inflation) tomorrow.
Posted Oct 26, 2010 10:45 UTC (Tue)
by tialaramex (subscriber, #21167)
[Link] (5 responses)
I don't think there's any philosophy involved here, just economics.
If you assume (as most of the world does) that progress is not an illusion, then making idle resources active in pursuit of progress is a gain. Remember that to make these transactions "risk free" to the saver we need only in fact make them less risky in total than keeping your money under the mattress. The tricky bit (which is handled by things like FDIC) is smearing the uneven risks so that ordinary citizens don't get a nasty surprise.
"Earn interest today, pay for it in increased taxes (or inflation) tomorrow."
You assume a zero sum where there is no evidence for one. The permanent building societies make a mockery of this claim. Since the early 19th century they've been using Peter's money to buy Paul a house, then charging Paul interest and paying it to Peter, they've put vast numbers of people into homes, given back vast sums in interest, and they're cheap to run. It's just organised sharing, the kind of thing we try to teach kids in kindergarten.
However mutual societies don't make people obscenely rich. And so in the 1980s and 1990s this created an enthusiasm for demutualising the societies (people trying to capitalise on this were called "carpetbaggers") and "unlocking" their assets by converting them into banks. The surviving building societies (which fought off carpet baggers with a variety of tactics) are still going today, their worst exposure to the financial crisis being an increase in defaulters which is easily covered by their mandatory long-term holdings. In contrast many of those which demutualised are now in ruins, being rescued by the government, or by government deals struck with larger foreign banks. The carpetbaggers (ordinary people, albeit greedy ones) keep their loot and the tax payer picks up the bill.
Posted Oct 29, 2010 6:53 UTC (Fri)
by butlerm (subscriber, #13312)
[Link] (4 responses)
I am referring to systems comparable to the contemporary U.S. banking system: fractional reserve, fiat currency, government guarantee of "deposits". The first property of any such banking system is the real interest rate earned by savers (prior to government overhead) is the nominal rate minus the inflation rate. The real rate is *much* smaller than the nominal rate.
During the 1970s it was sharply negative, in other words savers lost money in real terms every year, because inflation was so high. Most of the time the real interest on government guaranteed savings accounts is one percentage point at best. Whether the the $200 billion we are churning out to sustain Fannie Mae and Freddie Mac is enough to reduce government guaranteed savings deposits to a true zero sum game is hard to say. There is no question that they are _close_ to a zero sum game.
There is a perfectly good way to accomplish what you are suggesting without fractional reserve _banking_ or government guaranteed deposits. Have individuals invest in diversified bond funds that purchase bonds issued by building societies, credit unions, and the like. People still get loans to build homes, investors earn more in real terms, and the rates automatically and properly float with the risk the bond issuers undertake - instead of as now where you earn half a percent in real terms whether your bank is about to go under or not, which is a very high price to pay for a taxpayer guarantee.
Poorly managed building societies might fail (affecting the return on bond funds), but the commercial banking system as a whole will be immune from systemic failure, because true _deposits_ will no longer be lent out, but rather only the proceeds of what are in effect loans to independent lending institutions, with the risk widely distributed, instead of concentrated with those so unfortunate to make a direct loan to a bank and/or the taxpayers that guarantee whatever crazy scheme the banks will cook up next.
Posted Oct 30, 2010 16:12 UTC (Sat)
by kleptog (subscriber, #1183)
[Link] (3 responses)
One important thing to note is that the total amount of money in the system is not the important factor (though it is the easiest to control). What is important is the *flow* of money, represented by the velocity of money (how money times is the average dollar spent in a year). Actually, it's the goods and services that the money is exchanged for that is the real economy, but the flow of money is the easiest way to measure it.
(Yes I'm glossing over the various types of money, that not really relavent here).
Money that isn't moving is dead. Money under your bed or in a bank that's not allowed to use it is essentially non-existent for the economy.
So if everyone is spending money like mad, you don't need very much real money in the system to support it. Conversely, if everyone stops spending all of a sudden, you need to make more of it to avoid your economy grinding to a halt.
(BTW, in NL the savings are guaranteed by the other banks in the country. In return they end up the queue of creditors in place of the original customers. Sounds like a nice idea, until the amount guaranteed exceeds a significant amount of the total savings in the country, in which case you're still fucked.)
Incidentely, this explains the problem with your solution. Because you are no longer allowed to use deposits to finance other things, the governments would need to print a *lot* more money to keep the economy the same size. I'd guess about 20 times what is currently in circulation (you can't use substitutes like gold for savings, because its value isn't constant). At any particular moment a significant chunk of the total cash in circulation would be stuck in warehouses, rusting.
Suppose someone sells a house and puts that money in a bank account. This money is for all intents and purposes removed from the economy. To keep everything going the government would need to print that amount again to keep the total up, and also destroy it again when they do decide to spend it. That requires a lot more government intervention (and crystal ball gazing) that what we have now.
Posted Oct 31, 2010 13:23 UTC (Sun)
by nix (subscriber, #2304)
[Link] (2 responses)
Posted Nov 4, 2010 10:39 UTC (Thu)
by linuxrocks123 (subscriber, #34648)
[Link] (1 responses)
---linuxrocks123
Posted Nov 6, 2010 16:57 UTC (Sat)
by tialaramex (subscriber, #21167)
[Link]
However you and I are interested in the real economy, which is not concerned with money, but with the goods and services which we obtain in exchange for our labour. So we see a different picture. Everybody has better goods and services than thirty years ago, and the richest can afford only very slightly better toys and nicer services than the poor, despite their bulging wallets. Ordinary working people today may easily obtain things that were beyond the reach of the richest people alive a few decades go.
Yet a third way to look at it is happiness. People seem to be not much happier than previous decades, and wealth or poverty seem to have little impact so long as a person is not so very poor that they lack food and shelter and fear for their life.
Linux at NASDAQ OMX
Linux at NASDAQ OMX
Linux at NASDAQ OMX
Linux at NASDAQ OMX
On average everyone is wealthier.
In the last 30 years? In the US and UK this is only true because the rich have got so much richer: the rest of us have barely gained a thing.
Linux at NASDAQ OMX
poverty gap