Leveraging and Duplication

Posts tagged ‘paper dollars’

Why Use Digital Money? LADA Hedge Fund

In today’s world we really do need transportation, an address and a connection for communication. We need income, and in most cases that means a job. Otherwise, we have to create a product to trade.

The most basic economics involve the idea of exchanging something of value. That value is in the eyes of the beholder, not in the eyes of the owner! I might have something I think is junk, but if someone else “beholds” that thing and decides they want it, then they’ve placed a value on the thing. Regardless of what I might think about that thing.
Exchange: That’s the fundamental concept.

As societies got more complicated, people started using various commodities as symbols of value. Among the most well known are gold, silver, diamonds, copper, and other metals and jewels. Because those items were considered to be equal with actual “stuff,” they became precious metals and precious jewels. “Precious” means that which has a high value to people.

Symbolic money is no different. If you do whatever it is that gets you a piece of gold, then you have a physical piece of precious metal. When you exchange it, you first want to get something of equal value. Secondly, whatever it is that you trade for, you continue to have something physical.

The problem with a “gold standard,” where it refers to money is that there isn’t enough gold to match all the stuff in the world. Not only that, but there isn’t enough gold to match what stuff MIGHT enter into the world. There might be enough gold for all the current stuff, but what if you want to start a business making new stuff? There isn’t enough gold.

To solve the problem, societies create money out of something that’s more readily available. Those societies arbitrarily declare the value of that new item, and it becomes real money. “Real” means that you can pay bills, pay taxes, and make legal claims based on the exchange of that money.

So what’s the difference between, say, paper money and “fiat” money?
Social money has two basic requirements. First, it MUST associate with and match some underlying real-world value. Secondly, whomever is in charge of that money MUST be honest!

For example, we might decide to use pearls as money. We know we can find a fairly large supply of pearls, but they’re not so easy to find that anyone could pile up a whole lot of pearls. When we make the decision to use those pearls, we have to assign a value to them. We have to say that pearls, from now on will equal the amount of all the food in the world. If surplus food shows up after a good harvest, then the value of each existing pearl will go down. If there’s a shortage of food, then the value of each pearl will go up.

What matters fundamentally is that the person in charge of keeping track of all the pearls in the world, MUST be honest in their numbers! They have to tell us the truth as to how many pearls are floating around. Otherwise, how would we know if the pearls should be more or less valuable? That person, therefore, must also know the truth about how much food there is in any given year.

The US Treasury and the Federal Reserve are in charge of telling us how many paper dollars there are in the world. The Bureau of Labor & Statistics is in charge of telling us how much food, work, service and product there is in the world. Both of them are lying.

In theory, at any given time you or I could go to the person counting pearls and ask to see those pearls. We could walk around and count up how much food there is, then match that food to the pearls. A “standard” means that the “thing” being used for money matches the “stuff” being exchanged as valuable.

When someone arbitrarily decides to make more money, they have to also arbitrarily tell us how much that money is worth. They make a declaration by “fiat,” and so we end up with fiat money. Fiat money is a symbolic form of exchange based on nothing at all other than someone’s say-so.

Long ago we had a gold standard, where people could physically exchange a piece of gold (or silver) for something of value. In 1913, we decided once again to go with paper money. At that time, the US Government assigned 35 pieces of paper to 1 ounce of gold. The gold was supposed to match the amount of work and production in all of America.

In 1971, we decided not to use gold anymore. (Well actually President Nixon decided, not you and me.) The government said that we would print paper dollars in enough volume to match the entire production of the country — the United States Gross Domestic Product.

They also said they’d be honest, and tell the truth about how much paper they were printing, and how much stuff America was producing. Since then, nobody has ever been able to audit the Federal Reserve, just to…say…check to see if they’re being honest. They say they are, though, and that’s good enough for Congress.

Likewise, nobody actually audits the Bureau of Labor & Statistics, except for weird (extremist) alternative blogs and strange financial analysts. Nothing the BLS prints makes any sense, but nobody minds really. It’s good enough for the financial news reports.

Meanwhile, people got used to exchanging actual pieces of paper for actual stuff. If you bought a candy bar, you handed over some paper and metal and you got the candy bar in exchange. You could actually put that candy bar in your mouth and eat it. The store owner had to trade the paper and metal for either more candy, or for something else he or she valued.

Since the mid-1990s, the amount of paper the government needs has been growing so fast the printing machines are in danger of exploding. NONE of that paper is matched to a damn thing! They “say” it matches the US economy, but that’s a lie.

Even so, the rest of us still like to know that we have something valuable in our pocket, wallet or purse. We like to actually see our paper money in a box, an envelope or under the mattress. But we’ve been learning how to use futures contracts for money, in the form of checks.

You give me a hamburger today, valued at $1.00. In exchange, I give you a contract that tells you that sometime in the future you can go to a special place and the people there will give you a dollar. In other words, I write you a check for a buck and you hang on to it until you cash it at the bank.

That was all fine and dandy, until we discovered computers. That led us to credit and debit cards and electronic gift cards. What actually does that mean?

When we used paper money, the only reason we needed checks and checking accounts was to handle long-distance transactions. That distance might be physical, or it might be distance in time. But one way or another, a bank actually had to have a certain amount of paper money in its vaults to match the numbers in their accounting books.

The problem is that money started moving around so fast, nobody could keep up with the actual transfer of dollars! There weren’t enough trucks to move that amount of money from bank to bank. Prices started going up as more and more paper flooded into the economy. (Those pearls suddenly started being made out of plastic, and everyone who could started making pearls.)

Instead of a house needing $35,000 pieces of paper moving from one bank to another, that house required $300,000 pieces of paper. All that paper was taking up room! BUT!….no matter how screwed up, at least there was some amount of paper that matched some amount of stuff.

The problem is that we now have such a massive amount of paper, there isn’t any room to store it anymore! Not only that, but none of that paper is worth anything other than as toilet paper or kindling. It costs more to print and move that paper than it’s worth!
Enter the final disaster: Digital Currency.

This digital currency is electronic money. Now we don’t even need a “thing” to represent underlying value. No, with digital currency we can just pretend that some “thing” exists, even when it doesn’t. At that point, we no longer even need to have fiat money! From now on, we can arbitrarily move numbers around on computers, none of which mean anything at all.

It’s already impossible to comprehend 14 Trillion Dollars. The paper would be mind-boggling, or we would have $1-billion bills in our wallets. Therefore, why bother? Why not just have numbers in a machine, totally disconnected from any kind of meaning at all? You get Direct Deposit for your paycheck? Well then, why not just pay you $1-million a year? Who cares? They’re just numbers, and there’s no need to carry around actual paper in an actual wallet!

This all works only until people who actually produce things stop exchanging!
At that point, no doctor will perform services. No farmer will sell food. No mechanic will fix a car. No store will sell candy. No weaver will make cloth. No plumber will fix the toilets.

Digital currency means that we can instantly give everyone with a food-stamp card $1,000 a month. We can increase your credit card limit to $18-billion. We can increase your wage to $10,000 a month. It’s like…magic! We can give everyone as much money as they want, and never have to use chopped up trees or ink or printing presses! Nobody has to do anything, we just push a button and BLAM!….you have a new minimum wage!
Until nobody agrees anymore to give up real and valuable things!

The reason the whole world wants fiat digital money is because there’s still a limit on how much money the government can print. It’s hardly a limit at all, but the amount of paper money necessary to pretend we have an economy is still that limit. Get rid of paper money, and there’s no more limit whatsoever. At that point, the government can spent quadrillions of dollars a minute, and the only thing that changes is a computer register.
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How Cash Keeps Poor People Poor

Want to help the poor? Start by taking money out of their hands. More specifically, cash, coins and paper bills are the silent enemy of the poor, with costs often out of proportion with their day-to-day convenience.

On one level, it’s ridiculous to think of cash as problematic; if you have a mountain of paper money, you aren’t exactly impoverished. And at times cash seems like exactly what we need. Saying “yes” to cash can seem like saying “no” to overspending and steering clear of big banks, which means saying “no” debt, overdraft fees and Big Brother. In the age of zeroes-happy bank bailouts cash stands for individual empowerment and no-nonsense finances.

The irony of this line of thinking is that most of the people espousing the virtues of cash simultaneously enjoy the safety and cost savings of electronic money. Even those who usually have bank accounts, receive payments via auto deposit, use stored-value cards for public transit and more likely than not pay their rent or mortgage, utilities, medical expenses, Internet service, hotel bills and auto insurance by transferring sequences of 1s and 0s between faraway computers. Click. Sure, you may still need a bill or two now and then for the Salvation Army Santa, waiters and bellhops. But for the most part, the better off you are, the less you need cash — and the easier it is to avoid it.

In contrast, the poor — tens of millions in the U.S. and billions of people worldwide — often have no option but cash, and pay dearly because of it. In a recent piece for Foreign Policy, Vishnu Sridharan of the New America Foundation writes that cash-based economies “harm the poor by heightening the risks they face when carrying money and fueling government corruption and inefficiency.” Imagine literally having your life savings under your mattress or folded into a coffee can, vulnerable to fire, thieves, drunken relatives or nagging neighbors. Imagine having to ride the bus for hours to settle a bill, or traveling for days to deliver funds to a relative. Your already fragile finances can also get hammered by outrageous fees charged by check-cashing services or astronomical interest rates levied .

Psychologists will tell you that we are more careful with our money when operating in cash because forking over those funds is a more salient experience than swiping a debit card. But for the poor, especially in the developing world, it’s the opposite: cash gets spent. That makes it harder to buttress against financial shock and save enough to reach solid financial footing. In some parts of the world, people actually pay local strongmen to safeguard their money because having cash on hand is so precarious. Think about that: not even Wall Street bankers charge you to stash your money in a savings account (not yet, anyway). 

Millions of people on the margins often tumble back into poverty because of sudden setbacks — major illness or natural disaster, for instance — but just as often they are small-scale financial disturbances like a sprained ankle, or a broken-down moped, which prevents you from commuting to work. Even if you’re managing to get by, a cash-only economic existence makes it difficult to save for long-term investments such as education, job training or farm equipment to break the cycle of poverty.

So what’s the solution? You probably have one in your pocket. By 2014, about 90% of all adults in the world will have a mobile phone companies have already shown that you don’t need the latest, flashiest model to send and receive money as easily as a text message and that you can remotely — and securely — access a bank account from the cheapest sort of handheld. Mobile technology will enable the poor to keep their money in the same form that you keep most of your money: digital. Not tomorrow, but soon enough, passing someone a bunch of banknotes or a clinking handful of coins will seem as dated as using a pay phone.

Digital money and mobile technology alone won’t end poverty, obviously. But as Rodger Voorhies of financial services for the poor at the Bill & Melinda Gates Foundation, writes, innovations in these areas “hold the promise to increase transparency, improve financial access and help low income people get out of poverty and stay out of poverty.” If we can turn into the wallet and bank branch of tomorrow, we may end up doing more to combat poverty than cash donations ever could.

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