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Author Topic: Why Banks want to keep the Money Slow  (Read 767 times)
theonewhowaskazu
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November 03, 2013, 08:37:16 PM
 #1

As you probably know, currently all money carries an interest rate.

Either about 2.5% on base currency (Of which a normal person gets 0% for owning Federal Reserve Notes).
Or about 4% on bank currency (m2) (Of which a normal person gets 1% for depositing into a bank).
I'm assuming there is roughly 2 times as much bank currency as there is base currency, so the average rate debt is building up is about 3.5%.

There is no way that 3.5% can be repaid in full, all at the same time, because that 3.5% is accruing on all money in the entire system. If people just waited until the same time to pay back their debts (say January 1st), even if the entire money supply were destroyed, 3.5% of people would have to default.

There are two ways of avoiding this, one which is often talked about here, the other one, not so much. The first is to borrow yet more money. The second, is to pay some of your debts, and then earn some of that money back from your debtor, and then pay back the rest of your debts.

That's where money velocity comes in. You see, I've discovered that basically the entire monetary system right now is based around making currency move as slowly as possible. Instead, we have to take credit - which bears yet more interest - on top of that money - to get that money to move fast. This piles yet another bunch of interest on top of the 3.5% that normal US Dollars are accumulating.

See, when you go buy something, you don't just buy it. You purchase it with a credit card. Those interest rates are orders of magnitude higher than the 3.5%, its more like 12%. If you want to send money oversees, you can't just send it, you're going to have to pay Western Union to send it, and if you want it today? That's a bigger fee - that's really just more interest (to get your money earlier, you're paying money). All of the money used in this manner has TWO interest rates on it, first, the interest rate of the normal money, 3.5%, and then another interest rate, to advance it to the person you're paying, 12%. The banks allow this money to move fast, because they compensate the speed with more interest.

On the other hand, money earning the first interest rate moves slow, or at the very least, there are choke points where it really matters. The government gets their payday once a year. Sales tax and income tax, for example, are withheld from you throughout the entire year - you're not circulating that money, its stuck, with a velocity of 0 - yet the government is still paying interest on that money, until finally come tax time where they collect it. The Federal Reserve only turns over its  profit - really the money the government has been paying them in interest - back to the government at a specific time of year. Laws try to get us to stick some of our money into IRAS, 401Ks, or into offshore bank accounts, where its velocity is also 0, where interest just accumulates, some for us, more for the banks. To extract some money from these accounts? It literally takes months, I've tried it, plus there are huge tax implications which say "don't do it now, do it later."

All because the banks don't want you to pay off some debts, then earn some of that money back from your debtor, then pay off the rest. They want, due to the slowness of money, when you pay off your debtor, somebody else had to rack up even more, else you wouldn't be able to pay it back in time.

Just one more reason Bitcoin is different.

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karsy
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November 03, 2013, 09:51:46 PM
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I do not think bank currency is only double of base. I know the base currency amount for USD is around 3B. Don't remember where I found out.
theonewhowaskazu
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November 04, 2013, 12:17:01 AM
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I do not think bank currency is only double of base. I know the base currency amount for USD is around 3B. Don't remember where I found out.

You must have a very good memory. That was true in 1987. Since then we've started printing fast. Now we have 3.6T worth of base currency. Source: St. Louis Fed (http://research.stlouisfed.org/fred2/graph/?s[1][id]=BASE)

EDIT: Actually that's 300B. Who knew ~.~

balanghai
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November 04, 2013, 12:31:25 AM
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So even saving in fiat in the banks, it's 3.5% loss. Thus making it even harder. Investing is the way to go, you get at least 35% ROI and the good thing is it's your money, not the banks'. If you also save it in the bank, you also get inflation which is around 5-7% and there you lose more or less 10% in value, though the figure is exactly the same you deposited but it's not the same value as of today.

I also want to explain more in detail. For example you deposited $100 in 2012, you earn a 2% interest, so it's now $102 in 2013, but what the people don't see clearly is the most insidious part, inflation of around 5-7%. Though your money in figure is $102 it's not worth the same as 2012. Its value has dropped at 10% or more thus making its value at around only $92(though it's $102 in figure).

Not only they want to move it slowly but they also want to choke you slowly. It's really good to invest in your own business than depositing somewhere else.

My BTC0.02.  Grin

1 BITCOIN bisa beli Berapa Bungkus MICIN ?
theonewhowaskazu
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November 04, 2013, 01:16:01 AM
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So even saving in fiat in the banks, it's 3.5% loss. Thus making it even harder. Investing is the way to go, you get at least 35% ROI and the good thing is it's your money, not the banks'. If you also save it in the bank, you also get inflation which is around 5-7% and there you lose more or less 10% in value, though the figure is exactly the same you deposited but it's not the same value as of today.

I also want to explain more in detail. For example you deposited $100 in 2012, you earn a 2% interest, so it's now $102 in 2013, but what the people don't see clearly is the most insidious part, inflation of around 5-7%. Though your money in figure is $102 it's not worth the same as 2012. Its value has dropped at 10% or more thus making its value at around only $92(though it's $102 in figure).

Not only they want to move it slowly but they also want to choke you slowly. It's really good to invest in your own business than depositing somewhere else.

My BTC0.02.  Grin

The philosophy of a person holding all USD:

"Its better to always lose a small amount, rather than sometimes lose a large amount but usually make a large amount."

Anyway, if you want to invest without stock-picking (like me, I'm a terrible stock picker), just invest in Real Estate (physical, none of this derivatives bs), gold & bitcoin. Then, for the market, invest in the S&P or another broad market index or sector, and short-volatility futures. And if you want to have something to actively do, troll IPOs.

That basically sums up in like 3 sentences my entire investment activities over the last 5 years, lol.

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