My View on Market and Economy : Debarghya Mukherjee

[Debarghya Mukherjee]

Hahahaha, What a nice comment you made SG.
I am laughing.

@Shinchan
SG gave you the key point, this is called Fractional Reserve Banking. If you want know about this more then let me know. It is not so boring. And it is not only 81$ dollar! Banks even can have more strong ratio like 10:1 or 15:1 or 20:1 for lending money. There are many other factors are there, I am ignoring them. I made this calculation on a blunt ratio.

@SG
But thank you SG for for sharing your views here. Please comment on this post
http://www.traderji.com/fundamental...t-economy-debarghya-mukherjee.html#post614738

It was my question to father why people are not spending and investing, rather keeping money in banks. Then I was kid. Now I see the result.


I appreciate comments form readers of this thread on this.

Thank you all.

Hi Shinchan,

Seeing you after ages...How are you?

It is not just 81 Bucks banks can lend upto 90 bucks of the 10 buck deposit....
It is called 'Fractional Reserve Banking'... which in simple words means they lend money created from thin air and it is only a book entry......suggest you see the 'The Money Masters' video on youtube..... though it runs into 3hrs29 minutes....you will be riveted and better than watching any Bollywood film....if at the end you don't think it is as good as what I said...you can comeback & clobber me......

SG

 

[Debarghya Mukherjee]

FRACTIONAL RESERVE BANKING IS BAD?

Fractional reserve banking is the situation where a bank invites you to deposit your money with it and guarantees that it will return that money any time you want. But having made that promise, the bank turns around and loans out that money to someone else for a period of time: Maybe a year to a business to aid a short term problem or maybe to a homeowner for as much as 30 years in the form of a mortgage.

So you still have your money that you can access instantly but that same money has been committed in a loan. The effect is known as creating money out of thin air because both the depositor and the borrower has the money. Just like printing money, out of thin air, this creation of money leads to inflation.

This process only works because not every depositor wants their money back at the same time. But they could and it would be a bank run where the bank would go bankrupt unless the government bailed them out.

Another way to look at this is that the bank is using your money to make money for themselves. At best, all you get is your money bank. This is contrary to property rights and under any other circumstance would be illegal. If the banks were required to fully back the deposits with real money in the vault, then this creation of money and the resulting inflation would be stopped. Both of us in the debate think that 100% reserve banking should be law. That is, every deposit of money should be 100% backed by money in the vault.

 

[Debarghya Mukherjee]

GOLD IS THE ONLY REAL MONEY

What Is the Gold Standard?:

The gold standard is when the value of a country's money is tied to the amount of gold the country possesses. Anyone holding that country's paper money could present it to the government and receive an agreed upon value (par value) from that country's gold reserves.

What Are the Advantages of the Gold Standard?:

The benefit of a gold standard is that money is backed by a fixed asset. It provides a self-regulating and stabilizing effect on the economy.
The government can only print as much money as its country has in gold. This discourages inflation, which is too much money chasing too few goods. It also discourages government budget deficits and debt, which can't exceed the supply of gold.

In addition, more productive nations are directly rewarded. As they export more goods, they can accumulate more gold. They can then print more money, which can be used for investing in and increasing these profitable businesses.

The gold standard discourages government debt and budget deficits, as well as trade deficits. Countries with any deficit lost gold from their reserves in order to pay their creditors.

The gold standard has also spurred exploration. It is why Spain and other European countries discovered the New World in the 1500's - to get more gold and increase the country's prosperity. It also inspired the Gold Rush in California and Alaska during the 1800's.
.
What Are the Disadvantages of the Gold Standard?:

One disadvantage of a gold standard that the size and health of a country's economy is dependent upon its supply of gold, not the resourcefulness of its people and businesses. Countries without any gold are at a competitive disadvantage.
However, this is an advantage to the U.S., which is the world's second largest gold mining country behind South Africa. Most U.S. gold mining occurs on federally owned lands in twelve western states, with Nevada being the primary source. Australia, Canada and many developing countries also are major gold producers. (Source: National Mining Association)

The gold standard causes countries to become obsessed with keeping their gold, rather than improving the business climate. For example, during the Great Depression, the Federal Reserve raised interest rates to make dollars more valuable and prevent people from demanding gold. However, the Fed should have been lowering rates to stimulate the economy. (Source: Econlib, The Great Depression)

Government actions to protect their gold reserves caused large fluctuations in the economy. In fact, between 1890 and 1905, when the U.S. was on the gold standard, the economy suffered five major recessions for this reason. (Source: Federal Reserve, Remarks by Governor Edward M. Gramlich,, 24th Annual Conference of the Eastern Economic Association, February 27, 1998)

 

[aryan.]

Both of us in the debate think that 100% reserve banking should be law. That is, every deposit of money should be 100% backed by money in the vault.

The world will go back to stone age if every deposit of money is 100% backed. No liquidity no progress.

Fractional reserve has its problems but its much better than gold.

 

[ushasunil]

HI Debarghya,
Thank you for very useful info about gold is the real money. Though a commerce grad. I dint knew about it.
We (India) got a lot of gold from Tiruvananthapuram Ananthapadmanabha's temple excavation recently, which valued more than a lakh of crores excluding its antic value. Now my question is then why India didn't print more currency papers to bring down the inflation? Why it kept on rising the repo rate? Should the government actually poses that gold and deposit it in its bank to do all further activities? Doesn't individual's metal possession considered as the possession of the country?

 

[Debarghya Mukherjee]

No liquidity no progress
What about inflation and bankruptcy of national treasury?
If every dollar is backed by Gold or Silver or any other precious metal, what is the chance of inflation?

Yes we can blame bail out, wrong credit system, greed etc, but still the graph shows how the value of currency is decreasing with time.

The world will go back to stone age if every deposit of money is 100% backed. No liquidity no progress.

Fractional reserve has its problems but its much better than gold.

 

[Debarghya Mukherjee]

I really have no idea on it. Indian could use the wealth n Satya Siv Sai baba foundation, Tirupoti mandir, Sidhhi Vinayak Mandir etc to fight against inflation. Atleast they have a strong support of precious metals.

I have query to others, if any body can put light on this, my question is that

"We all know that increment of interest rate slow downs economy. Then why Indian Govt is increasing interest rate again and again? Only to fight against inflation? And making growth slower!! "

HI Debarghya,
Thank you for very useful info about gold is the real money. Though a commerce grad. I dint knew about it.
We (India) got a lot of gold from Tiruvananthapuram Ananthapadmanabha's temple excavation recently, which valued more than a lakh of crores excluding its antic value. Now my question is then why India didn't print more currency papers to bring down the inflation? Why it kept on rising the repo rate? Should the government actually poses that gold and deposit it in its bank to do all further activities? Doesn't individual's metal possession considered as the possession of the country?

 

[prst]

I really have no idea on it. Indian could use the wealth n Satya Siv Sai baba foundation, Tirupoti mandir, Sidhhi Vinayak Mandir etc to fight against inflation. Atleast they have a strong support of precious metals.

I have query to others, if any body can put light on this, my question is that

"We all know that increment of interest rate slow downs economy. Then why Indian Govt is increasing interest rate again and again? Only to fight against inflation? And making growth slower!! "

even if we use the wealth in temple, 90% of it will land up in hands of politicians ..

 

[ushasunil]

I really have no idea on it. Indian could use the wealth n Satya Siv Sai baba foundation, Tirupoti mandir, Sidhhi Vinayak Mandir etc to fight against inflation. Atleast they have a strong support of precious metals.

I have query to others, if any body can put light on this, my question is that

"We all know that increment of interest rate slow downs economy. Then why Indian Govt is increasing interest rate again and again? Only to fight against inflation? And making growth slower!! "

Hi,
No need to take and use the wealth in temples of todays, but it can keep in the treasury safely what it got from the excavation from historic period under trustees of that temple itself, atleast then it can release more currencies. Then inflation will automatically comes down.

 

[Debarghya Mukherjee]

FED made a plan to rescue EURO​

FED made a plan to rescue EURO by using the power of dollar. And They want to save their own skin. Because we all know that once EURO fails US will also fails because then they cannot trade in EURO zones that will make disaster in US. I will make another article Why US wants to bail out EURO?.
Right now lets discuss how FED can save EURO. FED wants to give dollar to ECBs at cheaper interest rate. Then ECB can do transaction using dollar instead of EURO. Now dollar is more reliable than EURO, so that will boost institutions confidence on ECB. ECB will ask for a higher interest than FED is asking from them. So ECB can lend money to euro zone institutions and earn interest. Then they can back the money back to FED.
Very good, is it bad or good? Let us discuss on it, what are the good factors due to this?
Confidence increment on Banking system
Stock market up movement
Euro price will be higher than Dollar
Short term market recovery
If we think about long term, then will this really solve the overall bad debt and other issue in Europe? I have doubt.
I want comments from readers of this thread on these. This is my analysis, what you guys think? Is it going to help in long term?

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Debarghya Mukherjee