Why we have a financial system as we have it?

It's enough money in the system - but we do not spend it fast enough. Velocity of money as a solution for the problems the existing financial systems has created in the last at least 100 years. Sophisticated symptom cure will not cure the disease.

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• velocity
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• khanacademy
• symptom
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[Atom299]

I find your example of velocity quite intriguing but I'm finding it difficult to come to terms with the fact that your four guys who owed each other $10 ended up in exactly the same financial position as they started in.

This seem to have made the whole exercise of them passing around this $5 bill completely futile.

Am I missing something?

[norwayte]

@Atom299 Yes, you missed something. The four guys did not end up in the same financial position. That's the whole point. All four payed back what they owed. They are debt-free now. - Debts are virtual. They only exists in the human mind. It's an invention of the human mind. Like money itself. Debts are "negative" money. - But there are not "negative" pigs in the real world. Debts are based in trust and belief. And so is money. You belief that you get real things for money.

[Atom299]

@norwayte

But isn't that a bit extreme? After all while they might have clearer consciences now, each still has exactly the same amount of money now as he had before.

I realize of course that that this wouldn't necessarily be the case if they all didn't owe each other the same amount of money.

"You belief that you get real things for money" I do..do I not? Or are you saying that I get them for the "value"(in work, time, commodities etc.) that the money represents?

[norwayte]

@Atom299 "...same amount of money now as he had before". No. He has more money, because he has no debts. It's strange - the definition, what counts as money and what not. Are debts money?! Without debts - you have more or less money to buy things?!

Money should actually represent the value for the real things to buy. So you trust and belief that you get for a little piece of printed paper a ... pig.

But as we experienced in economic history - money is far more...not only medium of exchange.

[RunLiberty]

Mises Human Action book and Libertarianism in One Lesson by Bergland

Vote Ron Paul 2012

[ThatIsNotDeadWhich]

And let me make an additional point on resource scarcity and cost-push inflation: From the point of view of the real economy, it really doesn't matter whether the oil was being deliberately withheld or the sellers were just running out of oil. The point is that oil was not being brought to market. Whether the reason for that is political or geological is immaterial as far as price-setting and its macroeconomic effects are concerned.

[ThatIsNotDeadWhich]

Blackmail is included in most institutionalist models of human (economic) behaviour. Earthquakes are an environmental constraint that is included in developmental economic models where appropriate.

For day-to-day modeling of economic behaviour, your model may be more easy on the brain, but if it does not account for the effect of resource constraints on prices, it is going to blow up with distressing regularity as we move further into a century of raw material scarcity.

[norwayte]

Right. No model has an insurance for human decisions. No model ("yours" included). So - I still prefer the velocity of money "model"...which has the advantages if supply and demand work... and for the suspension-thing... the model would be as helpless as "yours"... or maybe not?! Does any economic theory includes blackmail/war/earthquakes...ot­her black swans?! For day to day life "my model" is more efficient. And, yes, it does not cure every problem. As "yours". :-)

[ThatIsNotDeadWhich]

If you want to assume that politics and economics are neatly delineated and that you can corral off "political reasons" in a separate box and analyse them separately... Well, then you're looking at a species of beings that are superficially similar to but not actually humans.

Since our world is populated by people who are actually humans, your model of economic activity will need to be able to take account of political activity and institutional changes.

[norwayte]

The shock results from political reasons based not in oil but in politics - using oil as blackmail.

Despite that - I have not the data at the moment - the amount of money was constant? The velocity of money increases enough? There was a conscious and intentional attempt to accelerate money purposefully? Really? I don't know.

Supply and demand was suspended. What to do when supply and demand are suspended? Printing money or accelerate money. Or stop what made the suspension. Or stop addiction.