Our top 10 export Our top 10 export destinationsdestinations CanadaCanada MexicoMexico ChinaChina JapanJapan
Our top 10 export Our top 10 export destinationsdestinations CanadaCanada MexicoMexico ChinaChina JapanJapan U.K.U.K.
Our top 10 export Our top 10 export destinationsdestinations CanadaCanada MexicoMexico ChinaChina JapanJapan U.K.U.K. Germany, S. Korea, Brazil, Germany, S. Korea, Brazil,
Netherlands, SingaporeNetherlands, Singapore
Our top 10 import Our top 10 import nationsnations ChinaChina CanadaCanada MexicoMexico JapanJapan GermanyGermany
Our top 10 import Our top 10 import nationsnations ChinaChina CanadaCanada MexicoMexico JapanJapan GermanyGermany S. Korea, Brazil, France, Taiwan, S. Korea, Brazil, France, Taiwan,
IrelandIreland
Is Money wealth??Is Money wealth??
NoNo Money is just a way to transfer Money is just a way to transfer
wealth or to give people wealth or to give people incentives to produce wealthincentives to produce wealth
Is Money wealth??Is Money wealth??
NoNo Money is just a way to transfer Money is just a way to transfer
wealth or to give people wealth or to give people incentives to produce wealthincentives to produce wealth
All people have to do is agree on All people have to do is agree on something as an intermediary something as an intermediary means of exchange and bingo, means of exchange and bingo, money!money!
Money, money, moneyMoney, money, money
Money only works because other Money only works because other individuals will supply real goods individuals will supply real goods and services in exchange for that and services in exchange for that moneymoney
Money, money, moneyMoney, money, money
Money only works because other Money only works because other individuals will supply real goods individuals will supply real goods and services in exchange for that and services in exchange for that moneymoney
History of money?History of money?
Money, money, moneyMoney, money, money
Money only works because other Money only works because other individuals will supply real goods individuals will supply real goods and services in exchange for that and services in exchange for that moneymoney
History of money?History of money? So... Money = something So... Money = something
generally accepted as a medium generally accepted as a medium of exchangeof exchange
InflationInflation
Inflation is a general rise in pricesInflation is a general rise in prices Prices rise when there is more Prices rise when there is more
demanded than supplied at a demanded than supplied at a given pricegiven price
InflationInflation
Inflation is a general rise in pricesInflation is a general rise in prices Prices rise when there is more Prices rise when there is more
demanded than supplied at a demanded than supplied at a given pricegiven price
So when there is more money, So when there is more money, people tend to spend more. people tend to spend more. Without increase in output, prices Without increase in output, prices simply risesimply rise
InflationInflation
Inflation can be viewed as general Inflation can be viewed as general decline in the real value of decline in the real value of money, loss of purchasing powermoney, loss of purchasing power
InflationInflation
Inflation can be viewed as general Inflation can be viewed as general decline in the real value of decline in the real value of money, loss of purchasing powermoney, loss of purchasing power
Rule: more money in society Rule: more money in society means higher pricesmeans higher prices
InflationInflation
““The big problem with money The big problem with money created by the government is that created by the government is that those who run the government those who run the government face the temptation to create face the temptation to create more money and spend it”more money and spend it”
$787,000,000,000 $787,000,000,000 “porkulus” bill signed by “porkulus” bill signed by POTUS on 2/17/09POTUS on 2/17/09
Inflation at workInflation at work
What was inflation for the last 10 What was inflation for the last 10 years?years?
Inflation at workInflation at work
What was inflation for the last 10 What was inflation for the last 10 years? 23.75%years? 23.75%
Inflation at workInflation at work
What was inflation for the last 10 What was inflation for the last 10 years? 23.75%years? 23.75%
What was inflation for the last 20 What was inflation for the last 20 years? 60.99%years? 60.99%
Inflation at workInflation at work
What was inflation for the last 10 What was inflation for the last 10 years? 23.75%years? 23.75%
What was inflation for the last 20 What was inflation for the last 20 years? 60.99%years? 60.99%
What was inflation for the last 30 What was inflation for the last 30 years? 149.7%years? 149.7%
Now that’s inflationNow that’s inflation
Zimbabwean inflation in 2008 was Zimbabwean inflation in 2008 was 231,000,000%!!!!!!!!!!!!!!!!!231,000,000%!!!!!!!!!!!!!!!!!
Now that’s inflationNow that’s inflation
Zimbabwean inflation in 2008 was Zimbabwean inflation in 2008 was 231,000,000%!!!!!!!!!!!!!!!!!231,000,000%!!!!!!!!!!!!!!!!!
A $100 billion bill could buy three A $100 billion bill could buy three eggseggs
How do politicians use How do politicians use inflation?inflation? Because raising taxes can be Because raising taxes can be
political danger, politicians print political danger, politicians print more moneymore money
How do politicians use How do politicians use inflation?inflation? Because raising taxes can be Because raising taxes can be
political danger, politicians print political danger, politicians print more moneymore money
Result: prices rise, eroding Result: prices rise, eroding purchasing powerpurchasing power
How do politicians use How do politicians use inflation?inflation? Because raising taxes can be political Because raising taxes can be political
danger, politicians print more moneydanger, politicians print more money Result: prices rise, eroding Result: prices rise, eroding
purchasing powerpurchasing power Inflation is in effect a hidden tax… Inflation is in effect a hidden tax…
the money that people saved is the money that people saved is robbed of purchasing power which is robbed of purchasing power which is transferred to the government transferred to the government issuing the moneyissuing the money
““Our economic problems worry me much Our economic problems worry me much less than our political solutions, which less than our political solutions, which have a far worse track record.” Dr. have a far worse track record.” Dr. SowellSowell
DeflationDeflation
Persistent decrease in the general Persistent decrease in the general price level of goods and servicesprice level of goods and services
DeflationDeflation
Persistent decrease in the general Persistent decrease in the general price level of goods and servicesprice level of goods and services
Can be disastrous: people hold Can be disastrous: people hold onto money, creating less onto money, creating less demand, prices continue to dropdemand, prices continue to drop
DeflationDeflation
Persistent decrease in the general Persistent decrease in the general price level of goods and servicesprice level of goods and services
Can be disastrous: people hold Can be disastrous: people hold onto money, creating less onto money, creating less demand, prices continue to dropdemand, prices continue to drop
Raises fears of the Great Raises fears of the Great DepressionDepression
What is the U.S. What is the U.S. banking system??banking system?? A group of private institutions A group of private institutions
that transfer savings from people that transfer savings from people to others who want to borrowto others who want to borrow
What is the U.S. What is the U.S. banking system??banking system?? A group of private institutions A group of private institutions
that transfer savings from people that transfer savings from people to others who want to borrowto others who want to borrow
As of last year, there were about As of last year, there were about 7,760 FDIC-insured banks and 7,760 FDIC-insured banks and S&Ls in the U.S.S&Ls in the U.S.
What is the U.S. What is the U.S. banking system??banking system?? A group of private institutions A group of private institutions
that transfer savings from people that transfer savings from people to others who want to borrowto others who want to borrow
As of last year, there were about As of last year, there were about 7,760 FDIC-insured banks and 7,760 FDIC-insured banks and S&Ls in the U.S.S&Ls in the U.S.
That’s down from about 8,430 in That’s down from about 8,430 in ‘08‘08
What is the U.S. What is the U.S. banking system??banking system?? Banking system enables millions Banking system enables millions
of people to spend money of people to spend money belonging to millions of other belonging to millions of other people for purchases and people for purchases and investmentsinvestments
What is the U.S. What is the U.S. banking system??banking system?? Banking system enables millions of Banking system enables millions of
people to spend money belonging to people to spend money belonging to millions of other people for millions of other people for purchases and investmentspurchases and investments
Banking system affects total Banking system affects total demand in the economy as a whole demand in the economy as a whole by adding to the money supply by adding to the money supply through “fractional reserve banking”through “fractional reserve banking”
Fractional Reserve Fractional Reserve BankingBanking A system that enables banks to A system that enables banks to
only have on hand a fraction of only have on hand a fraction of the total reserves needed to the total reserves needed to cover all depositscover all deposits
Fractional Reserve Fractional Reserve BankingBanking A system that enables banks to A system that enables banks to
only have on hand a fraction of only have on hand a fraction of the total reserves needed to the total reserves needed to cover all depositscover all deposits
Since all depositors won’t Since all depositors won’t demand their money at once, demand their money at once, banks lend out the rest and earn banks lend out the rest and earn interest and feesinterest and fees
Fractional Reserve Fractional Reserve BankingBanking A system that enables banks to only A system that enables banks to only
have on hand a fraction of the total have on hand a fraction of the total reserves needed to cover all depositsreserves needed to cover all deposits
Since all depositors won’t demand Since all depositors won’t demand their money at once, banks lend out their money at once, banks lend out the rest and earn interest and feesthe rest and earn interest and fees
Fractional reserve banking creates Fractional reserve banking creates “new” money to create wealth. How?“new” money to create wealth. How?
Fractional Reserve Fractional Reserve BankingBanking U.S. Required Reserve Ratio is U.S. Required Reserve Ratio is
10% on demand deposits (all 10% on demand deposits (all deposits except savings accounts deposits except savings accounts and CDs), above $49 million and CDs), above $49 million
Down from 12.3% in 1968Down from 12.3% in 1968
Fractional Reserve Fractional Reserve BankingBanking U.S. Required Reserve Ratio is U.S. Required Reserve Ratio is
10% on demand deposits (all 10% on demand deposits (all deposits except savings accounts deposits except savings accounts and CDs), above $49 million and CDs), above $49 million
Down from 12.3% in 1968Down from 12.3% in 1968 A*(1-r)A*(1-r)nn
Fractional Reserve Fractional Reserve BankingBanking U.S. Required Reserve Ratio is U.S. Required Reserve Ratio is
10% on demand deposits (all 10% on demand deposits (all deposits except savings accounts deposits except savings accounts and CDs), above $49 million and CDs), above $49 million
Down from 12.3% in 1968Down from 12.3% in 1968 A*(1-r)A*(1-r)n n
D = A + A*(1/r - 1) = A*(1/r)D = A + A*(1/r - 1) = A*(1/r)
Fractional reserve Fractional reserve bankingbanking Ratio varies by countryRatio varies by country 0% in Australia, Canada, Mexico 0% in Australia, Canada, Mexico
to 19.5% in China, to 30% in to 19.5% in China, to 30% in LebanonLebanon
Federal Reserve Federal Reserve SystemSystem A central bank created in 1913 by A central bank created in 1913 by
Congress to control all private Congress to control all private banksbanks
Federal Reserve Federal Reserve SystemSystem A central bank created in 1913 by A central bank created in 1913 by
Congress to control all private Congress to control all private banksbanks
Role is to prevent banking Role is to prevent banking panics… runs on the bankpanics… runs on the bank
Federal Reserve Federal Reserve SystemSystem A central bank created in 1913 by A central bank created in 1913 by
Congress to control all private Congress to control all private banksbanks
Role is to prevent banking Role is to prevent banking panics… runs on the bankpanics… runs on the bank
Tells banks what reserves they Tells banks what reserves they can holdcan hold
Federal Reserve Federal Reserve SystemSystem A central bank created in 1913 by A central bank created in 1913 by
Congress to control all private banksCongress to control all private banks Role is to prevent banking panics… Role is to prevent banking panics…
runs on the bankruns on the bank Tells banks what reserves they can Tells banks what reserves they can
holdhold Insure deposits through the FDIC Insure deposits through the FDIC
(Federal Deposit Insurance Corp.)... (Federal Deposit Insurance Corp.)... thus prevent “runs” on banksthus prevent “runs” on banks
The FedThe Fed
Sets interest rates on loans to Sets interest rates on loans to banks, thus indirectly controlling banks, thus indirectly controlling interest rates throughout the interest rates throughout the banking systembanking system
The FedThe Fed
Sets interest rates on loans to Sets interest rates on loans to banks, thus indirectly controlling banks, thus indirectly controlling interest rates throughout the interest rates throughout the banking systembanking system
Operates 12 Federal Reserve Banks Operates 12 Federal Reserve Banks throughout the country that work throughout the country that work with private banks to distribute with private banks to distribute funds, extend credit, process U.S. funds, extend credit, process U.S. money, etc.money, etc.
Assignment for Assignment for 02/22/1102/22/11 Read and study Chapter 17 of Read and study Chapter 17 of
Basic EconomicsBasic Economics: “Government : “Government Functions”Functions”
Assignment for Assignment for 02/22/1102/22/11 Read and study Chapter 17 of Read and study Chapter 17 of
Basic EconomicsBasic Economics: “Government : “Government Functions”Functions”
Assignment for Assignment for 02/22/1102/22/11 AND: AND: Write a Write a 500-word essay500-word essay: Mr. G : Mr. G
has given you $1 million to start the Bank has given you $1 million to start the Bank of (Your Name). Discuss how you would of (Your Name). Discuss how you would lend, to whom, your reserves (10%), and lend, to whom, your reserves (10%), and how your bank would create wealth in this how your bank would create wealth in this area. Who are your customers? What is area. Who are your customers? What is your marketing slogan? What interest are your marketing slogan? What interest are you charging? Demonstrate your you charging? Demonstrate your knowledge of money, fractional reserve knowledge of money, fractional reserve banking and vetting risk for making loans.banking and vetting risk for making loans.