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Author Topic:   The Giant Pool Of Money. Implications
Phat
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Posts: 18262
From: Denver,Colorado USA
Joined: 12-30-2003
Member Rating: 1.1


Message 1 of 423 (585058)
10-05-2010 9:48 AM


Among the websites that I have neatly tucked away in "My Bookmarks", This American Life ranks as one of my favorites.
Recently on this website, I listened to a show called The Giant Pool Of Money which is self described as A special program about the housing crisis produced in a special collaboration with NPR News. We explain it all to you. What does the housing crisis have to do with the turmoil on Wall Street? Why did banks make half-million dollar loans to people without jobs or income? And why is everyone talking so much about the 1930s? In the show, they talk about a giant pool of money.
transcript writes:
BLUMBERG: What that is - most people don't think about it - it's the world investments - pension funds, investing for people's retirements, insurance companies investing your premiums, government central banks investing the wealth of nations.
Ms. CEYLA PAZARBASIOGLU (International Monetary Fund): A lot of money; it's about 70 trillion.
BLUMBERG: That's Ceyla Pazarbasioglu of the International Monetary Fund, and let's try to figure out how much is $70 trillion. Think of all the money everyone spends on Earth every year. Everything you bought in the last year, add everything the U.S. government and the U.S. military spent money on, add all the corn in Mexico and all the money folks spent on lawyers and all the rice sold in China, all the money spent everywhere on Earth in a year; that is less than $70 trillion, less than this global pool of money.
DAVIDSON: So it's a lot of money, and there's this army of people, investment managers, whose job it is to watch over that money. And they're pretty nervous because they have two sort of contradictory concerns. They don't want to lose any of it, and they also want to make it grow.
So for a long time, they made it grow by investing in very safe, pretty boring investments, things like U.S. treasuries and municipal bonds.
BLUMBERG: But right before our story starts, something happened to that global pool of money; it got a lot bigger. In fact, it doubled between 2000 and 2006. In other words, several centuries to get to about 35 trillion, and then over the course of six years, it got another 35 trillion.
And there are a lot of reasons for this growth, but the main one was that a lot of countries that used to be poor, that used to have no real savings, suddenly became rich. Brazil, India, of course China started making things that the rich countries wanted. And those countries banked their profits and looked around the world for ways to invest them.
So suddenly there's twice as much money scouring the world for investments, but the world wasn't ready. There weren't twice as many good investments. And so this global money looked around and found one investment that it liked in particular - the U.S. housing market, and a special bond created by Wall Street.
This one fact alone was mind boggling to me, and more than a bit scary. If this did in fact happen, a critical milestone had been reached in U.S.History, and the implications for people like me and you readers out there was quite scary. The thing is, I am not bright enough to understand these implications, and need your help, EvC Forum! Just what are the implications?

Replies to this message:
 Message 2 by Rahvin, posted 10-05-2010 4:42 PM Phat has replied
 Message 3 by Jon, posted 10-05-2010 4:53 PM Phat has replied
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 Message 13 by Percy, posted 10-07-2010 7:55 AM Phat has replied
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Phat
Member
Posts: 18262
From: Denver,Colorado USA
Joined: 12-30-2003
Member Rating: 1.1


Message 5 of 423 (585187)
10-06-2010 12:48 PM
Reply to: Message 2 by Rahvin
10-05-2010 4:42 PM


Scary Implications
Rahvin writes:
How can you know that the implications are scary without understanding them or even knowing what they are? Do you know some of the implications of a growing pool of global money, and you find those to be scary and want to know any other implications? Or are you actually just frightened by your own ignorance - you don't understand what it means for you and me, and your lack of comprehension frightens you?
First of all, how can some people "get rich" while others remain the same? How did 35 trillion turn into 70? Where did the extra money come from?
Second, what are the implications for us here in the U.S.? Are our pensions safe? Is having twice as much money in the pool equivalent to the value of each unit being half as much? If it becomes harder and harder for our investments to make a profit, will the competition diminish our standard of living?
I fear that what this means is that the way of life as we knew it is gone...forever. America is now becoming just another country that has to work harder and harder to even remain at the same standard of living that once came easy to us. That scares me...because I am getting old.

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Phat
Member
Posts: 18262
From: Denver,Colorado USA
Joined: 12-30-2003
Member Rating: 1.1


Message 6 of 423 (585190)
10-06-2010 12:58 PM
Reply to: Message 3 by Jon
10-05-2010 4:53 PM


Re: Magic behind the Curtain
Jon writes:
There are enough things in which to invest to suck up the world's money supply many times over. To say there were no places for investment other than stupid, con-artist, get-rich-quick schemes is just a lie.
Interesting. So you are saying that these people in this article are lying? I would examine closely the statement that you made. Name just a few of these abundant investments that have not been covered previously. How will they provide a return? How can my Moms nest egg be invested to give her a livable 6-8% return so that she doesn't have to rely on her deadbeat son to support her?

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Phat
Member
Posts: 18262
From: Denver,Colorado USA
Joined: 12-30-2003
Member Rating: 1.1


Message 8 of 423 (585196)
10-06-2010 1:25 PM
Reply to: Message 7 by jar
10-06-2010 1:16 PM


Aberration Period
jar writes:
Except for the very short Aberration period, that has always been true.
For those of us who do not understand, what exactly was the aberration period? When did it start, what caused it, and has it now ended entirely?

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 Message 7 by jar, posted 10-06-2010 1:16 PM jar has replied

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 Message 9 by jar, posted 10-06-2010 6:11 PM Phat has replied

  
Phat
Member
Posts: 18262
From: Denver,Colorado USA
Joined: 12-30-2003
Member Rating: 1.1


Message 10 of 423 (585284)
10-07-2010 6:25 AM
Reply to: Message 9 by jar
10-06-2010 6:11 PM


The American Mindset
jar writes:
The Aberration was a result of the ramped up capacity of the US as well as the destruction of the economic and industrial capabilities of much of the other industrial nations.
A big problem for the US though is that kids were taught that the Aberration was the norm, that the US was the Top Dog and so they had an inviolable right to their prosperity without competition.
You and I have previously discussed the long term solution and best strategy for the U.S. Namely....
Educate a generation of people...Fathers, Mothers, Sons, and Daughters. Teach them how to think critically, examine all sides of an issure from as unbiased of a perspective as possible, and learn to apply what they learn so as to increase their value as workers, teachers, and voters.
What does the evidence show us about the reality of the American mindset, however?
Jon Jost has a web blog that has some interesting pictures and commentary based on his experience living in many places around the globe, both in and outside of America. I recommend reading his entire blog and looking at the pictures which accompany the commentary. In one installment, American Pastoral Jost comments on his perception of the current status of the American mindset, in regards to the global changes that we see.
Jon Jost writes:
It is autumn on an even numbered year, and in turn it is time for America to crank up its bi-annual electoral machinery to its maximum pitch. As customary and traditional the word high and low is that the newly installed President’s party is headed for a come-down, in this case perhaps a loss of its majority in the House and Senate. Not that the closing two year cycle suggests it would make much difference: with a commanding, though blue dog tainted, majority in both chambers, the Democrats could barely limp a step without kow-towing to the vociferous shouts of right-wing commentators and politicians, who endlessly suggested Obama was in any event not legitimate by nature of his birthplace, his religion, and, sent only by transparent code words, his color. For some in America a (half) black man cannot be resident in the White House. These same people generally take their words literally, whether in this case, or in the Bible.
(...)
Thusly are our politics reduced to a pathetic cartoon in which the utterance of any truthful analysis of our national circumstance is political suicide. No, our temperamental children will not face any reality that deprives them of their instant gratification. Being woefully ill-educated, trained for decades to be selfish first and social last, and to run in horror at any word that begins with c-o-m our voting public is now bent on social destruction, deluded that they can have everything, pay no taxes, war for fun while utterly ignoring it, trash their neighbors, and somehow the grand American Exceptionalism will exempt them from all costs. Naturally it will not, and as the cost is being applied, our electorate appears to be running full-tilt into the arms of exactly those who sold them the sweet story that you could have it all and not pay for it. Were Reagan alive in two years, he’d probably win in a landslide of historic proportions, never mind it was his philosophy and economic policies which induced our current situation. Ah, but he was, despite being a rather bad actor, a very good politician in that he could pull the wool over almost any sentimentalist’s eyes.
Thirty years on we are paying a very steep price for this shared delusion, and given the mind-set of the public, the price will likely get a lot steeper as our lemming herd runs as fast as it can to all the wrong people and policies — a sure-fire formula for even worse problems in the coming years. Doubling down on our misguided practices is going to require the miracle which our Glenn Beck’s pray for, but the real world doesn’t work on miracles or snake oil. Americans, accustomed to thinking of themselves as different and always being Number One, are likely to show their meanest and nastiest side as their delusions crumble about them. The current season is merely a prelude.
Does this veteran filmmaker see something in our national character that is deeper than foolishness with money?
Edited by Phat, : shortened article a bit

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Phat
Member
Posts: 18262
From: Denver,Colorado USA
Joined: 12-30-2003
Member Rating: 1.1


Message 14 of 423 (585293)
10-07-2010 8:02 AM
Reply to: Message 12 by frako
10-07-2010 7:25 AM


Re: The American Mindset
Is not China one of the principal buyers of the U.S. Debts? This is also interesting. Foreign ownership of debt
I dont want to see my country disintegrate. I want to be able to have a decent retirement. I dont ask for much. All I want is a place to live, modest material goods, and a life free from worry about wars or depressions. Why cant people agree on this? Why is our defense budget as large as the rest of the world put together? Why do some of us want to screw other people over?

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Phat
Member
Posts: 18262
From: Denver,Colorado USA
Joined: 12-30-2003
Member Rating: 1.1


Message 26 of 423 (585437)
10-08-2010 10:32 AM
Reply to: Message 13 by Percy
10-07-2010 7:55 AM


This American Life/N.P.R. Planet Money
Percy writes:
By the way, in the September, 2009, episode they discovered that the IMF had underestimated the original size of the giant pool of money at the start of the crisis, that it had actually been around $80 trillion, and that as of that episode it had grown to around $83 trillion. Got that? Despite world wide economic collapse, the giant pool of money had grown by around $3 trillion. The big difference is that this money is now seeking safe havens instead of high returns. Investors are now very tight with their money, and until they loosen up world economic growth will continue to be anemic.
And this makes sense to me. Was the 3 trillion dollars "inflated" dollars? The reason that I am a bit confused is that sometimes, people will talk of how todays dollar is worth 4 cents in the commodity purchasing power of a 1940 dollar.
Hence...is today's 83 trillion dollar pool of money simply an inflated version of the pool of money of yesteryear?
Jon writes:
If 'provide a return' means double within 4 months, they won'tonly crappy get-rich-quick-scheme investments do that. But if you mean create benefits that will continue paying off in better standards of living for generations to come as well as an increasingly more biodiverse and habitable planet with less war and hatred and more cooperation, then I think the returns are self-evident.
Money belongs to people and supports its owners first and the planet next. Of course we seek to invest in the planet, but the planet needs to at least pay us the rate of inflation for our money to be properly invested.

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Phat
Member
Posts: 18262
From: Denver,Colorado USA
Joined: 12-30-2003
Member Rating: 1.1


Message 28 of 423 (585441)
10-08-2010 10:40 AM
Reply to: Message 27 by Jon
10-08-2010 10:36 AM


Re: This American Life/N.P.R. Planet Money
The pool of money is seeking investments with tangible returns. As an example, lets use a pension fund. For the money manager, the sole goal is to keep from losing it, and hopefully slightly increase it. It would be careless for a money manager to invest a pension fund in a new technology that may end up with high startup costs and a negative rate of return. While it may be true that said technology may indeed help the planet and humanity in general with lovey dovey altruistic returns twenty years from now, it wont help the pensioner who only needs money from the pension fund, not a bunch of brownie buttons for being socially responsible.
Edited by Phat, : spalling

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Phat
Member
Posts: 18262
From: Denver,Colorado USA
Joined: 12-30-2003
Member Rating: 1.1


Message 31 of 423 (585697)
10-09-2010 11:13 AM
Reply to: Message 30 by crashfrog
10-08-2010 12:16 PM


Re: The American Mindset
Gold has always been a medium of exchange with intrinsic value.
On the Intrinsic Value of Precious Metals
quote:
Economists, financial advisors, and politicians of all stripes perpetuate this sentiment. Gold, they claim, is just like anything else - it's only valuable to the extent to which it's trusted by people. Yet, this is not quite accurate. Gold, silver, and other precious metals do indeed have intrinsic value, and it's time for the source of this value to be understood. Certainly, financial experts have no excuse for ignorance on this subject.
Makes perfect sense to me. Look at the track record. Gold has held its value by global consensus.

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Replies to this message:
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Phat
Member
Posts: 18262
From: Denver,Colorado USA
Joined: 12-30-2003
Member Rating: 1.1


Message 33 of 423 (585701)
10-09-2010 11:39 AM
Reply to: Message 32 by jar
10-09-2010 11:27 AM


The Intrinsic value of gold as the best commodity for money
jar writes:
Where in your quote does it explain what the intrinsic value of gold is? We can see that it makes that claim, but where is the supporting evidence or explanation?
Good question. You DID read my link, by the way, didnt you?
quote:
Most commodities have an obvious intrinsic value. Lumber can be used to build houses and furniture, grain can be used as food, and oil for energy and a variety of industrial purposes. (...)
So where do precious metals get their value? Their value derives from nothing less than their efficacy as a medium of exchange - as a money. It may sound weird at first, or perhaps tautological, to claim that gold is valuable because it can be used as value, but this is precisely the point. Precious metals, by their natural characteristics, are simply those commodities which are best suited to be used as money.
In other words, because of its rarity, durability, malleability, and uniformity, gold has traditionally been the best substance for money. Money cant simply be created out of thin air. Why do you think that the central banks still own lots of gold even to this very day? What value does it have for them?

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 Message 34 by jar, posted 10-09-2010 11:49 AM Phat has replied
 Message 36 by Modulous, posted 10-09-2010 12:13 PM Phat has replied

  
Phat
Member
Posts: 18262
From: Denver,Colorado USA
Joined: 12-30-2003
Member Rating: 1.1


Message 35 of 423 (585704)
10-09-2010 11:58 AM
Reply to: Message 34 by jar
10-09-2010 11:49 AM


Re: The Intrinsic value of gold as the best commodity for money
I realize that there are many hucksters who attempt to sell gold.
I will say, however, that it is advantageous for large sums of money to be represented by a rare and precious metal.
jar writes:
But again, your link simply makes assertions. It does NOT explain why gold has some unique intrinsic value.
Why do nations still have gold reserves? Why do many wealthy families own large amounts of gold? Gold has value because powerful entities need it to have value. Money cannot simply be an electronic blip that denotes human value, since there would be no concentration of rarity and exclusiveness with such a system.

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Phat
Member
Posts: 18262
From: Denver,Colorado USA
Joined: 12-30-2003
Member Rating: 1.1


Message 37 of 423 (585708)
10-09-2010 12:20 PM
Reply to: Message 36 by Modulous
10-09-2010 12:13 PM


Re: The Intrinsic value of gold
We cant simply have wealth created by human value alone. China would become the wealthiest country, and the fortunes of generations would lose value since the support behind them would crumble. Gold is a way to keep the value of antiquity safely in the hands that held it.

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Phat
Member
Posts: 18262
From: Denver,Colorado USA
Joined: 12-30-2003
Member Rating: 1.1


Message 40 of 423 (585712)
10-09-2010 12:32 PM
Reply to: Message 38 by jar
10-09-2010 12:20 PM


Re: The Intrinsic value of gold as the best commodity for money
jar writes:
Which has more value, a dollars worth of gold or a dollars worth of lead?
I hear that the dollar is depreciating versus other currencies...
what would happen if the dollar became essentially worthless?
a dollars worth of anything would be essentially microcosmic

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Phat
Member
Posts: 18262
From: Denver,Colorado USA
Joined: 12-30-2003
Member Rating: 1.1


Message 83 of 423 (615762)
05-16-2011 2:42 PM
Reply to: Message 13 by Percy
10-07-2010 7:55 AM


What Is Money?
Percy writes:
There are other This American Life episodes focused on the financial crisis, usually with Alex Bloomberg as the primary reporter, and I'm sure there have been others since September, 2009, but I'm a bit behind in my podcasts.
--Percy
This new show, made in January 2011, explains the way the Federal Reserve created money out of thin air. I used to think that only nuts like Alex Jones believed this stuff, but This American Life is quite reputable.
Edited by Phat, : fixed link

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Phat
Member
Posts: 18262
From: Denver,Colorado USA
Joined: 12-30-2003
Member Rating: 1.1


Message 85 of 423 (615779)
05-16-2011 5:55 PM
Reply to: Message 84 by Theodoric
05-16-2011 4:31 PM


Re: What Is Money?
I was told that its silly to think of what the conspiracy theorists say about the dollar being at risk of being stripped of its role as a global reserve currency, but, also, others have told me that indeed this is true. This is all news to me.
Is there a possibility that life in the U.S. may get even worse than it is now?

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