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HOT TOPIC How does the economy really work? (Banks, loans, value, economics)

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Timmy C

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Yea they’d give each other some little bites and get bruised egos, maybe. Meanwhile, keeping a record of who fights who and says what would benefit the circus. We’d be able to see how often somebody acts like a dick, who won’t listen to whom, and who fails to back up their claims. I mean, at the end of the day unless we all share bank accounts it’s he said she said anyways. Might as well make it entertaining.
I can totally share a bank account and fudge the numbers.

The real OG will have arrived.

Yo yo yo homies, so, wanna know how to do this?

Course for sale in forum bio.
 

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swerving2sucess

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Why don't you make this it's own thread? Makes for a good discussion. A lot of people don't visit the rant thread...
Agree. This should be a thread considering that the topic itself is quite delicate because of the amount of interepretations based on everyone's ideology.
 

thechosen1

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Agree. This should be a thread considering that the topic itself is quite delicate because of the amount of interepretations based on everyone's ideology.
Already did that.

You’re on the thread buddy!
 

peddletothemetal

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I got sucked into this quite badly when I was young. Reading all the economics books, arguing with people online about banking, going through page after page of Wikipedia, history and so on.

In the end I realized it was such an appalling waste of my time. It doesn't matter one bit what the "real way" an economy works is, nor the "correct way" a given part of it should work. It doesn't care, those in power aren't concerned, the opinion of a peasant is valuable only to him and will change nothing.

Really it's a kind of indulgence in "fake aristocracy", that because I can enjoy my time doing these academic musings, I'm not so poor. But actually I was poor, and those musings were only distractions from that.

The only thing that ever actually mattered was the size of my bank account. Not whether it's "fractional reserve" one, nor if it's "backed by gold", not if the state's policies reduce its real interest rate. All of those things are trivial and distractions to the cold hard self-responsible numbers: how much is it, how much is coming in a week.

Is it true that money should be gold? Yes, but it won't be. Is it true fractional reserve banking causes problems? No (cash reserve requirements actually arise from competitive interbank clearing needs and not from statutes as most people mistakenly believe), but so what? Is it true the state's economic policies are foolish? Of course, but not for them, so it's screaming into the wind.

Hence I think the key question is more: "how does my economy work?".
 

thechosen1

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I got sucked into this quite badly when I was young. Reading all the economics books, arguing with people online about banking, going through page after page of Wikipedia, history and so on.

In the end I realized it was such an appalling waste of my time. It doesn't matter one bit what the "real way" an economy works is, nor the "correct way" a given part of it should work. It doesn't care, those in power aren't concerned, the opinion of a peasant is valuable only to him and will change nothing.

Really it's a kind of indulgence in "fake aristocracy", that because I can enjoy my time doing these academic musings, I'm not so poor. But actually I was poor, and those musings were only distractions from that.

The only thing that ever actually mattered was the size of my bank account. Not whether it's "fractional reserve" one, nor if it's "backed by gold", not if the state's policies reduce its real interest rate. All of those things are trivial and distractions to the cold hard self-responsible numbers: how much is it, how much is coming in a week.

Is it true that money should be gold? Yes, but it won't be. Is it true fractional reserve banking causes problems? No (cash reserve requirements actually arise from competitive interbank clearing needs and not from statutes as most people mistakenly believe), but so what? Is it true the state's economic policies are foolish? Of course, but not for them, so it's screaming into the wind.

Hence I think the key question is more: "how does my economy work?".
The point of the question is to uncover the best way to grow your business.

For example, my grandfather built his business primarily by doing projects for other companies and borrowing money from banks to buy equipment, real estate, and add on to our facility.

It’s important to have a plan like this and it helps if you know why it works or doesn’t work.

So no, this is not a political or philosophical question. It’s purely intended to be pragmatic and practical.
 

Bruno Calisso

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I got sucked into this quite badly when I was young. Reading all the economics books, arguing with people online about banking, going through page after page of Wikipedia, history and so on.

In the end I realized it was such an appalling waste of my time. It doesn't matter one bit what the "real way" an economy works is, nor the "correct way" a given part of it should work. It doesn't care, those in power aren't concerned, the opinion of a peasant is valuable only to him and will change nothing.

Really it's a kind of indulgence in "fake aristocracy", that because I can enjoy my time doing these academic musings, I'm not so poor. But actually I was poor, and those musings were only distractions from that.

The only thing that ever actually mattered was the size of my bank account. Not whether it's "fractional reserve" one, nor if it's "backed by gold", not if the state's policies reduce its real interest rate. All of those things are trivial and distractions to the cold hard self-responsible numbers: how much is it, how much is coming in a week.

Is it true that money should be gold? Yes, but it won't be. Is it true fractional reserve banking causes problems? No (cash reserve requirements actually arise from competitive interbank clearing needs and not from statutes as most people mistakenly believe), but so what? Is it true the state's economic policies are foolish? Of course, but not for them, so it's screaming into the wind.

Hence I think the key question is more: "how does my economy work?".
Best comment. I absolutely did the same thing, nowdays the only books on money that deserve a place in my bookshelf is on creating wealth & how to manage it.

It is important to understand how the economies work to protect and predict your finances, but don't waste time trying to master it, it is better to master business and management knowledge.

"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design." ~ Friedrich August von Hayek

BTW, a good 101 on economics is Naked Economics by Charles Wheelan, it's quite impartial, usually economics is full of ideology, so you need to be careful on who you choose to learn from.
 

peddletothemetal

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It’s important to have a plan like this and it helps if you know why it works or doesn’t work.
Yes fair call. Just easy to get sucked into the political side. You're right, if you can step back and see it scientifically (e.g. with states as mere actors) it can help business and investment decisions.
 

cebradley2011

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So I'm trying to formulate my idea of how the economy works and would like others to think about this too.

New money is created via debt - yes or no?

Banks lend out money, often in the form of either a business loan or a mortgage.

So let's say that I get a business loan and I hire 20 people. Those 20 people each get mortgages. Their work pays down my business loan over time, and in return I pay them wages or salaries, which they use to pay down their mortgages over time.

This would eventually cancel out my debt and their debt. New value and new wealth was created! ...Right?

Is that true? Can it really work that way across the board, or is more debt always necessary?

I'm trying to figure out how this all fits together intuitively.

Honestly, @JScott ... your expertise would be great for this question.

edit: guys...I know what value is and that it isn’t money. I’m asking people how the government, banks, etc actually function. I’m not asking for people to tell me my own ideology! I am already pro-capitalism and value :)
Great question.
 

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thechosen1

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Basically, the economy we have (not the one I want) is Keynesian. Inflation is the name of the game and debt is pretty much the formula.

It’s not the only way, but it works.

Now, how long that economic system can last is a whole other political debate that we really don’t need on the forum. I know I and many here think printing money Willy Nilly is stupid.

But they’re doing it. So what do you do with that information to get rich?
 

Raoul Duke

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Basically, the economy we have (not the one I want) is Keynesian. Inflation is the name of the game and debt is pretty much the formula.

It’s not the only way, but it works.

Now, how long that economic system can last is a whole other political debate that we really don’t need on the forum. I know I and many here think printing money Willy Nilly is stupid.

But they’re doing it. So what do you do with that information to get rich?


Call your representatives. Tell him to vote for Biden on his new tax plan. Tax the wealthy. UBI BABY!!!
 

thechosen1

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Call your representatives. Tell him to vote for Biden on his new tax plan. Tax the wealthy. UBI BABY!!!
Lmao not what I meant, more like “use loans to grow your business.”

But good laugh
 

Raoul Duke

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Lmao not what I meant, more like “use loans to grow your business.”

But good laugh

You can use loans to avoid paying high taxes as well. ;)

th8TBvc.jpg
 

Tom H.

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I got sucked into this quite badly when I was young. Reading all the economics books, arguing with people online about banking, going through page after page of Wikipedia, history and so on.

In the end I realized it was such an appalling waste of my time. It doesn't matter one bit what the "real way" an economy works is, nor the "correct way" a given part of it should work. It doesn't care, those in power aren't concerned, the opinion of a peasant is valuable only to him and will change nothing.

Really it's a kind of indulgence in "fake aristocracy", that because I can enjoy my time doing these academic musings, I'm not so poor. But actually I was poor, and those musings were only distractions from that.

The only thing that ever actually mattered was the size of my bank account. Not whether it's "fractional reserve" one, nor if it's "backed by gold", not if the state's policies reduce its real interest rate. All of those things are trivial and distractions to the cold hard self-responsible numbers: how much is it, how much is coming in a week.

Is it true that money should be gold? Yes, but it won't be. Is it true fractional reserve banking causes problems? No (cash reserve requirements actually arise from competitive interbank clearing needs and not from statutes as most people mistakenly believe), but so what? Is it true the state's economic policies are foolish? Of course, but not for them, so it's screaming into the wind.

Hence I think the key question is more: "how does my economy work?".
I almost agree with you, except that understanding how things actually work has informed many of my life decisions.

We are NOT in a Keynesian economy, there is no such thing. We are in an economy massively manipulated by Keynesians, but that doesn't change the principles of how things work. The Keynesian interference leads to certain results, which can be predicted and understood by applying praxeology.

Saying the economy doesn't matter is like saying saying global politics don't matter... Maybe I can't do anything about it, but I can certainly adjust my own personal decisions.
 

thechosen1

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We are NOT in a Keynesian economy, there is no such thing. We are in an economy massively manipulated by Keynesians, but that doesn't change the principles of how things work. The Keynesian interference leads to certain results, which can be predicted and understood by applying praxeology.
Good point.

I don’t like how these politicians and economists manipulate our economy, currency, etc. I don’t like the fact that the Fed now owns corporate bonds. I don’t like the high taxes. I don’t like a lot of things.

But when you’re in execution mode, you gotta know what’s happening and deal with it, even the parts you hate.

Dealing with debt and taxes is something that sucks about business but is essential.

Like being a plumber and dealing with shit in the toilet. Or being in HVAC and finding dead rats. Fixing bugs in your software. Sucks, but ya gotta do it to succeed.

Now if you want to run for office, I think I’d probably vote for you ;)
 

Timmy C

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CruxisKnight

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So I'm trying to formulate my idea of how the economy works and would like others to think about this too.

New money is created via debt - yes or no?

Banks lend out money, often in the form of either a business loan or a mortgage.

So let's say that I get a business loan and I hire 20 people. Those 20 people each get mortgages. Their work pays down my business loan over time, and in return I pay them wages or salaries, which they use to pay down their mortgages over time.

This would eventually cancel out my debt and their debt. New value and new wealth was created! ...Right?

Is that true? Can it really work that way across the board, or is more debt always necessary?

I'm trying to figure out how this all fits together intuitively.

Honestly, @JScott ... your expertise would be great for this question.

edit: guys...I know what value is and that it isn’t money. I’m asking people how the government, banks, etc actually function. I’m not asking for people to tell me my own ideology! I am already pro-capitalism and value :)
From a basic standpoint, economy is what happens when people work and exchange their work for other people's work. Economic activity is all about people working. The trick is in finding work that you love that you will stick with for the rest of your life and be a master in that other people find valuable. When you become a master in it then you can package your wisdom into a product so you start generating passive income through residual income or royalties. But what most people want is the passive income and problem is they haven't even reached mastery in anything yet. Edit: people think economy is about money, but economy in its most basic sense even during hunter gatherer times is all about work. So if you don't work you don't contribute to the economy and you don't get to take out from the economy. So don't be lazy and work, and best case scenario is do work that you love.
 

thechosen1

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Going off of the topic of this thread, here is a very informative article that answered some of my own questions about banks and personal guarantees.

The TLDR is that if you are a small business (legal small business - does not mean you make small amounts of money since small biz can make up to mid-8 figures), personal guarantees are the norm, even if you are a C-corporation:
 

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