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Contents Preface: Economics, It’s Not Rocket Science... Is It? 1 Our Crazy Money System Misconceptions about money Fractional reserve banking (as told in the textbooks) Fractional reserve banking, in reality Capital adequacy Characteristics of our banking system But what about the interest? How old is our monetary system? Can you have a fixed money supply system? Summary 2 How Do Banks Go Bust? At times of crisis, normal bank regulation may not apply In conclusion 3 Supply and Demand – in Practice The special case of the supply not being in direct control of the producers Supply and demand for investment products 4 Savings and Unavoidable Ponzi Dynamics The nature of savings Storing value? Savings type 1: Simple warehouse Savings type 2: Concentrated value storage Savings type 3: Contract savings Saving scenario thought experiments Conclusion 5 Inflation Misconceptions Rise in the prices of what? The cost of living Cost of living inflation is a political issue The price of houses is not included! Relation to the amount of money Rises in the price of shares are often (incorrectly) applauded Visualising money circulation Conclusion 6 Booms and Busts – the Austrians Were on the Right Track The boom The bust The faulty brakes on the positive feedback loop Psychological effects of a boom–bust cycle 7 Monetary Illusions and Unemployment Unemployment types When do we have high unemployment? Pessimism in a world without money Pessimism in a world with money The end of the spiral Why major wars end depressive spirals A mountain of debt is a constant source of pessimism 8 A Growing/Shrinking Money Supply: More Causes and Effects A money supply thought experiment Mortgages are particularly sensitive to money supply changes An alternative solution to a post-housing-bubble depression 9 Interest Rates and Investing Against Our Will Interest rates in a barter economy Interest with money in a fractional reserve banking system In conclusion 10 Investments and Pseudo-investments: Which do Banks Prefer? True investments Non-productive “investments” (pseudo-investments) Investments v. pseudo-investments: which do banks prefer? Productive v. non-productive loans in a fractional reserve system 11 Pseudo-investment 1: Private Tailgating Financial tailgating Private tailgating Mortgages 12 Pseudo-investment 2: Government Tailgating A choice of mechanisms for making up tax shortfalls There was probably never any need for government borrowing in the first place! The difference between a small company and a big one 13 Pseudo-investment 3: (Most) Share Dealing Initial share sales (this is the good bit that works) Unrestricted secondary share dealing and price accuracy What is the benefit of unrestricted secondary share dealing? The new wave paradox Politicians and bankers don’t want stock market bubbles to burst Conclusion 14 The Bloated Financial Sector 15 The Private Pensions Casino Pensions throughout history Mr Lucky and Mr Unlucky A fairer pensions system 16 Land Ownership and Mortgages Most of the cost of housing is in fact the cost of land A thought experiment about land Drawing lots The committee Free market renting The free market with purchasing as an option Income from owned land – another problem Environmental consequences Conclusion 17 Restless Bandits and Competition The casino owner and the screwdriver Restless bandits Monopolies: okay at first – but then… Conclusion 18 A Recipe for a More Stable Economy Reduce unnecessary lending and borrowing A less elastic monetary system No money creation for non-productive purposes Discourage short-term share ownership Prevent governments from borrowing The transition from our current state Acknowledgements About the Author Index |