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lets talk about money

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If one read Nixon shock - the following is very clear

Before 1944 only GOLD is used for international transaction.

from 1944-1971 under bretton - wood system People also accepted US dollar as medium of international transaction . Under this 35 dollar is equivalent to 1 troy ounce of gold.

in 1971 - Nixon abolished this convertibility of US dollar to gold.

But people still use US dollar for trade.. why ? (Forex reserve is nothing but how much US dollar you have that's all... whether US dollar have any substance to back is a big question. Actually US Trade Deficit is so huge that they stopped declaring in late 2000's decade)

the answer may be that first you promise something and deliver for a while, once people get habituated to some pattern then just remove the underlying support .

Countries still struggling to find a way out.

Now coming to national level ...

Same thing has happened , first the paper bond is convertible then after a period of habituation it is made inconvertible.

Fiat Money has no intrinsic value , it is declared by law or decree of GOVT.

Here is where the role of Govt changes it no longer only Governs the wealth of the country it is also a creator of wealth by forcing people to use the notes which it prints.

So now what is the value of 1 bag of rice the farmer produce. it is fixed by the GOVT and paid by money which has no intrinsic value. The farmer is forced to accept whatever GOVT gives him. In effect GOVT pays little of what it prints to control food price. The large amount of the printed money circulates in cities (in case of india it is also hoarded abroad in tax havens) forcing farmers to abandon villages and migrate to cities.

Due to the availability of large printed notes the real estate price jumps sky-rocketing in cities. This is boon for a small population but a curse for majority. This is pathetic, one is forced to migrate for a living but found himself landed in a place where to find a roof over head is a great challenge. The vulnerable is just exploited ( See " Angadi Theru") by the mighty.

Due to the availability of large printed notes in the hands of corporates , we become controlled by them. this is a boon for a few but a curse for many.

Due to this , one has to run in life at the speed of press printing money.

Since wealth creation is by GOVT, it is feeding the people thru free money, food , entertainment, etc.. people in low rungs didn't want to work , even they didn't work some how there are welfare system taking care of them.

Getting labour for Agri - works or even masonary works is challenging nowadays.
we have to import laborers from bihar.

No amount of money is enough now , coz you don't know what will be the cost of living tomorrow.

Finding Fulfillment is another challenge, coz you are not a participant in wealth creation.
 
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Money has been delinked from Gold in most of the counties.

Currencies were once assessed by the Gold Standard, or to be exact Gold exchange Standard, as the basis of Monetary system.where the authorities guarantee a fixed exchange rate with another country, either on the value of Pound Sterling or to the U.S. dollar and then to the value of gold. However, this was abandoned after WWI. The current method of assessing currency values is based on the floating currency exchange rate, which is felt an efficient way of valuing currency from one country to another, even though currency values fluctuate from day to day.The value of currency is determined by its selling and purchase price as a commodity, depending on demand and supply.This is determined by the amount of currency that is bought. When a currency is on demand many people buy it, then its value increases. When a currency is not purchased often, its value decreases.

Brahmanyan,
Bangalore.

 
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Currencies were once assessed by the Gold Standard, or to be exact Gold exchange Standard, as the basis of Monetary system.where the authorities guarantee a fixed exchange rate with another country, either on the value of Pound Sterling or to the U.S. dollar and then to the value of gold. However, this was abandoned after WWI. The current method of assessing currency values is based on the floating currency exchange rate, which is felt an efficient way of valuing currency from one country to another, even though currency values fluctuate from day to day.The value of currency is determined by its selling and purchase price as a commodity, depending on demand and supply.This is determined by the amount of currency that is bought. When a currency is on demand many people buy it, then its value increases. When a currency is not purchased often, its value decreases.


Sir, does it not mean the value of the currency is deceptive whatever the managers of monetary system may assume it to be.
 
Sir, does it not mean the value of the currency is deceptive whatever the managers of monetary system may assume it to be.

Dear Sri "Iyyarooran",

It cannot be explained of in such simple terms. Economic laws work on the basis of "demand and supply", which apply to currencies also. In my post I have just outlined the theory, but it is a vast subject.

Regards,
Brahmanyan,
Bangalore.
 
I distinctly remember the example my school teacher gave while discussion barter and currency systems. A shop selling rice has three customers. The shopkeeper learns that the first has 10 rupees, the second 50 and the third 100. He fixes the price for a sack of rice as 100. The buyer too can fix the exchange price when he has the financial clout.

Many a time there is a large skew between the intrinsic and real value of a product or service and its perceived or demanded compensation. Stock exchange and share prices are a glaring example.

In a barter system when essentials were bartered for goods and services, value of item bartered is relatively unimportant. One took what he wanted in exchange. A brahmin given thousand cows as dana will give away the cows to those who need them and maintain them - did not convert it into cash for hoarding. The urge to convert to cash and store is less with barter system.

There was a parallel cash system as coins were minted and used. I believe their use was limited and for special occasions.

We are born and bred in a cash-currency society. This model is difficult to dislodge despite its known deficiencies - hoarding, accumulation, skew between value and price.

When the russian economy collapsed with the fall of communist regime, the ruble too overnight fell - about 25 rupees per ruble to 25 rubles per rupee. Russia too had anticipated this and had placed orders on several indian firms for machinery to dilute the large reserve of rubles gained through export of defence equipment to india. After hectic discussions and lobbying, a transfer price was fixed (barter price).

Many say that the american economy can collapse anytime, when it is forced to repay the debts; because its imports is more than its exports.

A mixed, distributed, balanced cash-barter system is more stable arrangement and may evolve as a new model - old wine in a new bottle.
 
Or artificial, created supply and demand. The stock market is a prime example.

A company's worth can fall or rise by a billion in a short time, without increasing its output by a paisa.

Dear Sri "Iyyarooran",

It cannot be explained of in such simple terms. Economic laws work on the basis of "demand and supply", which apply to currencies also. In my post I have just outlined the theory, but it is a vast subject.

Regards,
Brahmanyan,
Bangalore.
 
"Demand and supply" rules the market as also the currency. This D&S can operate in barter system also. The manipulators will be there too. If the world can make sterling human minds, then anything can work.
 
Lets talk about money.

"Demand and supply" rules the market as also the currency. This D&S can operate in barter system also. The manipulators will be there too. If the world can make sterling human minds, then anything can work.

Dear Sri "Iyyarooraan",

You are correct. D&S rules on every Economic activity. This is also inter connected with "Law of Diminishing Returns"Prices of commodity varies according to the demand and availability.

Honesty in Business was there in our Society,but in the name of copying American culture we have lost it. I have audited old accounts written in Tamil by traditional Vysial Community, wherein an account will be opened under the name "இருப்பு திட்டக்கணக்கு" wherein excess and shortage of Cash will be recorded at the end of the Day. Our society had that amount of honesty at one time. Compare this with the Scams that we read every day in the news today.
Regards,
Brahmanyan,
Bangalore.
 
Demand & supply also has a tingle of of reality build in it....In case of perishables like fruits & vegetables when there is a glut of supply as in monsoon season and there is a great chance that vegetables get spoilt fast on accounts of rain the shopkeeper will reduce prices drastically expecting a lower demand...Same is the case when shopkeeper wants to take a day off...He will give maximum discount to whoever purchases so that he can pack off early.

When FDI's come in droves then the local currency appreciates sharply....It may have nothing to dowith the Rupee per se but has to do with expected return on investment...So called positive business sentiment...

When FDI's leave on account of a better return somewhere else the local currency nosedives...So called negative business sentiment.

Managing the currency movement is more an art rather than science...
 
coalgate can sink the nation

We all know that the estimated loss to the government by not auctioning the coal blocks is about 1.8 lakh crores. Now for the shocker - fatal embrace.

The alloted companies have taken a loan of 40 lakh crores from banks, roughly 14% of the loans given out by the banks. If the licences are cancelled as demanded by the entire opposition, the loans will become vapour ware. The financial system will collapse unless the government compensates the banks.

So congress is safe, the allottees are safe, the banks are safe.

Long live congress government!

Ref: strip news from english news channels. I am sure the govt will put pressure to remove this explosive and unsettling news.
 
"Demand and supply" rules the market as also the currency. This D&S can operate in barter system also. The manipulators will be there too. If the world can make sterling human minds, then anything can work.

There is no more real money. Money gone digital and credit long times ago. We are nothing but slaves to the banks. Thumbs down
 
There is no more real money. Money gone digital and credit long times ago. We are nothing but slaves to the banks. Thumbs down

You are right. I have said somewhere else that these days no one asks for one's income. People ask you what is your "EMI". Long live Uncle Sam! But from a different angle we have more debit cards than credit cards. Long live India!
 
namaskarams to all.

I expected some one to talk on the folly of Fiat Money but none why ?...

Continuing my lay man open thinking ....

We apply D& S to supply of money , it should be clear now that govt prints more and more money each year in huge magnitude. What is the need to print so many ?

Lets say govt has 100 rs in 1947 , it spends for defence, civil , etc... around 50 rs . Logically speaking it will collect back part the moneys thru tax and access to other parts of the money thru banks correct, lets see it pays to build a factory , some part goes to machine purchase , some part as salary , the vendor who sell pay tax and he consume some and save the rest all this should reach back the govt. It is like giving from right hand pocket and collecting from left hand packet. correct ?

It shuld be zero sum game correct ? but why it needs to print more and more ?

Banks get money from savings and pay us interest , it gives loan , plays share and get more interest and thereby maintaining a equillibrium. a little bit of fluctuations is possible but should not be too high. Here one question, I heard our loan interest are based on Reserve Bank rate. It can be said Banks get loan from RB and lend us at higher rate.

What I don't understand is, most part of the money is collected by local Banks and not RB, in that case banks shud have more money right? why shud it borrow from RB.

Coming to the Zero sum game part, if huge chunks of money did not go to saving banks , cause want to avoid tax, not legal money etc... then this money is hoarded.

Now the picture gets clearer, RB pumps money more and more as it didn't get the money back it printed , the hoarding also goes up and up and so the price goes up and up suffocating the nation.

A real tragic story...... Jai Hind.
 
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HRHK - Not only hoarding but nobody knows how much money is lost, soiled, mutilated, destroyed. Millions of tons of food grains are eaten away by rats and others. There are innumerable defaulters and most of them are bad debts. Quite a good number of farmers borrow and swallow and commit suicides. There are many ex-gratia payments made by government on critical situations and calamities without provisions. If one has to find out it may not be possible to do so in the books of accounts. Because everybody is dealing with day-to day problems. How much the central bank has been cheated it does not know itself nor the cheaters would come out and tell. So printing of notes fills up all the gaps and keeps everybody happy. It also keeps counterfeiters very busy. Here again we are nowhere near to beat the US. Above all one of the functions of the finance ministry is to allow the printing of notes smooth to keep alive inflation and that helps the business of politics. Inflation necessitates printing of notes and printing of notes sustain inflation. In spite of all you can see Indians laugh and we should join them.
 
money not coming to circulation is not an issue here, coz it won't affect the prices but black money will affect the market as it is circulated back.

lets say rbi prints 100.00 inr and 20 rs got mutilated or damaged , not an issue affecting price rise , lets say rbi prints 20 more, the supply side of notes is still 100.00 but if say 80 rs is siphon out of circulation , rbi prints 80 more to fill the gap. after which the siphon out money also enters the mkt thru back door, then the supply side of the note is 180.00 causing prices to rise.
 
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I am sorry to say, but I think the original concern of the thread is misplaced. The problems cited with inflation, fiscal over-stimulus have nothing to with paper money. In fact it has nothing to do with paper, gold, silver, copper, plastic, sea-shells or any other form in which money has been used. In fact it is quite possible to fully convert all currency into electronic form where the money in your bank account are merely some bits on a computer hard disk somewhere.

One can perform fiscal stimulus even in this electronic form as Mario Draghi of the ECB just demonstrated with his bond buying bazooka.
 
It shuld be zero sum game correct ? but why it needs to print more and more ?

Good question, Hare ji. I used to think like that too, but now I know the answer. The answer is that the economy, GDP and productivity of every country and the whole world is gradually increasing. That is why the money supply has to increase, to measure the increasing output. For example, surely we produce more rice/wheat than we used to produce 1000 years ago. That justifies the increase in money supply, otherwise there would be deflation.

Of course I agree with your point of inflation being caused by printing money.
 
I sense that somehow with the advent of Fiat Money India began to lose it ECONOMIC STRONG HOLD.

We TRADED with almost all part of the world , our society was more vibrant we build colossal temples , India is so rich that it attracted Moguls,Europeans . We traded Spices, agriculture commodities for a good value before the advent of fiat money. We somehow had a good sense of bartering.

But with fiat money the same goods value began to diminish some how. You don't know to what value you are selling and there are too many corrupt hands .

If Fiat money demands better governance which we cannot support, then we have to ditch this and go back to barter system. (countries like singapore benefits from fiat money - due to prudent governance but we cannot dream of that governance here.)

Why we should support a system that is pulling us down ?

Please discuss.....
 
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I think if farmers of India unitedly boycott the fiat money then this stupid monetary system will fade away.

Need a FORCE DE MAJEUR from farmers.

Is there any farmer here?
 
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