Welcome to part 2 of the Recession series.
In our last post, we talked about what a Recession is and how it occurs. We looked at a model of the Baby Sitters Co-op that gave us an understanding of how a recession actually occurs. We realized that a recession does not mean lack of resources, it just means lack of resolve to start using those resources. If you haven’t read my last post, please do so first.
We ended last week with a question: To counter the recession, the co-op managers forced a mandate that each couple would need to go out twice a month and have their child baby-sat by others. In other words, there would be some artificial demand created by this and there would be more babies being sat and consequently, more baby sitters. Do you think this will work?
Most of the readers who read the post reverted to me with the same answer – the above measure will NOT end the recession. And they were right. What the above measure will do is to force the couples to spend two (and only two) baby sitting coupons per month. Instead of increasing demand, this will only cause resentment in the couples because they are now being forced to spend coupons in a time-based manner instead of spending them at their own free will. Also, the number of coupons being circulated would be rather limited and fixed. In the real world, since each couple will end up receiving coupons regardless of demand and supply, the incentive to perform better baby sitting would be taken away too.
So what is the solution? Luckily, one of the couples knew an Economist who suggested a solution. Here is how it worked: The Co-Op board went wild and printed a large number of coupons and provided a bunch of ‘bonus’ coupons to each couple for use. Each couple was provided with a large number of coupons to spend. Couples soon realized that since they had so many coupons available to them now, there was no more need to hoard them and prepare a backup reserve.
Couples who realized this fact eagerly started to go out and have their kids baby-sat by other couples. The other couples in turn had a surplus of coupons and started to spend them liberally by going out more and spending more coupons and on and on it went. The end result was that there was a healthy circulation of coupons and the Baby Sitters Co-Op came out of recession.
Although this is a simple example, we can immediately draw some parallels with the real world. First, the Baby Sitters Co-Op is the entire USA and the Board of the Co-Op is the Federal Reserve Board. The “coupons” is our currency. Now you can complete the analogy and realize why the Fed is pumping billions of dollars into the economy.
In simple terms – the Fed is trying to:
- Get those of us who are hoarding and saving money in bad times to go out and start spending some of it in the stores.
- This will lead to the stores having more money and selling more
- This will lead to a need for more employees i.e. more jobs and more employed people
- The newly employed people will get paid salaries, some of which they will spend in the stores
and the above cycle will repeat till the economy comes out of the current recession.
Credits: The complete credit for the example goes to Paul Krugman and his book – The return of Depression Economics – and the Crisis of 2008 from W. W. Norton. I strongly recommend reading it, if you can.
Thursday, 29. July 2010
Lenen Zonder BKR Toetsing Lenen zonder BKR toetsing stijgt in populariteit op het Internet. Veel mensen met een zogeheten BKR notatie, die toch geld willen lenen zijn op zoek naar …
Thursday, 29. July 2010
Lenen zonder BKR toetsing gaat vandaag heel gemakkelijk. Binnen een paar uur geld lenen zonder BKR toetsing doet u hier, lees snel verder
Friday, 30. July 2010
Migraine is een bonzende hoofdpijn die meestal voorkomt aan één kant van de schedel. De pijn is heftig en houdt 4 tot 72 uur aan.
Friday, 13. August 2010
Bereken zelf uw hypotheek. Hypotheek berekenen? Maak snel een indicatieve berekening van het maximale leenbedrag van uw hypotheek.
Saturday, 14. August 2010
Hypotheken? Heel veel hypotheek informatie: verschillende hypotheekvormen, hypotheekrentes, nationale hypotheek garantie, hoe een hypotheek te vergelijken.
Tuesday, 24. August 2010
I really loved this brilliant article. Please continue this awesome work.
Thursday, 26. August 2010
Hey there, This page is rather educational and fun to read. I am a large follower of the things blogged about. I also love reading the comments, but it seems as a good deal of readers need to stay on topic to try and add a thing on the original topic. I would also encourage all of you to bookmark this document for ones most used support to help get the term out. Thanks
Sunday, 5. September 2010
Financial spread betting is a leveraged tool that gives investors the opportunity to trade the financial markets without ever taking physical ownership of the underlying instrument. This means that the trader/investor can speculate in the direction of any financial instrument, whether it is specific shares, currencies, commodities or indices without ever owning them. In the financial markets there are standard contract sizes. For example for the FTSE 100 index contract the standard market size is £10. With financial spread betting the investor nominates his own stake size, for example £2 per point. The bet is settled as the difference between the purchase and the sell price.Financial Spreads is appealing to ever greater numbers of investors for several reasons, not least of which is the absence of capital gains tax on profits (unlike conventional share trading, where CGT applies to trading gains in many countries), and the lack of stamp duty on transactions (most interesting in the UK; strictly speaking, the transaction is a bet, rather than an investment – hence the name.) However, by its very nature financial spread betting is more risky than traditional, fixed odds betting, or conventional traditional share trading, where participants are usually a little more protected. If you judge wrong, you are likely to lose a great deal in the absence of a stop loss and any losses made on a spread bet cannot be offset against capital gains on ordinary investments.The costs associated with financial spread betting are included in the spread (the difference between the bid and the offer price). Therefore the wider the spread, the more you pay to trade. So when considering a company to spread bet always compare the spread. The good news about the spreads is that these are generally getting tighter due to increased competition and explosive growth as investors are beginning to realise the advantages of financial spread betting; thus making the system more efficient.