Saturday, October 18, 2014

Reality Finance/Millionaire Challenge and Everything You Need to Know About Finance in a Few Blog Posts, Part 2

Hey everyone.
As promised in my last post, today, we will talk about how specifically the government creates money and how it directly and indirectly controls where that newly created money flows. (This concept is called monetary policy.) But in keeping with my reality finance/millionaire challenge theme, I'd like to let everyone know where I stand financially as of today.

In the past three or four days, I've made $2,000.00. After paying my personal bills, paying my law firm's bills,  and contributing to my retirement and savings accounts, as it stands now, my liquid net worth is $1,986.84. However, only $1,680.84 of that money will not be touched. The remaining $306 will be used for regular living expenses and tiding me over until the next time I will receive money, which will be on this Monday, October 20, 2014.

My credit score just got bumped up to a semi-respectable 645 and my outstanding credit card balance is currently $813. In another post, I'll explain to you why you shouldn't be so concerned with your credit score, as opposed to being concerned with acquiring liquid assets. But I did want to give you all those pieces of information so you can see exactly where I stand with regard to my finances. Now, time for today's finance lesson.

Who controls money and how is it done?

In my last post, I talked about how nowadays, virtually every economy in the world operates on a fiat currency system. Because of this system, and the fact that money is essentially not backed by any physical commodity, an endless amount of money can be created.

Paper money is printed and metal coins are minted by the United States Department of Treasury. The Department of Treasury works hand in hand with the Federal Reserve to make sure that the economy stays healthy, that people are buying enough goods and services, that the amount of goods and services that a person could purchase last year is not too different from what that same person can purchase with the same amount of money this year.

The Federal Reserve (or "Fed" as you might hear it called on t.v.) was created in 1913, and was created in order to among other things, gather information on what is going on in the economy and how to make it stable. The Fed is not apart of any of the three branches of government, but it is subject to oversight by Congress.The Fed has twelve branches around the country - mostly in major cities like New York, San Francisco, and Boston, for instance - and these branches are the foot soldiers of the Fed. The Fed, which is often referred to as the banker's bank, through its twelve branches, lends to private banks. These private banks which receive funds from the Fed are what allow for the United States economy to run smoothly.

The gross domestic product of the United States is $13 trillion. In order to arrive at an economy so large, and because we no longer live in a system whereby money is backed by a physical commodity or service, some merchant had to have someone put trust in her that if the merchant were lent money, value would be created and the money lent out would be paid back with interest. Hence, the saying that our entire economy is one based on credit. And that is certainly true. Most Western governments, unfortunately, are operating largely on credit.

The United States, because it is the most powerful, stable and wealthiest nation in the world, can print money and have everyone around the world believe that that money is worth something. The United States can also ask for a line of credit, by issuing treasuries to people, corporations, or even other countries, and can always get that line of credit because it is so wealthy and stable.

The branch of the of the Fed that is responsible for making sure that the economy is stable, and making adjustments if the economy is not - the Federal Open Market Committee - meets periodically throughout the year. When it meets, it takes a look at whether unemployment is high, whether inflation is high, and then makes a decision as to whether more money should be put into the economy. If the determination by the FOMC is that more money should be put into the economy - i.e. for instance, if private banks are not giving out credit easily, or if corporations are not hiring - the Fed can print more money, or buy Treasury bonds. In fact, this is what has been happening lately.

The Fed currently wants to jump start the economy, but does not want to devalue American currency and create inflation (which would happen if more money were printed). So it has decided to make the interest rate at which it lends to commercial banks low and to buy back a lot of the debt it has issued, making the economy flush with cash. This is known as quantitative easing.

In my next post, I'll talk about interest rates and how exactly this affects your credit card payment, mortgage rate, student loans, and even the bond and stock markets. Stay tuned and until then, I hope you continue to live richly.


oakleyses said...

jordan shoes, prada handbags, nike air max, nike air max, kate spade handbags, louis vuitton outlet online, christian louboutin, coach outlet store online, oakley vault, longchamp handbags, red bottom shoes, coach outlet, michael kors outlet online, christian louboutin outlet, longchamp outlet, nike free, true religion outlet, christian louboutin shoes, tiffany and co jewelry, louis vuitton outlet, michael kors outlet store, gucci handbags, louis vuitton outlet, longchamp outlet online, louis vuitton handbags, chanel handbags, ray ban sunglasses, polo ralph lauren, true religion, michael kors outlet online, burberry outlet online, cheap oakley sunglasses, tory burch outlet, michael kors outlet, coach purses, polo ralph lauren outlet, burberry outlet online, ray ban outlet, kate spade outlet online, michael kors outlet online, tiffany jewelry, oakley sunglasses, nike shoes, louis vuitton, coach outlet, prada outlet, michael kors outlet online

oakleyses said...

ray ban pas cher, ray ban uk, chaussure louboutin, hermes pas cher, air jordan, new balance pas cher, nike roshe run, louis vuitton pas cher, true religion jeans, lululemon, nike air max, nike roshe, nike blazer pas cher, nike air max, nike free, michael kors canada, hollister, ralph lauren pas cher, sac vanessa bruno, louis vuitton, burberry pas cher, longchamp, nike air force, converse pas cher, abercrombie and fitch, nike free pas cher, air max pas cher, ralph lauren, vans pas cher, sac michael kors, north face pas cher, sac louis vuitton, michael kors uk, scarpe hogan, hollister, guess pas cher, north face, timberland, true religion outlet, air max, barbour, longchamp pas cher, louis vuitton uk, tn pas cher, oakley pas cher, lacoste pas cher, mulberry

oakleyses said...

roshe run, bottega veneta, celine handbags, jimmy choo shoes, mac cosmetics, canada goose outlet, lululemon outlet, rolex watches, new balance outlet, beats headphones, giuseppe zanotti, mont blanc pens, vans outlet, marc jacobs outlet, ugg soldes, ugg boots, chi flat iron, canada goose outlet, instyler ionic styler, uggs outlet, north face outlet, mcm handbags, insanity workout, nike trainers, wedding dresses, p90x workout, ugg outlet, hollister, ferragamo shoes, herve leger, abercrombie and fitch, soccer shoes, uggs on sale, ugg, valentino shoes, longchamp, nike huarache, north face jackets, ghd, babyliss pro, canada goose, asics shoes, nfl jerseys, reebok shoes, birkin bag, canada goose outlet, soccer jerseys

oakleyses said...

canada goose, moncler, pandora charms, toms outlet, lancel, pandora uk, moncler, links of london uk, parajumpers outlet, oakley, moncler, nike air max, converse shoes, juicy couture outlet, louis vuitton canada, baseball bats, ray ban, swarovski uk, replica watches, moncler, supra shoes, gucci, ugg, converse, air max, vans, hollister canada, canada goose uk, moncler, timberland shoes, canada goose, ralph lauren, thomas sabo uk, uggs canada, iphone 6 case, wedding dress, canada goose pas cher, montre femme, moncler outlet, hollister clothing, swarovski jewelry, pandora jewelry, hollister, coach outlet, karen millen, moncler, louboutin, juicy couture outlet

ninest123 said...

ninest123 16.04
nike air max, louis vuitton outlet, louis vuitton outlet, ugg boots, prada outlet, replica watches, tiffany jewelry, louboutin, coach purses, oakley sunglasses, nike free, nike outlet, gucci outlet, louis vuitton, uggs on sale, tiffany and co, christian louboutin outlet, louis vuitton, ray ban sunglasses, prada handbags, kate spade outlet, louboutin shoes, true religion jeans, coach outlet, ugg boots, nike air max, cheap oakley sunglasses, kate spade handbags, oakley sunglasses, louboutin outlet, polo ralph lauren outlet, ray ban sunglasses, replica watches, chanel handbags, longchamp outlet, true religion jeans, true religion outlet, coach outlet, polo ralph lauren outlet, replica handbags, tory burch outlet, longchamp, longchamp outlet, jordan shoes, oakley sunglasses, ray ban sunglasses, oakley sunglasses, true religion jeans, louis vuitton

ninest123 said...

sac longchamp, michael kors outlet, burberry outlet online, ugg boots, michael kors, ralph lauren pas cher, nike blazer, tn pas cher, nike air max, sac guess, air max, ralph lauren uk, michael kors outlet, michael kors outlet, vanessa bruno, hollister pas cher, timberland, hollister, converse pas cher, michael kors, hermes, air jordan pas cher, michael kors outlet, mulberry, michael kors outlet, longchamp pas cher, michael kors, nike air max, ugg boots, air force, nike roshe run, lacoste pas cher, michael kors, nike air max, louboutin pas cher, ray ban pas cher, nike roshe, vans pas cher, burberry, burberry, hogan, oakley pas cher, north face, michael kors, north face, lululemon, nike free, abercrombie and fitch, nike free run uk, ray ban uk, new balance pas cher

ninest123 said...

soccer shoes, p90x workout, giuseppe zanotti, asics running shoes, nike trainers, birkin bag, nike huarache, hollister, jimmy choo shoes, chi flat iron, iphone 6s cases, louboutin, soccer jerseys, ralph lauren, iphone 6 plus cases, lululemon, reebok shoes, north face outlet, ipad cases, iphone 6 cases, hollister, bottega veneta, wedding dresses, nike air max, new balance, baseball bats, iphone cases, ferragamo shoes, mont blanc, s5 cases, herve leger, celine handbags, vans shoes, mac cosmetics, ghd, instyler, nike roshe, nfl jerseys, babyliss, north face outlet, insanity workout, valentino shoes, nike air max, iphone 5s cases, hollister, mcm handbags, iphone 6s plus cases, abercrombie and fitch, longchamp, timberland boots, oakley, beats by dre

ninest123 said...

ugg,uggs,uggs canada, ugg boots uk, moncler, swarovski crystal, swarovski, hollister, juicy couture outlet, moncler, moncler, pandora charms, ugg pas cher, moncler, canada goose, louis vuitton, canada goose, canada goose outlet, vans, wedding dresses, louis vuitton, replica watches, bottes ugg, louis vuitton, moncler outlet, sac louis vuitton pas cher, thomas sabo, supra shoes, ugg,ugg australia,ugg italia, doudoune canada goose, coach outlet, moncler, pandora jewelry, moncler, barbour jackets, moncler, barbour, converse, gucci, marc jacobs, lancel, karen millen, pandora charms, canada goose, louis vuitton, canada goose uk, montre pas cher, links of london, pandora jewelry, juicy couture outlet, converse outlet, canada goose outlet, toms shoes, ray ban, canada goose
ninest123 16.04