Posts Tagged ‘Bill Maher’

My smart friend Fred

Saturday, September 26th, 2009

explain the economy

I never really understood economics and whenever I try to I go to my smart friend Fred.  He has a way of putting things in terms I understand.   So I was asking him about some claims on the internet.  They claim that if you really want to be wealthy you subscribe to their read and they will show you how President Obama and Washington are undermining our ability to have wealth.

I forwarded it to my smart friend Fred and this was his response.

Money has no intrinsic value. It is a medium of exchange and a temporary store of value. Emphasize “temporary”.
If you hold money you lose value as it inflates, which it almost always does because government can’t resist using inflation to pay for its excesses of spending over its ability to tax. Remember the Bush tax cuts when waging an expensive war.

Too bad the government ran a deficit when the economy was booming. Now we need a bigger deficit to stimulate a bad economy. This is inflationary and we will see our money buying less in the future.

Don’t hold money. Hold items with intrinsic value like real estate, stocks, and even gold, though this does not earn a return.

Don’t pay attention to this crap. It’s just scare tactics to get you to buy a useless book.


So the federal government does with our money like what we did with our equity of our homes?  Imaginary income that we used to buy new carpet, or a pool.  They use imaginary income, be it inflation or equity, and buy stuff — like wars or healthcare.

I suppose “imaginary income” is one way of putting it, and yes, there is a similarity.  However inflation is a little different than the bubble of inflating home prices.  With a bubble the price of one thing (a durable item) goes up faster than the price of everything else; usually because people believe it will keep going up.  Eventually the bubble bursts, the price falls, and the people holding the item lose wealth.

Inflation is where the money price of everything rises because money is worth less. People holding money lose, which is virtually all of us. It isn’t so bad unless inflation gets so high people run from money.  In some countries, Germany
in early 20th century,  people were paid wages twice a day and given time off in mid day so they could go spend it before it lost too much value. Are you kidding me?

I shouldn’t date myself this way, but when I was a kid the price for a loaf of bread, a pack of cigarettes and a gallon of gas were all 25 cents. A big wad of bubble gum was a penny.  Prices are now about ten times for these things except for cigarettes which the government has taxed much higher than the other items. The one-tenth value of the dollar has been so gradual that we didn’t notice it much, except in the late 60’s and 70’s when the government took steps to control inflation.

As a kid I recall people (my father often), saying ‘I remember when a dollar was worth a dollar.’ So now I say, I remember when a dollar was worth 50 cents.  Today that makes it worth about 5 cents.

I don’t mind if you use the exchange on your blog.  I’ll try to keep it clean.

happy Fred

So OK I understand that economics is about the value of money.  My GOP friends don’t want reforms from Washington because they are afraid it will tap in to their own personal wealth.   Personal wealth is the money you hold and the stuff (items with  intrinsic value) you own.  What should be done differently?  Maybe we need to change our value system.

Another explanation that I could understand regarding economics today in this country was from Bill Maher.
How about this for a New Rule:  Not everything in America has to make a profit. It used to be that there were some services and institutions so vital to our nation that they were exempt from market pressures.

Some things we just didn’t do for money. The United States always defined capitalism, but it didn’t used to define us.

I also received a response from Stacey Derbinshire at

and am including her link as it was helpful to me

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