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MONEY

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TABLE OF CONTENTS 

MONEY 

BANKING 

PRODUCTION OF MONEY (SOURCE) 

EXPENSE (SINK) 

CROSS-LINK 

ECONOMICS 

INTEREST RATES - ShTIR / LoTIR 

INTEREST RATES AFFECTS  

 

 

B A N K I N G   TO TOP

WORLD BANK 

FEDERAL RESERVE BANK 

PRIVATE BANKS (SAVINGS, COMMERCIAL) 

 

PEOPLE vs ACTIVITY 
DYNAMIC CIRCULATION OF MONEY 
EARN - SPEND  WHEEL  MODEL

 

PEOPLE vs ACTIVITY 
DYNAMIC CIRCULATION OF MONEY 
LOAN - SPEND  WHEEL  MODEL

 

 PEOPLE vs ACTIVITY 
DYNAMIC CIRCULATION OF MONEY
PROFIT - SPEND  WHEEL  MODEL

PRODUCTION OF MONEY (SOURCE)   TO TOP

 

EXPENSE  (SINK)  TO TOP


EXPENSE  (SINK)

WAGES
PRIVATE GOVERNMENT CORPORATIONS
Salaries Political  
Interest Employees  
Taxes Services  
MAINTAIN BUILDINGS (Rent / mortgages, energy, tax, insurance, maintenance) 
 PRIVATE   PUBLIC   
 Residences         Commercial   
Other ownership

Stores 

 
              Offices    
  Industry  
 

  Facilities

 
  Government  
 

R, C, I 

 
     

 MAINTAIN   INFRASTRUCTURES 

LAND 

SURFACE Streets, Highways, Parks

BELOW SURFACE 

PIPES, ELECTRICITY WATER 

AIR 

BRIDGES 

UTILITIES 

Electricity 

Pipes 

MAINTAIN VEHICLES (Transport people, goods 

 

PRIVATE       PUBLIC 
Cars Planes
Trucks Trucks
Boats Ships
Aircraft Trains
  Underwater

MAINTAIN PEOPLE 

Food 
Clothing 
Comforts
Entertainment 
Personals
Luxuries

 MAINTAIN BUSINESS (SUPPLIES, EQUIPMENT, INTEREST, TAXES, INSURANCE) 

 

CROSS-LINK  TO TOP

 LIVING EXPENSES 
Consumption, Rent, Vehicle 

BUSINESS EXPENSES 
Wages, Rent, Energy 

GOVERNMENT EXPENSE 
infrastructure, Military, Wages 

UTILITIES 
Construction, Maintenance, Wages

 

 

E C O N O M I C S   TO TOP

 KEYNESIAN ECONOMICS 

Keynesian economics = inflation up, employment down. 

MONETARIST ECONOMICS 

Monetarists economics = Inflation is caused by creating too much money. Solved inflation by targetting money supply to statistical goals. Idea became difficult due to the development of complex new financial instruments and the quick movements of money across national borders. 

UNEMPLOYMENT 

 Unemployment => High inflation. 

INFLATION 

Inflation causes rising prices. Inflation affects mostly low income people since they have no extra funds to compensate. 

PREVENT INFLATION

Prevent inflation => Limit wage increases and commodity prices. Discourage consumer spending. 

RECESSION 

 Recession - Converse of inflation. Temporary decline in economic activity. Sluggish economic growth. 

MINIMUM WAGE 

Increase minimum wage = Push prices upward. Retraining workers = Increase labor costs => Pass costs on to consumers = Higher priices.

 FEDERAL RESERVE BOARD 

 Federal Reserve Board => Low short term interest rate = Economic growth (new jobs, encourage borrowing) <=> Inflation (by injecting too much money into the economy). 

PRICE STABILITY 

 Price stability lost with inflation. Stable prices = Economic efficiency = Boosting exports = Long term economic growth.  

WHOLESALE PRICES 

 Jump in wholesale prices shake up the bond market, 

CONSUMER PRICE INDEX 

 Inflation tied in with the consumer price index (which bars out volatile food and energy prices. 

DOLLAR VALUATION - 

Declining the dollar against? the Yen and other foreign currencies => Weak dollar. This encourages exports but raises prices of imports. Increase costs = Pressure on prices, if foreign competition is minimized. 

BOND MARKET  

Long term interest rates set by Bond market ?=> Falling interest rates ushered in due to impending deficit reductions or rather because of tax increases which may retard economic growth. Inflation erodes the value of bonds, savings and other fixed investments. Holders demand higher yields. Impending inflation stall the drop in long term interest rates. 

STOCK MARKET

People reinvest their low interest bearing insured CD's and MM's (2 1/2%) which drive the riskier stock market investing up. Panic investing leads to wiping out wealth. Reagan created millions of jobs, curtailing inflation as well as bull stock and bond market. Economic avtivity reduced the demand for credit thereby lowering interest rates raising the stock and bond prices. Pres Clinton taxing the affluent will slow the economy lowering interests rates more and raising the stock and bond market, ie. demand for "junk bonds". 

TRADE IMPACT

Inflation => Trade friction => More barriers => Raise import prices as well as the prices of products that compete with the imports and prices of the goods that are produced with the imported materials. 

ENERGY TAX

Energy tax => Encourage conservation. 

HEALTH CARE COSTS 

Health care reform Increased coverage of employees => Higher costs => Passed along to consumers. Therefore, government controls price to limit health care costs => Create shortages => Increase inflation. 

INTEREST RATES - ShTIR / LoTIR   TO TOP

Low inflation rates and slow economic growth lowers the interest rate market. 

Debtors are refinancing mortgages and savers and investors not depedent on work are taking greater risks to achieve more returns. People reinvest their insured CD's and MM's (2 1/2%) which drive the riskier stock market investing up. Panic investing leads to wiping out wealth.

 30-year (long term investments) are likewise risky since interest may go up. About $10 billion / month (9/93) is being shifted from ShTIR to 6% bonds, LoTIR.

 Reagan created millions of jobs, curtailing inflation as well as bull stock and bond market. Low inflation and slow economic expansion are ideal conditions for financial markets. President Bush's tax increase increased bull market and slowed the economy. This economic avtivity reduced the demand for credit thereby lowering interest rates raising the stock and bond prices.

 Pres Clinton taxing the affluent will slow the economy lowering interests rates more and raising the stock and bond market, ie. demand for "junk bonds". 

The health care program and increased government regulation raises employment and business costs, increasing inflation. 

A weak economy and rising prices would end the bull market, crshing, wiping out wealth and depress the U.S. economy for some time, R"L.

 

INTEREST RATES AFFECTS   TO TOP

Inflation 

economic growth 

Debtors 

savers 

investors 

refinancing 

mortgages 

stock market

bonds 

jobs 

tax increase 

credit 

rising prices 

wealth 

depression

TO TOP