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Tuesday, August 5, 2014

Is Not, Is Not, Is Not!

If you buy a share of stock for $100 and then sell it for $50, you have lost $50, so $50 it's gone from your possession, but it's not gone from the world of the universe, somebody has it. Okay, back up to when you bought the stock in the first place. Say that the guy you bought it from originally paid $50 for it. When you bought it from him for $100, he made a $50 profit. That $50 profit did not fall from the sky, you gave it to him. Actually, you gave him $100, but the other $50 went to the guy from whom he originally bought the stock. Well, sort of. Actually, he paid the $50 and, when you bought the stock from him for $100, the first $50 reimbursed him for the $50 he had paid for the stock, and the second $50 was his profit on the deal. That whole $100 came out of your pocket and went into his pocket, it did not materialize out of thin air. The $100 did not get into your pocket by magic either. Maybe you worked for it, maybe you got it from a previous transaction, or maybe somebody gave it to you, but it did not fall from the sky. Even if you found it laying on the sidewalk, it still probably didn't fall from the sky. Of course, anything's possible, but not everything is bloody likely. It's more likely that it fell from somebody else's pocket. Maybe he lost it, or maybe he threw it away. In either case, that money was lost to him, but it didn't disappear from the universe.

The only people who can legally make money materialize out of thin air are the central banks that almost all the countries of the world now have. Ours is called the "Federal Reserve", other countries might call theirs something else, but they all work pretty much the same way. They buy up government debt with money that they bring into existence by "fiat", which means they say, "Let there be money" and, lo, there is money. Once this money has been created, I don't think it ever really goes away. If the central bank decides to sell some of the government paper they hold, it takes money out of circulation, but it doesn't make it cease to exist because they can buy that debt back with he money they got from selling it in the first place. Meanwhile, the money sits in storage or something like that.

This fiat money circulates around the whole wide world and is traded back and forth by people called "currency traders". The relative value of each national currency is determined by supply and demand. If more traders are interested in acquiring U.S. dollars than are interested in acquiring Japanese yen at the moment, then the dollar gains value relative to the yen, and vice versa. It is then said that the dollar is "strong" and the yen is "weak". Actually, a weak dollar is better for the U.S. economy than a strong dollar because it makes U.S. exports cheaper to buy in other countries that have relatively stronger currency values at the moment. This would tend to make the U.S. foreign trade balance swing to the positive side if it went on long enough, but it seldom goes on long enough. The U.S. dollar has not been the "standard for the world" since we went off the gold standard in 1970 or 71. Since then, all the national currencies are in constant fluctuation with each other. One exception is Red China which, last I heard, was still pegging their currency to the U.S. dollar. Also last I heard, the international monetary community was pissed at them for that, so they may have changed it by now.

Sometimes you can't sell real estate for any price, or even give it away. Last I heard, there were lots of abandoned properties in Detroit that had been confiscated for non payment of taxes. The city will gladly give you one of them for free if you will promise to fix it up and put it back on the tax rolls. We had a similar situation in our area in the early 20th Century, only the state took over the land, and still holds a lot of it.  The state pays the counties a "swamp tax" to compensate them for the loss of revenue, but it's not nearly as much as a private owner would pay.

I think you're right that our government gives out foreign aid to try to influence those countries' policies towards the U.S. In the case of the Palestinians and a number of other Middle East countries, however, it doesn't appear to be working. So why do they keep doing it? I don't think that Israel influences our policy towards them as much as the American Jews do. There are only about seven million Jews in Israel, and at least twice that many in the United States. I understand that many of the American Jews are quite wealthy, which might have something to do with it. The way they keep letting those Muslims into the country, it might eventually tip the balance the other way, unless the Hispanics take over first. Now that I think about it, maybe those Hispanics aren't so bad after all.

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