Money. We all love it. But do you actually know what money is? What is its value? What are the policies that govern the monetary system?
The monetary system is the most misunderstood and taken for granted. Never the less, understanding the monetary system is critical to understanding why our lives are the way they are.
Unfortunately, economics is usually viewed as one very difficult to understand and boring topic. Lots of math, a lot of charts… who cares about that? Right?
Actually, no. The complexity behind the monetary system is because we take it for granted and don’t care to look deeper into it.
There are some things that you need to understand about money like, where does it come from? How does it get its value? What is inflation?
How does money come to be?
The United States government decides that it needs money. So it calls the national reserve bank and requests the amount. The Federal Reserve Bank buys the amount requested in US bonds.
The government creates some treasury bonds and values those bonds in the sum of the amount requested and sends them to the Federal Reserve Bank.
The bank then prints money-notes in the value of the requested amount and exchanges them for the bonds. Once the government places that money-notes into a bank account, it actually becomes tender money.
In reality, this transaction happens electronically on a computer. No paper is used at all, nothing is printed. Only records of the values are stored. Yes, including the money itself.
In the USA only 3% of the currency is actually available in real money. The rest is stored in credit forms.
One important note is that the government bonds are actually a form of debt. Once issued they mean that the government owes the Federal Reserve Bank an X amount. An in return, the FRB just issues a record that an X amount is now available for the US government in a commercial bank account.
By low, the commercial bank has to keep a 10% of the deposit as reserve. The value may vary from time to time. The amount left, the 90% is called an excessive deposit.
If someone takes a loan in the amount of the money created from that specific bank and puts it into their own account in another bank. That other bank has to keep 90% of the money as an excessive reserve and can keep it in circulation.
What gives those notes their value?
Money takes its value from other money that already exists. New money steals value from the existing money supply. Now that new money is available for the public, money value starts diminishing and loses some of its purchasing power. This is usually known as Inflation.
What is Inflation?
Language as a definition is “A set of spoken, written, or signed words and the way we combine them to communicate a meaning.”
Perhaps we should change that definition to include “Using complex grammar” to really distinguish human language from animal languages especially that a lot of animals are capable – when taught – to sign away their feelings or needs.
A language is not necessarily spoken, written or signed. For example if I want to find a bathroom in Sweden or Thailand and really had to pee, people would still understand me even if I spoke a totally different language.
Language is important for expressing our thoughts and communicating them to other people’s brains, and actually to our own consciousness. When you see something new, you have to ask “What is this?” because otherwise you wouldn’t have a way of communicating it to other people or even to your own memory.
We humans have nearly 7,000 languages. But no matter how they sound we can break down their structure into three building blocks:
- Phonemes: Very short distinctive sound units. Different languages vary considerably in the number of phonemes they have in their systems. The total phonemic inventory in languages varies from as few as 11 in Rotokas and Pirahã to as many as 141 in !Xũ. Some languages use a different subset of phonemes like such as Arabic which doesn’t have the /p/ constant.
- Morphemes: The smallest unit that carry a meaning. These morphemes are words or parts of words [a prefix or a suffix].
- Grammar: The system of rules that enable us to communicate with and understand others. If you didn’t know those rules you wouldn’t be able to communicate your thoughts to others and you wouldn’t understand what others are talking about. You can still understand the things they’re saying but it wouldn’t make much sense to you.
Just as the structure of the language starts small, so does how we learn language. We start very young.