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Old 20th December 2011, 12:51   #16
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Default re: Understanding Economics

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Originally Posted by subscrive View Post
Money in terms of gold / silver is almost constant. He is not talking abt the printed fake money that the govt is forcing everyone to use.
That would mean total amount of money equals the gold reserves that the earth holds. I don't think so.
Gold is just an accepted medium of measuring the money but it in no way limits the wealth of the economies. If it ever does that then it will be immediately replaced by another universally accepted medium.
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Old 20th December 2011, 12:52   #17
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You can still distinguish both types. The day it becomes indistinguishable is the day the diamond industry vanishes. overnight.
Forget Artificial diamonds for a moment. Even natural diamonds are abundant in nature. Yet cartelization enforces pricing.
Your argument is valid in an utopia, not in a real world.

As for distinguising artificial and natural diamonds, there is no technological limitation to manufacturing diamonds which look just like natural diamonds, and are exactly alike. all you need to add is impurities, which exist in natural diamonds.
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Old 20th December 2011, 14:04   #18
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Forget Artificial diamonds for a moment. Even natural diamonds are abundant in nature. Yet cartelization enforces pricing.
Your argument is valid in an utopia, not in a real world.

As for distinguising artificial and natural diamonds, there is no technological limitation to manufacturing diamonds which look just like natural diamonds, and are exactly alike. all you need to add is impurities, which exist in natural diamonds.
This is news to me. Do share links on:
a. Natural diamonds being abundant in nature!!!
b. Artificial diamonds being easy to make and being able to duplicate most diamonds easily!
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Old 20th December 2011, 14:24   #19
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This is news to me. Do share links on:
a. Natural diamonds being abundant in nature!!!
b. Artificial diamonds being easy to make and being able to duplicate most diamonds easily!
This is actually a well researched topic, also studied in Many universities.
University papers in "references" section of the following page will educate you
De Beers - Wikipedia, the free encyclopedia

also google "conflict diamonds"

also note, that the cartels now offer to give "history" of diamonds, and also inscribe a serial number using laser to counteract the use of artificial diamonds.


See this
Synthetic diamond - Wikipedia, the free encyclopedia

Quote:
Gem-quality diamonds grown in a lab can be chemically, physically and optically identical to naturally occurring ones, although they can be distinguished by spectroscopy in infrared, ultraviolet, or X-ray wavelengths. The DiamondView tester from De Beers uses UV fluorescence to detect trace impurities of nitrogen, nickel or other metals in HPHT or CVD diamonds.[90]
How many jewelers have spectroscopic equipment, and X-Ray scanners to determine whether diamond is manufactured or natural.

On the finger, using purely optical methods, an artificial diamond is indistinguishable from Natural ones


Also see
Diamonds as an investment - Wikipedia, the free encyclopedia
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Old 20th December 2011, 14:34   #20
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Default re: Understanding Economics

@fanatic: Would like to add my 2cents. This may not be directly linked to your query but I thought might add some value.
If you look at this world in total and remember physics in school where we learnt: The total energy is this world is a constant. It is neither created nor destroyed. It only changes form.
In simple terms: nature always has a balance for everything, be it living or dead.
In my personal opinion, I generally extend this concept to everything in life, for ex: right from happiness to sadness and from being rich to poor, to making profit to loss.
Further, also strongly believe in the saying 'what goes around, always come around".

So if you are making a profit in business, it is linked to something good you have done or your company has done. At the same time someone maybe making a loss due to their wrong doings.

Just to give a simple and very generic example: India has always been troubled by Pakistan in various ways. But, we have never been the one to do anything nasty or react in a rush. So, what happens? India as nation does progress inspite of all such issues whereas Pakistan who gets away with such heinous crime internationally is made to suffer by nature in form of a troubled country from within. So here is India making profits in the form the 2nd fastest growing nation in the world and you have Pakistan making a big loss who now does not even get the aid from its so called friend the USA

Cheers
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Old 20th December 2011, 20:27   #21
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Default re: Understanding Economics

That is a point that even I concur with, parish.

For others, I've read in a book by Ayn Rand, that notes are printed by any government based on it's gold reserves. That sounds rational, as no government can go on an indefinite spree when it comes to printing notes. The notes are just a guarantee that the government has, and will provide it's equivalent in gold when required, though no one ever uses it.

What I am talking about is this money/wealth, however you want to term it. I am not referring to currency notes, as they are something which can be infused/removed as per the will and wish of a government. But then again, infusion of notes further decreases it's value, which can only happen if there is something linking the entire chain, that is constant, which, with my knowledge, I assume is gold/other reserves.

Of course, there might be other complex linkages, a country may not be proclaimed rich/poor just based on it's reserves, but for now I'll consider this as our basic premise.

Assuming that the wealth of the world (which in this case is gold, which is constant), is the only basis on which a country prints notes, then isn't it fair that if someone gains more gold somewhere, then someone loses some elsewhere? Forget currency notes for the time being.

I might not be as knowledgable as the others on this field, I'm just an engineer who passed out 6 months back. This question was jumping around in my mind, so I thought of getting some more clarity by putting it up.
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Old 20th December 2011, 20:50   #22
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Default re: Understanding Economics

The question sounds simple, but the answer is not so simple. It is like asking to explain economics using one page document. I am not going to even try. And this is just micro economics, the simpler of the two.

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Originally Posted by pareshraheja View Post
If you look at this world in total and remember physics in school where we learnt: The total energy is this world is a constant. It is neither created nor destroyed. It only changes form.
In simple terms: nature always has a balance for everything, be it living or dead.
In my personal opinion, I generally extend this concept to everything in life, for ex: right from happiness to sadness and from being rich to poor, to making profit to loss.
Further, also strongly believe in the saying 'what goes around, always come around".

So if you are making a profit in business, it is linked to something good you have done or your company has done. At the same time someone maybe making a loss due to their wrong doings.

Just to give a simple and very generic example: India has always been troubled by Pakistan in various ways. But, we have never been the one to do anything nasty or react in a rush. So, what happens? India as nation does progress inspite of all such issues whereas Pakistan who gets away with such heinous crime internationally is made to suffer by nature in form of a troubled country from within.
Sorry to disappoint you. But this is not at all true when it comes to economic theory. Good, bad and ugly doesn't matter.

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Originally Posted by FanaticOnWheels View Post
For others, I've read in a book by Ayn Rand, that notes are printed by any government based on it's gold reserves. That sounds rational, as no government can go on an indefinite spree when it comes to printing notes. The notes are just a guarantee that the government has, and will provide it's equivalent in gold when required, though no one ever uses it.
The gold reserves is the old method, it is no more true. The current method is very complex and depends on too many parameters. For example, if your exports are high and imports are low, the demand for your currency shoots up. You can print more to keep the currency value constant without worrying about gold reserves.
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Old 20th December 2011, 21:52   #23
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Default re: Understanding Economics

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Originally Posted by Samurai View Post
The question sounds simple, but the answer is not so simple. It is like asking to explain economics using one page document. I am not going to even try. And this is just micro economics, the simpler of the two.

Sorry to disappoint you. But this is not at all true when it comes to economic theory. Good, bad and ugly doesn't matter.

The gold reserves is the old method, it is no more true. The current method is very complex and depends on too many parameters. For example, if your exports are high and imports are low, the demand for your currency shoots up. You can print more to keep the currency value constant without worrying about gold reserves.
I understand that it is quite complex. I'm sure it is!. I just had one query, which I'd like to put forth. Suppose you have a country that has almost zero gold reserves, but builds it's economy by making good use of it's citizen's brainpower (productive development, say). Every citizen contributes, the industries boom, and the country attracts tons of foreign money. Now since the quality of products produced in this country is so good, this country can afford to demand more foreign currency based on the quality of goods that they produce. Now, this basically means that this country, has in it's ownership, the gold reserves of some other country, right? From what I've read, currency notes are pieces of guarantee papers for gold (which used to be the standard for trade earlier). So, it ultimately boils down to gold, or whatever is the "standard" for trade. Since this standard is definitely a natural resource, it should remain constant, and hence, back to the original question again?

Please do correct me if I'm flawed. This thread definitely has helped me gain a lot of insight into this topic.
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Old 20th December 2011, 22:14   #24
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Default re: Understanding Economics

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Originally Posted by FanaticOnWheels View Post
This thread definitely has helped me gain a lot of insight into this topic.
Even though your question is "almost innocent" it has generated a very nice discussion. Thanks for starting it. Further, the title rings a bell, it was probably used by a certain set of thinkers in yesteryears to promote their view of a socialistic lifestyle.
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Old 20th December 2011, 22:31   #25
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Default re: Understanding Economics

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Originally Posted by FanaticOnWheels View Post
Now since the quality of products produced in this country is so good, this country can afford to demand more foreign currency based on the quality of goods that they produce. Now, this basically means that this country, has in it's ownership, the gold reserves of some other country, right? From what I've read, currency notes are pieces of guarantee papers for gold (which used to be the standard for trade earlier). So, it ultimately boils down to gold, or whatever is the "standard" for trade. Since this standard is definitely a natural resource, it should remain constant, and hence, back to the original question again?
Gold was dropped as currency standard in last century, so now the standard for currency doesn't have to be a natural resources. It floats based on the demand and supply internationally. In your example, the country could afford to get foreign currency, but it's worthless pieces of paper unless it's used to buy any real goods back from the country. e.g. china has huge $ reserves, but it can not do much. the moment it tries to sell, it's price will drop.

I would like to quote my professor here. "If you owe a bank a thousand dollars, they have got you by your throat. If you owe them a billion dollars, you have got them by their throat" :-)
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Old 20th December 2011, 22:34   #26
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Default re: Understanding Economics

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That would mean total amount of money equals the gold reserves that the earth holds. I don't think so.
Gold is just an accepted medium of measuring the money but it in no way limits the wealth of the economies. If it ever does that then it will be immediately replaced by another universally accepted medium.
Gold cannot limit economies, agreed. But the fact is that today, that is the standard accepted today.

Economies can increase the value of gold. If we forget money, and assume that we deal only with gold in return for goods and services, on a normal day, you might give me, say an iPhone for a bar of gold. If your economy is doing extremely well, I might need two bars of gold to buy the same iPhone from you. Now since you have two gold bars, you can in return print more currencies, and have more notes floating around, which in turn reflects in exchange rates, etc (the total gold in our "world" still remains constant). I am not well versed with all the economic jargon. But the fact remains that it all ultimately boils down to this one standard, which in this case, is gold, doesn't it?
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Old 20th December 2011, 23:12   #27
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Default re: Understanding Economics

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The gold reserves is the old method, it is no more true. The current method is very complex and depends on too many parameters. For example, if your exports are high and imports are low, the demand for your currency shoots up. You can print more to keep the currency value constant without worrying about gold reserves.
Actually, this is also the old method. There is the american way also, called bond method, and the chinese way, export and still keep your currency low way.

The most interesting is the indian tantric magic way.
Value of rupee will magically drop when Indian economy drops, and then some other country economy drops, even then value of rupee will drop. Value of rupee will rise only when software outsourcing is at low levels already, and any rise can mean contracts going to Estonia etc.,
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Old 20th December 2011, 23:51   #28
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Now, this basically means that this country, has in it's ownership, the gold reserves of some other country, right?
Even this is not an easy concept. Gold was used when it was the only commodity that could play the universal currency. But now you can use lot many things.

Even a country with no gold can print money. Let me explain how, do note this is a simplistic example.

Consider a country X, started by 100 people, there is no currency or economy of any sort. Among the 100 people, they have various skills and they start making use of those skills.

Some are hunters, so they go hunting and bring the food.
Some are builders, who build shelters for people to live.
Some are tool makers (carpenters & blacksmiths), who make tools and weapons needed by others.
Some are foragers, who collect various items from the forest, which can be used as food or make to cook food.
Some are artisans who make leather clothing and other items of decoration.
Some are cooks, who can cook all kind of delicacies.
Some are people with varied special skills like healers, entertainers, managers, etc.

If you look at the above list, you will note that everybody needs everybody else, but not to the same extent. In the absence of any currency, they have to do lot of bartering. That's what they did in the early days. Rare items had more value, common items has less value.

Eventually bartering was replaced with currency. Anything that is used as currency couldn't be reproduced easily, then it would lose value. If they used stones, then anyone can get a stone from their surroundings. So they used precious metals like gold and silver which were limited in nature.

But what if you had no gold or silver? One brilliant man among the above bunch comes up with an idea. He goes to an artisan who has a very unique skill, an ability to create a very special kind of flax clothing, no one else knows how. He is asked to make 1000 pieces of one square inch cloth, which are numbered. Each of the 100 citizens are given 10 pieces and are asked to use it as currency. Soon they are using the special cloth as currency, different products and services soon end up having price set in cloth pieces by free market demand and supply conditions. Now if the artisan makes and releases more cloth pieces into the tiny economy, then the value of currency will go down. On the other hand if 10% of the cloth pieces are taken away from the economy, value of currency will go higher. No gold needed here.

Now let's go international. Consider country Y, which is a similar economy. They are low on food, but they can make very good machinery. They want to trade with country X, which is rich on food, but low on machinery. Country Y uses specially carved wood pieces as currency, very hard to duplicate. Now citizen Y1 approaches citizen X1 who is a hunter.

Y1: Hello Mr.X1, I want to buy food from you.
X1: You are welcome Mr.Y1, but you don't have my cloth currency and I don't need machinery.
Y1: Oh, that means I need some cloth currency first.

So Y1 will approach another citizen of X who is a tool maker.

Y1: Hello Mr.X2, you could make use of my machinery.
X2: Yes Mr.Y1, your machinery is useful to me, but I have no wood currency required to buy your machinery.
Y1: Tell you what, I will sell my machinery to you for cloth currency.
X2: That's great, let's negotiate a price.

Now Y1 comes back to X1 the hunter.

Y1: Hello Mr.X1, now I have some cloth currency with which I can buy food.
X1: Wow, that is nice. Now let's negotiate a price.

As you see, gold is again irrelevant. This became possible only in the last couple centuries as most countries started having central banks who could be trusted to print currency responsibly and underwrite it's value. Printing more will only de-value the currency, so there is no real gain in that.

If X makes too much food and starts exporting a lot, then they end up holding currencies lot many countries. Those currencies can be used to buy products and services from other countries. That is how world economy works to put it very crudely.
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Old 20th December 2011, 23:59   #29
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Default re: Understanding Economics

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Originally Posted by FanaticOnWheels View Post
Gold cannot limit economies, agreed. But the fact is that today, that is the standard accepted today.

Economies can increase the value of gold. If we forget money, and assume that we deal only with gold in return for goods and services, on a normal day, you might give me, say an iPhone for a bar of gold. If your economy is doing extremely well, I might need two bars of gold to buy the same iPhone from you. Now since you have two gold bars, you can in return print more currencies, and have more notes floating around, which in turn reflects in exchange rates, etc (the total gold in our "world" still remains constant). I am not well versed with all the economic jargon. But the fact remains that it all ultimately boils down to this one standard, which in this case, is gold, doesn't it?

Sorry, it doesn't and for a very good reason - what if in the example above the supply of iphones increases but that of Gold doesn't? Prices can't fall beyond a point - there is a minimum practical transaction size - what will it be? a milligram of Gold?

In theory you can get around the above problem by having a currency based on the gold standard - but that has practical problems of its own.


"I'm not well versed with all the economic jargon" - wrong; you have basically zero idea of macroeconomics, not merely its terminology.




This is an interesting thread, for all the wrong reasons - most people have no idea about the topic o the very important question being asked, fewer still have the inclination to actually try and learn a little bit of economics. Everyone seems to be interested in ranting.
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Old 21st December 2011, 00:22   #30
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"I'm not well versed with all the economic jargon" - wrong; you have basically zero idea of macroeconomics, not merely its terminology.
That is for a very good reason. Lot of things in economics are not common sense, in fact they run against it. Ten years back when I took up MBA, Economics was my first course. As an Engineer with 11 years experience at that time, I expected lots of things to be obvious, it was anything but. It came as a shock.

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This is an interesting thread, for all the wrong reasons - most people have no idea about the topic o the very important question being asked, fewer still have the inclination to actually try and learn a little bit of economics. Everyone seems to be interested in ranting.
This is a topic lot of people feel they know, simply because they have been earning money for a long time or because they follow the stock market. Yes, they could be wrong. But there is no need to be rude and call it ranting. You are welcome to disagree politely. - Support Team
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