How to know if money is real

Discussion in 'Trading' started by Lucias, Dec 7, 2011.

  1. Lucias


    How do you know if money is real? I'm talking about digital money. It seems to me its just a number made up.

    Who is the keeper of the number? Can a foreign firm "print" money, i.e counterfeit, in the computer? Why do we trust the keeper?
  2. There's no such thing as "foreign" anymore. Those little people with the slanted eyes and those people with dark skin aren't foreginers, they're your neighbors. It doesn't matter if they live where it's warm or they live where it's cold, they are neighbors. But I understand your concern. It's bad enough those damn foreigners now make everything we use to make. Now the only thing left we have to export is inflation.
  3. Roark


    The same concern arises with stocks and commodities. How do you know the keeper actually has the shares that they're selling? Selling shares you don't own and haven't borrowed is called naked shorting.
  4. That's something called "accounting". Yes, it often gets very complicated to the point that nobody understands it. At such a point nobody can be sure if this stuff exists. Editing numbers on a computer is same as editing them on paper. That is fraud, and that is what auditing is supposed to prevent. Again, due to increasing complexity of accounting practices, regulatory shenanigans, etc, stuff can be "made up" more easily now than before. So, no clear answer.

    If on the other hand this is supposed to be a discussion on money theory, that's another matter.
  5. sanfo


    It's an interesting question, Digital world needs to be regulated as real life too.

    if you are forex trader, you should find a reliable one.

    There are companies releasing their own credits, you can use money to buy the credits, they are digital money too, for this kind, they can produce more. but this is totally diffrent from forex brokers.

    however, forex brokers who use the customers' money for other purposes may experience high risks.
  6. Good point. How do we even know "inventory" is real. A retailer or manufacturing co could just add a zero on the end of product inventory. A real game changer.
  7. the1


    If you want to understand the concept of "money" read the book, Web of Debt, by Ellen Brown. What exactly is "money?" It's nothing more than a scorecard. Think of getting 6 points when you score a touchdown. When you go to work and perform a task you collect points, like you would had you scored a touchdown. The fewer the people that complete the task you complete the more points you receive -- i.e. the quarterback who can throw the most touchdowns for his teams gets the most points, or the most money. In a nutshell, that's the concept of money.

    So is digital money real? It depends on your viewpoint. If you're thinking it has a relationship with real assets then no, digital money is not real. If you think in terms of the above example then yes, digital money is real. If you try to use your digital money to buy a real asset will it be accepted? Of course. Digital money is an accepted illusion of value.

  8. spend it...
  9. Money is a tool, a means of exchanging your labour and best efforts for those of another. If the money you earn represents your honest work and the value you give to others, and you live in a society where others are willing to accept money in trade for their hard work and value, then yes it is real.

    To the extent that your society deviates from this core purpose in its use of money, the money becomes less "real".

    Where total confidence is lost in a particular unit of "money", it is no longer used as such. Total confidence is lost when the unit has been abused to the extent that it no longer represents the values of those who produce.

    In macroeconomic matters, it can be easier to understand the principles, causes, and effects if we reduce the hypothetical economy we study to as small as practical. Assuming a small village economy which is self sufficient with no outside trade can be a useful exercise.

    As long as the inhabitants of this village use money correctly in the way above described, confidence in money and therefore the reality of money is preserved. This can include the function of a local bank to manage the needs of the people in terms of the supply and demand of money. Those with surplus deposit funds which earn a return paid for by the economic activity of those who borrow them.

    Imagine now that the local tardy and lazy youth comes up with an enterprising scheme whereby he seeks to benefit from his neighbours wealth and property without trading anything useful in return. Perhaps he borrows some money from his banker on some pretext, but spends rather than invests the money and is not prepared to do sufficient work (ie trade value) to earn what he now owes the bank. Suppose further that he seeks to support himself with further loans, both to meet his expenses and repay the principal and interest on his outstanding debt. For as long as our youth consumes more than he produces, the condition is ultimately unsustainable.

    Even a banker with imprudent lending standards and poor decision making will eventually realise that this loan will not be repaid. Eventually this must be acknowledged, and an accounting made to the depositors at the bank. Perhaps they were prepared to bear the reasonable risks of default in return for the income earned on the money they deposited. If these risks are fair and proportionate, with the agreement of all parties, there is not a problem.

    Suppose however we have a very bad bank, and several lazy youths in the community who all catch on to the same trick. Then the not so lazy and the not so enterprising try it also. What we eventually see is a transfer of wealth from lender to borrower. As the borrowers are not producing, the debt is not satisfactorily repaid.

    Lets further presume that the bankers, intent on maintaining their lending business and the fee for arranging such transactions, collude with those who claim the monopoly on the legitimate use of force. Edicts are passed which destroy transparency and accountability in the financial system. Essentially the intent is to maintain the confidence of the depositors (lenders) lest the economy collapse. The bank is permitted to indulge in deceit regarding how much "money" it is storing on behalf of creditors.

    Rules are passed to ensure that lenders do not have recourse against borrowers. All of this is done in such a way that the value of the currency is eroded through inflation, the simple example of this being that 1 unit of currency no longer purchases 1 unit of work or value as it used to. The producers of value are systematically deceived as to the conditions in force. Additionally, while some awareness may be present, it is justified by those who wield force as being necessary for the stability of society, the common good, and those "less well off". Perhaps some money is taxed away by force and redistributed- the argument being that this is in the interests of the producers as it allows the consumers to "pay" for what is produced lest society degenerate into take what you want by force anarchy.

    The presence of inflationary conditions gives rise to doubt the present and future utility of the "money" to fulfil its purpose as a store of value which can be traded for work done by or goods owned by others. At this stage, is money more or less real?

    How would we know?

    Transplant the concepts to a global society where "money" is an entry in a database. How can we keep an eye on the true "value"? Perhaps the only way to know whether money is real is its utility in trade, however when money no longer serves its purpose it will be too late for the holders of the money.
  10. NoDoji


    If you're in Brazil, the money is most likely real.

    Since we're discussing Brazilian currency, let's segue into the Brazilian language:

    Q. What kind of geese can't fly?

    A. Portuguese

    (I logged in here to PM someone, and ET again sucked out part of my brain...)

    #10     Jan 30, 2012