Our top 10 export destinations

Canada Canada

Our top 10 export destinations Canada Canada Mexico Mexico

Our top 10 export destinations Canada Canada Mexico Mexico China China

Our top 10 export destinations Canada Canada Mexico Mexico China China Japan Japan

Our top 10 export destinations Canada Canada Mexico Mexico China China Japan Japan U.K. U.K.

Our top 10 export destinations Canada Canada Mexico Mexico China China Japan Japan U.K. U.K. Germany, S. Korea, Brazil, Netherlands, Singapore Germany, S. Korea, Brazil, Netherlands, Singapore

Total U.S. exports in ‘10 $1.8 trillion $1.8 trillion

Our top 10 import nations

China China

Our top 10 import nations China China Canada Canada

Our top 10 import nations China China Canada Canada Mexico Mexico

Our top 10 import nations China China Canada Canada Mexico Mexico Japan Japan

Our top 10 import nations China China Canada Canada Mexico Mexico Japan Japan Germany Germany

Our top 10 import nations China China Canada Canada Mexico Mexico Japan Japan Germany Germany S. Korea, Brazil, France, Taiwan, Ireland S. Korea, Brazil, France, Taiwan, Ireland

Total U.S. imports in ‘10 $2.298 trillion $2.298 trillion

Money and the Banking System

Is Money wealth??

No No

Is Money wealth?? No No Money is just a way to transfer wealth or to give people incentives to produce wealth Money is just a way to transfer wealth or to give people incentives to produce wealth

Is Money wealth?? No No Money is just a way to transfer wealth or to give people incentives to produce wealth Money is just a way to transfer wealth or to give people incentives to produce wealth All people have to do is agree on something as an intermediary means of exchange and bingo, money! All people have to do is agree on something as an intermediary means of exchange and bingo, money!

Money, money, money Money only works because other individuals will supply real goods and services in exchange for that money Money only works because other individuals will supply real goods and services in exchange for that money

Money, money, money Money only works because other individuals will supply real goods and services in exchange for that money Money only works because other individuals will supply real goods and services in exchange for that money History of money? History of money?

Money, money, money Money only works because other individuals will supply real goods and services in exchange for that money Money only works because other individuals will supply real goods and services in exchange for that money History of money? History of money? So... Money = something generally accepted as a medium of exchange So... Money = something generally accepted as a medium of exchange

When money goes bad

Inflation

Inflation Inflation is a general rise in prices Inflation is a general rise in prices

Inflation Prices rise when there is more demanded than supplied at a given price Prices rise when there is more demanded than supplied at a given price

Inflation Inflation is a general rise in prices Inflation is a general rise in prices Prices rise when there is more demanded than supplied at a given price Prices rise when there is more demanded than supplied at a given price So when there is more money, people tend to spend more. Without increase in output, prices simply rise So when there is more money, people tend to spend more. Without increase in output, prices simply rise

Inflation Inflation can be viewed as general decline in the real value of money, loss of purchasing power Inflation can be viewed as general decline in the real value of money, loss of purchasing power

Inflation Rule: more money in society means higher prices Rule: more money in society means higher prices

Inflation “The big problem with money created by the government is that those who run the government face the temptation to create more money and spend it” “The big problem with money created by the government is that those who run the government face the temptation to create more money and spend it”

$787,000,000,000 “porkulus” bill signed by POTUS on 2/17/09

Inflation at work What was inflation for the last 10 years? What was inflation for the last 10 years?

Inflation at work What was inflation for the last 10 years? 23.75% What was inflation for the last 10 years? 23.75%

Inflation at work What was inflation for the last 10 years? 23.75% What was inflation for the last 10 years? 23.75% What was inflation for the last 20 years? 60.99% What was inflation for the last 20 years? 60.99%

Inflation at work What was inflation for the last 10 years? 23.75% What was inflation for the last 10 years? 23.75% What was inflation for the last 20 years? 60.99% What was inflation for the last 20 years? 60.99% What was inflation for the last 30 years? 149.7% What was inflation for the last 30 years? 149.7%

Now that’s inflation Zimbabwean inflation in 2008 was 231,000,000%!!!!!!!!!!!!!!!!! Zimbabwean inflation in 2008 was 231,000,000%!!!!!!!!!!!!!!!!!

Now that’s inflation Zimbabwean inflation in 2008 was 231,000,000%!!!!!!!!!!!!!!!!! Zimbabwean inflation in 2008 was 231,000,000%!!!!!!!!!!!!!!!!! A $100 billion bill could buy three eggs A $100 billion bill could buy three eggs

How do politicians use inflation?

How do politicians use inflation? Because raising taxes can be political danger, politicians print more money Because raising taxes can be political danger, politicians print more money

How do politicians use inflation? Because raising taxes can be political danger, politicians print more money Because raising taxes can be political danger, politicians print more money Result: prices rise, eroding purchasing power Result: prices rise, eroding purchasing power

How do politicians use inflation? Because raising taxes can be political danger, politicians print more money Because raising taxes can be political danger, politicians print more money Result: prices rise, eroding purchasing power Result: prices rise, eroding purchasing power Inflation is in effect a hidden tax… the money that people saved is robbed of purchasing power which is transferred to the government issuing the money Inflation is in effect a hidden tax… the money that people saved is robbed of purchasing power which is transferred to the government issuing the money

“Our economic problems worry me much less than our political solutions, which have a far worse track record.” Dr. Sowell

Deflation

Deflation Persistent decrease in the general price level of goods and services Persistent decrease in the general price level of goods and services

Deflation Can be disastrous: people hold onto money, creating less demand, prices continue to drop Can be disastrous: people hold onto money, creating less demand, prices continue to drop

Deflation Persistent decrease in the general price level of goods and services Persistent decrease in the general price level of goods and services Can be disastrous: people hold onto money, creating less demand, prices continue to drop Can be disastrous: people hold onto money, creating less demand, prices continue to drop Raises fears of the Great Depression Raises fears of the Great Depression

The Banking System

What is the U.S. banking system??

A group of private institutions that transfer savings from people to others who want to borrow A group of private institutions that transfer savings from people to others who want to borrow

What is the U.S. banking system?? A group of private institutions that transfer savings from people to others who want to borrow A group of private institutions that transfer savings from people to others who want to borrow As of last year, there were about 7,760 FDIC-insured banks and S&Ls in the U.S. As of last year, there were about 7,760 FDIC-insured banks and S&Ls in the U.S.

What is the U.S. banking system?? A group of private institutions that transfer savings from people to others who want to borrow A group of private institutions that transfer savings from people to others who want to borrow As of last year, there were about 7,760 FDIC-insured banks and S&Ls in the U.S. As of last year, there were about 7,760 FDIC-insured banks and S&Ls in the U.S. That’s down from about 8,430 in ‘08 That’s down from about 8,430 in ‘08

What is the U.S. banking system?? Banking system enables millions of people to spend money belonging to millions of other people for purchases and investments Banking system enables millions of people to spend money belonging to millions of other people for purchases and investments

What is the U.S. banking system?? Banking system enables millions of people to spend money belonging to millions of other people for purchases and investments Banking system enables millions of people to spend money belonging to millions of other people for purchases and investments Banking system affects total demand in the economy as a whole by adding to the money supply through “fractional reserve banking” Banking system affects total demand in the economy as a whole by adding to the money supply through “fractional reserve banking”

Fractional Reserve Banking A system that enables banks to only have on hand a fraction of the total reserves needed to cover all deposits A system that enables banks to only have on hand a fraction of the total reserves needed to cover all deposits

Fractional Reserve Banking A system that enables banks to only have on hand a fraction of the total reserves needed to cover all deposits A system that enables banks to only have on hand a fraction of the total reserves needed to cover all deposits Since all depositors won’t demand their money at once, banks lend out the rest and earn interest and fees Since all depositors won’t demand their money at once, banks lend out the rest and earn interest and fees

Fractional Reserve Banking A system that enables banks to only have on hand a fraction of the total reserves needed to cover all deposits A system that enables banks to only have on hand a fraction of the total reserves needed to cover all deposits Since all depositors won’t demand their money at once, banks lend out the rest and earn interest and fees Since all depositors won’t demand their money at once, banks lend out the rest and earn interest and fees Fractional reserve banking creates “new” money to create wealth. How? Fractional reserve banking creates “new” money to create wealth. How?

Fractional Reserve Banking U.S. Required Reserve Ratio is 10% on demand deposits (all deposits except savings accounts and CDs), above $49 million U.S. Required Reserve Ratio is 10% on demand deposits (all deposits except savings accounts and CDs), above $49 million Down from 12.3% in 1968 Down from 12.3% in 1968

Fractional Reserve Banking U.S. Required Reserve Ratio is 10% on demand deposits (all deposits except savings accounts and CDs), above $49 million U.S. Required Reserve Ratio is 10% on demand deposits (all deposits except savings accounts and CDs), above $49 million Down from 12.3% in 1968 Down from 12.3% in 1968 A*(1-r) n A*(1-r) n

Fractional Reserve Banking U.S. Required Reserve Ratio is 10% on demand deposits (all deposits except savings accounts and CDs), above $49 million U.S. Required Reserve Ratio is 10% on demand deposits (all deposits except savings accounts and CDs), above $49 million Down from 12.3% in 1968 Down from 12.3% in 1968 A*(1-r) n A*(1-r) n D = A + A*(1/r - 1) = A*(1/r) D = A + A*(1/r - 1) = A*(1/r)

Fractional reserve banking Ratio varies by country Ratio varies by country

Fractional reserve banking Ratio varies by country Ratio varies by country 0% in Australia, Canada, Mexico to 19.5% in China, to 30% in Lebanon 0% in Australia, Canada, Mexico to 19.5% in China, to 30% in Lebanon

Federal Reserve System A central bank created in 1913 by Congress to control all private banks A central bank created in 1913 by Congress to control all private banks

Federal Reserve System A central bank created in 1913 by Congress to control all private banks A central bank created in 1913 by Congress to control all private banks Role is to prevent banking panics… runs on the bank Role is to prevent banking panics… runs on the bank

Federal Reserve System A central bank created in 1913 by Congress to control all private banks A central bank created in 1913 by Congress to control all private banks Role is to prevent banking panics… runs on the bank Role is to prevent banking panics… runs on the bank Tells banks what reserves they can hold Tells banks what reserves they can hold

Federal Reserve System A central bank created in 1913 by Congress to control all private banks A central bank created in 1913 by Congress to control all private banks Role is to prevent banking panics… runs on the bank Role is to prevent banking panics… runs on the bank Tells banks what reserves they can hold Tells banks what reserves they can hold Insure deposits through the FDIC (Federal Deposit Insurance Corp.)... thus prevent “runs” on banks Insure deposits through the FDIC (Federal Deposit Insurance Corp.)... thus prevent “runs” on banks

The Fed Sets interest rates on loans to banks, thus indirectly controlling interest rates throughout the banking system Sets interest rates on loans to banks, thus indirectly controlling interest rates throughout the banking system

The Fed Sets interest rates on loans to banks, thus indirectly controlling interest rates throughout the banking system Sets interest rates on loans to banks, thus indirectly controlling interest rates throughout the banking system Operates 12 Federal Reserve Banks throughout the country that work with private banks to distribute funds, extend credit, process U.S. money, etc. Operates 12 Federal Reserve Banks throughout the country that work with private banks to distribute funds, extend credit, process U.S. money, etc.

Assignment for 02/22/11 Read and study Chapter 17 of Basic Economics: “Government Functions” Read and study Chapter 17 of Basic Economics: “Government Functions”

Assignment for 02/22/11 Read and study Chapter 17 of Basic Economics: “Government Functions” Read and study Chapter 17 of Basic Economics: “Government Functions”

Assignment for 02/22/11 AND: Write a 500-word essay: Mr. G has given you $1 million to start the Bank of (Your Name). Discuss how you would lend, to whom, your reserves (10%), and how your bank would create wealth in this area. Who are your customers? What is your marketing slogan? What interest are you charging? Demonstrate your knowledge of money, fractional reserve banking and vetting risk for making loans. AND: Write a 500-word essay: Mr. G has given you $1 million to start the Bank of (Your Name). Discuss how you would lend, to whom, your reserves (10%), and how your bank would create wealth in this area. Who are your customers? What is your marketing slogan? What interest are you charging? Demonstrate your knowledge of money, fractional reserve banking and vetting risk for making loans.