Money: What is it? How is it defined? and What are its Functions? -From the Economics Page!

The concept of money is actually very interesting. We look in our wallet and see wealth (or nothing like me) when in fact the paper you hold is only worth $0.06 per bill. So how do we make money have value, what is money and how is it created?

Read on to learn the answers:

What is Money and why do we need it?

Money is assets that people are generally willing to accept in exchange for goods and services or for payment of debts. Basically, money is an accepted medium for exchange. There are also two types of money.

The first is commodity money. This is "an item (i.e.- gold or silver) which meets the criteria for a medium of exchange for both the issuer and receiver of the money."

The next form of money is called fiat money. This is "money, such as paper currency, that is authorized by a central bank or government body and that does not have to be exchanged by the central bank for gold or some other commodity money." This is the form of money nearly every nation in the world uses, however in some places both are often utilized.

Now do we need money? The answer is no. For thousands of years many have bartered, one starting low and the other high, until and mutually agreed amount of item X is determined. A great example of this is in Tonga where there is a brides fee for marrying a mans daughter. Many do not have money so they pay cows instead.

So, What are the Functions of Money?

The functions of money are broken down into two components: at the current point of sale, and a long term value.

At a current time, or point of sale, money serves as a medium of exchange when sellers are willing to accept it in exchange for goods and services. Also, money is used as a unit of account. This is were in a barter economy each good has many prices.

In a long term perspective money acts as a store of value. This is if you do not use all your accumulated dollars to buy goods and services today, then you can hold the rest to use in the future. This is better in many cases such as with a farmer who's goods he has to trade with are perishable whereas fiat money is not. Lastly, money can serve as a standard of deferred payment which we see commonly today with borrowing and lending.


How is Money Measured in the U.S. Today?

The Money Supply is viewed in two ways, M1 and M2.

M1 is the narrowest definition of the money supply and is "the sum of currency in circulation, checking accounts, and holdings of traveler's checks." Currency is all paper money and coins that are in circulation, meaning all tangible money and coins not held by banks or the government. Checking accounts simply are checking account deposits in banks. Also, it should be noted that in May 2007, the total sum of all travelers checks in circulation only valued $7 billion, thus this item may often be ignored in calculations and common discussion.

M2 is a much broader definition of money. This involves "All the components in M1 plus savings account balances, small-denominational time deposits, balances in money market deposit accounts in banks, and non-institutional money market fund shares."


Now that we know everything we can do with money,
What can Serve as Money?

That is, which asset should be used as the medium of exchange? We saw earlier that an asset must, at a minimum, be generally accepted as payment to serve as money. In particular terms, however, it must be even more.
Five criteria make a good suitable to use as a medium of exchange:

1. The good must be acceptable to (that is, usable by) most people.
2. It should be of a standardized quality so that any two units are identical.
3. It should be durable so that the value is not lost by spoilage.
4. It should be valuable relative to its weight so that amounts large enough to be useful in trade can be easily transported.
5. The medium of exchange should be divisible because different goods are valued differently.



GREAT! So now you know all about money. I hope you enjoyed it. Come back soon to learn about how money is created by banks. Also, if you have any further questions, please e-mail me below. Thanks,

Kyle W. Gay
kylewgay@gmail.com

Note, my primary source for this post came from "Economics, 2nd edition" by Hubbard and O'Brien. Secondary sources are my personal knowledge and notes form economics classes i have taken at Elon university.

Swing Trading - I'm Staring to Invest at the Worste Time Possibe and I Love It

So I know this is an educational and instructional blog, however, I've decided I want to add more of a personal touch to it. To do this, I'm just going to keep readers up to date on things I am doing in my life that are relevant to blog posts I write about. Well, onto my blog post:

So I have decided to get involved in the stock market. Now I have been involved for quite some time, but now I am doing it just by myself, and I've chosen to do this through E*Trade Financial.

I'm starting simple with $500 and seeing where it takes me. Like I said, it is possibly one of the worst times to enter the stock market when you have the limited experience I do. Yet, isn't it a good time as well?

Companies we know are strong enough to pull through these tough times are in fact at their lowest in months if not years! As well, often these companies are so cheap, if they go under your loss is an acceptable trade-off.

Let me give you an example: Freddie Mac (FRE) is currently valued at $0.82 a share. If you buy 100 shares, thats $82. Now that may be a lot of money, and since I'm only invest $500 right now im only buying 10-30 shares this week, but let's do the math shall we:

If FRE jumps to $1.18 like it did last week, then those 100 shares will be worth $118, making you $36 in just one day. My brother bought 500 shares of FRE last week Monday for about $0.48 a share. Well, he's getting me a nice Christmas present I hope, haha.

Anyways, all I'm saying is if you have some money to spare, and you already have long term safe investments, then think about finding some cheep stocks that look like they are going to have a boost in the next six months.

In particular, look up the immediate federal investments the Obama administration plan to increase starting January 20th. The most notable ones which i am investing in are infrastructure companies such as U.S. Steal (X) and public institution construction companies. Obama plans to spend a lot of money on basic infrastructure right away. Also, I've noted Freddie Mac, although extremely volatile, because of announcements recently that FRE and FNM as government sponsored entities may be employed once again by Congress to manage bad mortgages amongst other things.

Anyways, I'm dragging on. I'm going to have my blog posts that are actually worth reading up by Friday. As well, I plan to write a review of E*Trade and if I do i fact like using it.

well, have a great day, and talk soon. E-mail me if you have any economics questions, however, if you want to know about certain stocks, ask Jim Cramer instead of me ;)

Until next time,

Kyle W. Gay
kylewgay@gmail.com

Catherine T. Hunt Speaks on Sustainability at Elon University

This past Monday, November 10th, Catherine Hunt, the former president of the American Chemical Society and a leader of the Technology Partnerships, Emerging Technologies of the Rohm and Haas Company, spoke at Elon University on the challenge of sustainability.

She started her speech by saying that "Sustainability is about prospering today without compromising tomorrow" and that the "Sustainability challenge is creating new ideas and products that are environmentally friendly, economically viable, and socially responsible."

Much of the problem surrounding the need to create awareness and promote sustainability is human nature. We all love the 'green movement' but in actuality we want a sustainable substitute good that is roughly just as effective, environmentally friendly, and will not cost us more. To answer this dilemma, Hunt proposed using "innovation."

However, with this term she cited a partially new and extended definition. Innovation involves "the act of creating a new product or process" as well as incorporating "invention to bring the sustainable product into its final form."

Hunt pointed out a commonly preformed flaw amongst advocates of sustainability: the need to recognise that multiple components are involved in truly creating a sustainable item. For example, energy, food, and water are all intertwined when initiating innovative development for farming. Hunt called this "systems thinking" and stated that many whom are in charge of allocating government funds for sustainability programs are not aware of this, causing less progress torwords goals many want to see.

This brings us to Hunts final thoughts, we need to learn to educate and market sustainability not only to consumers, but also to the government officials in charge of implementing policy and allocating funds. They don’t read the American Chemical Society Journal,” Hunt said. “They read the Wall Street Journal, the New York Times and the Washington Post. We need to be writing for these types of newspapers.” We need to report the issues in a way people understand, briefing staffers, giving testimony, and celebrating success.

Hunt identified four groups involved in the sustainability challenge: the scientific society, the government (both state and federal), industry, and academia. According to Hunt, it was not just a matter of discoveries in the scientific communities but the teamwork and alliance between industry and academia and legislators and researchers.

“I really believe that no one can do this alone and it’s going to take all of these sectors working together,” Hunt stressed. “It’s not a question of whether you want to do it but how well you do it.”

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I believe sustainability is an important issue and topic for discussion. We need to find ways to create awareness and promote innovation to solve the dilemmas at hand. To learn more about socially responsible business, sustainability, and Catherine T. Hunt, please visit the links below.

Thanks for reading and please come back soon,

Kyle Gay

http://community.worldofgood.com/

http://www.rohmhaas.com/wcm/index.page

http://www.fairtradefederation.org/

What to Remember Before Election Day

So the big day is is coming and we're just two days away. But what do we need to remember before we make our final decision?

Think for Yourself.

I have been following nearly every major news station, website, and political blog that attracts large amounts of readers and the fact is they just don't cover everything. Rather, they will cover what the mainstream media covers in order to keep up ratings and in turn also attract more readers. However, you must remember that there are more topics then the economy.

To name a few, I would advise you think of each candidates stance on the following topics and as well I as strongly urge you to pursue research on each one.

1. Taxes

2. Afghanistan and Iraq

3. Energy

4. Health care

5. Education

6. Trade

7. Housing

8. Our political relationship with "radical" leaders and states

9. Economic reform

10. Social reform

I will warn you, it may be every hard to find any viable sources on some of these topics, however, keep looking, and always look at at least one more place other then the candidates homepage alone.

To analyse some of the sources I assume you, an educated, somewhat tech savvy, blogger/blog reader might use, here are my opinions on a few of our favorite websites:

http://www.digg.com/

This has some good articles. However, I wouldn't advise you believe articles published by the Huffington Post - often one of digg users favorite news sources. I have read many of their columnists posts and have seen vast generalizations such as equating the the republican United States Treasury Secretary Henrey Paulson' decision to suggest the last resort bail out plan as evidence that the entire Republican party is in fact Socialist. Also, note that the vast majority of popular dugg election stories are predominately liberal. Still, glance over the articles on digg.

http://www.politico.com/

Use it. At first it will seem lopsided to the democrats, but if you have a keen eye, you will learn they lean more left-central.

http://www.foxnews.com/

Although quite right, right-central, they have very rarely been accused of distorting the facts, and if you feel much of the media is too soft on the democrats, take a glance at here.

http://www.washingtonpost.com/

I advise you take a look, no bad at all, not absolutely amazing.

Also, feel free to e-mail me at kylewgay@gmail.com if you would like my view on a news source.

Remember! This is possibly the most important election in decades. with an unstable economy, and both parties promising radical reforms, we are looking to start our next administration with two balance beams of our democracy being repaired and restructured to the likes that has not been seen in decades. To go further, I truly believe it has never been seen to date given the rapid changes in technology, politics, and the global community over the last 15-20 years.

Please think responsibly and vote responsibly.

Kyle W. Gay

Background to the North American Free Trade Agree

One of the most impacting agreements involving the concept of free trade and the United States is the North American Free Trade Agreement (NAFTA). Including the United States, Canada, and Mexico, this agreement began on January 1, 1994 and has been 14 years in the making.

As outlined in chapter one of NAFTA, the official objectives of the agreement are to:

a) eliminate barriers to trade in, and facilitate the cross-border movement of, goods and services between the territories of the Parties;

b) promote conditions of fair competition in the free trade area; 


c) increase substantially investment opportunities in the territories of the Parties; 


d) provide adequate and effective protection and enforcement of intellectual property rights in each Party's territory;


e) create effective procedures for the implementation and application of this Agreement, for its joint administration and for the resolution of disputes; and


f) establish a framework for further trilateral, regional and multilateral cooperation to expand and enhance the benefits of this Agreement.

Subsequently, other core concepts and goals are improving employment within the USA, Canada, and Mexico, promoting the development of value manufacturing, enhancing USA, Canada, and Mexico’s competitiveness in global markets and doing so in a way that will protect environmental and labor rights.

Other key NAFTA provisions as cited by the Foreign Agricultural Service include “sanitary and phytosanitary measures” to protect human, animal, and plant life health from risks contributed to plant or animal pests or diseases, allowing export subsidies to be used under specific conditions, implementing “domestic support policies” that counteract negative effects on the countries domestic markets due to trade or production changes, implementing bilateral “grade and quality standards” that ensure equal grading, classification, and marketing to both domestic as well as foreign products, and lastly aiding policies on bulk commodities, citrus and dairy products, vegetable oils, sugar, and peanut products.

Three committees help with policy implementation and mediation aid NAFTA. The “NAFTA Committee on Agricultural Trade” monitors and promotes cooperation on the implementation and administration of the agricultural provisions. The “NAFTA Committee on Sanitary and Phytosanitary Measures” promotes harmonized policy implementation and facilitates technological cooperation between nations. The “NAFTA Committee on Private Commercial Disputes Ragarding Agricultural Goods” helps mediate disputes between the three nations regarding transactions in agricultural goods.

* * *

NAFTA is perhaps the greatest example of how America no longer believes in isolationism or protectionist ideologies such as it once did in response to the great depression. Even though history have shown us a new form of economic development is needed, many strongly oppose NAFTA and any similar agreement the US is involved in. Perhaps the best way to summaries this feeling of indifference towards NAFTA is the six fears/myths cited by the Office of the United States Trade Representatives. These include reasons such as:

1.NAFTA is costing the U.S. jobs;

2. NAFTA hurts the US manufacturing base;

3. NAFTA has suppressed US wages;

4. NAFTA has and will not deliver benefits to US agriculture;

5. NAFTA has done nothing to improve the environment as promised;

6. NAFTA has not delivered benefits to the U.S. agriculture.

The following excerpt is from a letter written by the U.S. secretary of Commerce Carlos M. Gutierrez which was published in the Washington post march 1^st, 2008 titled “Stop Hating on NAFTA.” He makes multiple comparisons between the 14 years prior to NAFTA and the 14 years since NAFTA’s implementation in order to refute many fears and claims against NAFTA.

“Since 1993, our economy has grown 54 percent and more than 25 million net jobs have been created. In the 14 years before NAFTA, our nation's average unemployment rate was 7.1 percent. From 1994 to 2007, the average was 5.1 percent. U.S. manufacturing has grown at nearly 4 percent annually since NAFTA was enacted, nearly double that of the previous 14 years…. Trade plays a significant role in our nation's economic growth, contributing 26 percent of the increase in real gross domestic product last year. NAFTA also accounted for a third of our overall goods exports in 2007. This trade benefits American workers who make the products we send abroad, American farmers who grow the agricultural exports, and American families and consumers who have more choices in our stores…..Withdrawing from NAFTA would destroy economies in U.S. border communities, hurt U.S. farmers, rip apart North American supply chains and information systems, and devastate large and small exporters….”

Overall, NAFTA appears as though it will have a significant impact on these upcoming elections as the agreement affects millions of citizen with low and middle wage jobs across America and in many swing states. In a recent poll by USA Today the economy was voted as the number one issue in terms of selecting a presidential candidate. If Secretary Gutierrez is accurate in saying NAFTA accounts for a third of the U.S. economy, then I expect this agreement to come up many times in the upcoming election this November 4^th.

-Kyle W. Gay

Understanding the $700 Billion Bailout - A Business Economists Perspective

Earlier today in my International Relations class the topic of the $700 billion bailout came up. My professor said "I do not have a degree in economics or business, so I have been reading articles to try and figure out the debate. I have come to understand that wall street business man direly want it to pass while economist want it to fail." When I heard this, I decided to ask an expert in the field - Robert C. Gay, P.h.d. of business economics, former professor of economics at Harvard University, and a private sector business man for over 25 years.

Here are his thoughts, enjoy!

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We are in a serious situation and we need some form of fix-very quickly. This problem can melt down into all parts of the economy both here and abroad. Wall Street is looking for a quick fix that takes the responsibility from them and their customers and turns it over to the government. They can essentially wash their hands of a problem they created and put the cost of it on the American taxpayer. The advantage of this is that it immediately frees and shores up the lending markets and gives desperately needed liquidity back in the system-- but the risk is the government becomes the largest mortgage institution in the world. When has the government ever administered something well-

You may also want to note this system would be favored by socialist economists who look to government to solve all free market interruptions. It is also favored by the Democrats because they were the ones under the Clinton Administration who began pushing sub prime lending to unqualified borrowers who were their voting base through Freddie Mac and Fannie Mae-they now want to bail out this constituency before the election. To be fair the Republicans pushed through the repeal of the Glass Steagall Act under Clinton which allowed investment banks to become unregulated "banks" which then worked alongside Freddie and Fanny to highly expand at very risky levels the home lending markets. They all took these risks knowing what they were doing because they could earn great bonuses and profits---By the way Bush wanted to make reforms a few years ago-- but he could not get Democratic support for reform because they did not want to cut back sub prime lending to their voter base and he couldn't risk losing their vote for funding of the Iraq war effort-This is a long way of say both political parties knew the game and played politics all the way till this point-so in a way we should not be surprised that all the old established guys want to make this go away as quick as possible through a government fix because in a very real way the government got us into it.

Free market economists would hope that we adopt a more market driven alternative. Don't bailout people but maybe look to new government loans to get people through the economic liquidity cycle where they are still responsible for the debt but only having the government taking some of the risk. One of the key triggers of this crises is the over leveraging of the non bank financial sector. All the investment banks, after the repeal of Glass Steagall, were allowed to borrow up to 35 dollars of debt for every 1 dollar of assets. A normal company can borrow about 2 or 3 dollars to every 1 and a typical bank 8 dollars to every one. So we should look to insure that all future borrowing is done at reasonable not excessively risky levels. Also another problem in the system is that government accounting standards require financial institutions to mark their assets to the current value of the market every quarter. What happens is that when a crises comes current values become overly depressed and the assets are marked to values that are much lower than their intrinsic worth making the financial institutions seem like they have much less assets than they currently have-when that happens they need to come up with more money to have assets to back the loans they already have. What happened here is they couldn't come up with any more assets and had no new way to borrow money so the markets closed down and crashed. If we marked assets to their average value over the previous two years instead of to a precise moment in time than we would not be in such a mess-so look to free market economists to modify these regulations to let true value as opposed to accounting standards become part of the fix.

Finally free market economists ultimately believe markets are self correcting and that no bailout should be made because those who created the problems should be responsible for it and if it that means the financial and housing markets fail and we go into a depression that is okay because it is the risk you have to run-ultimately the markets will rebound but the right people will have paid the price not all of America's taxpayers.

Finally you should know what is going on here is a classic economic problem of what is called by economists "moral hazard"-- Once the government become the lender of last resort or the bailout guy-every financial institution will not try to solve the problem themselves because they know the government will stand by and rescue them---ie private market solutions don't come forward because they say why should we risk our money when we know the government will solve it-that is why Secretary Paulson couldn't get any other private sector guy to bail out AIG or any other bank as of now.

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What do you think?

-Kyle Gay

Constantly In Development

Hello Everyone,

So this is still my newest blog in the making. I am planning on making this into a high end politics, economics, philosophy, and world issues blog. However, I am still currently moving into college and obtaining all of my contributing sources. 

Please look at my blog roll for the two other blogs I am a writer on. The first is a U.S. elections blog which discussed both Obama and McCain's political policies on different international topics. The writers of this blog are 33 students of international relations at Elon University. The second is the blog for Ayindisa, LLC - a socially responsible artisan handcrafts business which supports craftsman and artisans in Ghana, West Africa by selling their products in the United States via fair trade practices in order to help them raise their standards of living and reduce poverty. I am a partner i this business as well.

I hope you will come back to visit this blog in the near future. Topics to be discussed soon are:

-The impacts of trade liberalization on poverty reduction within nations.

-Free trade, the North American Free Trade Agreement, the Central American Free Trade Agreement

-The secrets behind the Obama cult of personality with the key insight of Jerome R Corsi Phd., professor of political science at Harvard University

-Converting Confucius' political and social philosophy into modern day business theorem - a new view on business ethics.

and much more.

Come back soon,

Kyle Gay