Money

Money:

We use money I our daily lives to purchase the necessary items to comfortably live our lives. We have replaced trade bargain with another payment option, has it however changed the manner in which goods alternate hands? Before we would trade a cow for 2 goats, that is to say the cow had a value of 2 goats. However today we trade a cow for a pile of paper bills, that is to say the cow had a value of a pile of paper bills. As a people we decide to give money value it is therefore tradable for other items. Moreover 2 goats may have a greater value than a cow, but we cannot trade 1 goat and 2/3s of a goat. So the seller of the cow would be better off as he made a better deal. It all depends on your needs and wants, which brings us to the idea of supply and demand.

Consider the following situation:

Someone really needs a goat and has a cow to trade, and you have multiple goats but do not really need a cow. You could perhaps trade one goat for the cow, even though the cow may be worth more than 1 goat. This because the person in question really needs a goat, and is therefore willing to trade below his margin. On the other hand, if you as a goat keeper need a cow, and someone is willing to trade their cow but do not specifically need one you may be inclined to trade 2 goats for the cow even if the cow is worth less than the 2 goats.

This is the basic principles of appointing value to items, not only does the item itself have value, also the situation around it creates value.

If you take our society today:

We live in a world of excess, we buy things we do not really need with money we do not really have

Credit cards, payment plans, mortgages, you name it, all of these are various ways of obtaining valuable objects without paying full price at purchase.

One of the most pertinent problems in society today are the mortgages. In essence there is nothing wrong with a mortgage: Say you wish to buy a house at 150,000€, you have 40,000€ in own capital. The bank will lend you the rest of the money you need to purchase the house (110,000€), given that you have a job that will provide enough funds to make mortgage payments. Mortgages are not per se loans, the bank gives you a sum of money that you can spend at will however there is an interest rate: usually 2-3% above central bank interest policy (annually). We spend (monthly) 434.63€ (real money from our bank account) on our mortgage payment, in order to live in our house.

Where is the money in this situation?

The money is in our bank account, the only true money coming into play here is the 434.63€ we spend every month on the bank. Further on there is no more money, we have a house a very fixed asset to liquidate this asset in today’s market is a very hard thing to do. Furthermore, the web thickens as we look at our second year of the mortgage: Starting Mortgage Year 1: 110,000 The bank charges you 2.5% per annum to provide you with a loan. You have 30 years to repay the loan. c= rP/1-(1+r)^-N r - the monthly interest rate, expressed as a decimal, not a percentage. Since the quoted yearly percentage rate is not a compounded rate, the monthly percentage rate is simply the yearly percentage rate divided by 12; dividing the monthly percentage rate by 100 gives r, the monthly rate expressed as a decimal. N - the number of monthly payments, called the loan's term, and P - the amount borrowed, known as the loan's principal.

Source: Kohn, Robert. "A capital budgeting model of the supply and demand of loanable funds", Journal of Macroeconomics 12, Summer 1990, pp. 427-436 (specifically p. 430).

r = 0.002083
N = 360
P = 110,000
C = 110,000*0.002083(1+0.002083)360 / (1+0.002083)360-1 = 229.13 * 2.115 / 1.115 = 484.61 / 1.115 = 434.63€ p/Month =5,215.53€ P/year We spend this money on our mortgage payment knowing we can live in our house for that period of time.

However if we do the math afterwards: 5,215.53 p/year = 156,465.99€ after 30 years. This means we have spent: 156,465.99 – 110,000 = 46,465.99€ are for the bank. The bank earns (on top of interest) 130€ P/month (true money) for lending us a sum of money.

This example includes low loans and payments, but these mortgages go up to millions. Technically we do not own the house, if we cannot pay the bank the bank will sell the property (or any collateral) to cover the mortgage debt. However the bank does cash in on our non fixed asset with cash. We lose liquidity whilst the bank gains it.

We as a consumer see our cash flows change, we no longer hold cash in our wallet we hold plastic all of our Values are shifting, we are becoming more materialistic as money because less materialistic, to give money value again we must stop buying things we cannot truly afford. Money has become a synonym for value, it is however not a synonym. Whatever you deliver to obtain an item or service be it physical, emotional, monetary, etc decides the value of that object. Thus, money in essence may be completely defunct.

Now, having debunked money to water boy of the football team, it is time to see what it can do and the services it delivers to the team. Money is a exactly like a water boy, it hydrates the team, gives towels to dry off, provides orange slices to keep sugar levels up, cleans the locker rooms, the list goes on. It is super multifunctional. We have based our financial systems and functions to the manner in which money works. We express value in money, or numbers. The more money becomes a number the less value it has; this is happening on our online bank accounts. We log in, see a number, and move on. We no longer have to open our wallet, see bills, count them, and combine it with the money we have in the bank to calculate our spending limit. It is much harder to oversee monthly payments, as we do not notice the outflow of money as much as we do in cash.

- Rogier's Opinion