Economics

7.12.2015

The money, where does it come from?

We are in a time where there are nor cars, planes and computers. The horse is the most important medium of transportation, about three or four hundred years ago. Trading takes place almost exclusively on exchange when also some necessary purchases with silver or even with gold coins or simply with gold pieces have started to pay. Note: There is no state money monopoly with its own place for coin embossing . The ratio of gold to silver is 1 to 100. If one’s wants to pay for an item instead of gold with silver, one’s has to pay a hundred times the amount. Lately more and more bearer securities get in circulation.

Knight Frederic inherited after the death of his father, among other things 3 kg of gold . His parents own a knighthood with breeding horses, knights accessories and combat material. Parts of the mortgaged lands have just been returned to the able principality and to the kingdom, as usual, according to the Peace of Westphalia .

Knight Frederic intends now to bring 2 kg of gold in safety. In the next major imperial city there is a place of safekeeping. There are also all sorts of valuables like jewels or jewelry which can be left for safekeeping. Knight Frederic travels with his horse-drawn carriage in the imperial city to this depository institution. The holder of this office depot is Mr. Lombard. The knight leaves 2 kg of gold. on his special request Mr. Lombard issues several receipts to him which he signs every one personally. Knight Frederic gets 1 receipt to 1 kg gold and 10 receipts to 100 g gold. For these and more services Mr. Lombard requires a fee. Normally, customers are still paying in goods but lately more an more also with coins with respective shares in silver, gold or other precious metals such as platinum. It is also paid with high price novel foods such as rice, sugar and coffee, although the latter is still banned. Coffee is smuggled through reconquistadores returned from South America, or by bands from Mecca and Ethiopia.

These receipts can be regarded as bearer bonds, you can pass it on, the respective owner can redeem these securities at any time for gold.

Still there are a few of such safe keeping places in that country. All offer similar services.

Currently, they hoard a total of 10 tons of gold and 100 tons of silver . A custodian has just gone over to carve up further in order to get smaller units. Newly for one gram of gold one’s obtaines a bill with 100 guilders. The same paper with the same design is also handed out when one’s turns in 100 grams of silver . However, it is still possible to bring back this bill at any time and redeem in the appropriate amount of gold or silver, but increasingly these bearer securities are used as means of payment. Now the safe keeping place of Custodian Lombard possesses as well its own place of coin enfossing. Now there are coins which contain 1 milligrams, 2 milligrams or also 10 g of silver up to large coins with 1 g of silver.

The other custodians are hardly be able or not willing to offer the same service and give up, they are forced to liquidate. All customer deposits are transferred to the surviving custodian’s deposit place of Mr Lombard.

Now there is only one storage location lwft, the money monopoly has just been born.

The surviving custodian now is hoarding 30 tonnes of gold and 300 tons of silver. That means there are 3.3 billion guilders in circulation.

Here you’ll see the balance sheet of the origin central bank:

Assets

Gold  3000 billions

Silver 300 billions

Liabilities

Papers or notes in circulation 3’300 billions

Total balance sheet 3’300 billions

You can still retrieve the appropriate amount of gold or silver. Example for 1000 guilders you get 10 gr of gold 1 kg of silver.

Some of the just undergone safe keeping services have changed into money houses. First commercial banks are going to be built . The only one left custodian’safekeeping place, has just become the first central bank. Customers and money houses can save their notes of guilders as well with this new central bank, whose deposits significate liabilities. However there are less banknotes in circulation now. The central bank now has 100 million guilders in customer deposits, current accounts. The balance is as follows :

Balalnce sheet  now

	Assets		Liabilities
	billions		billions
Gold	3’000
Silver	300
current accounts			100
Notes in circulation			3’200
Total balance sheet	3’300		3’300

Now this central bank may grant the later commercial banks short-term loans or swaps . The interest rate is 5% and is called key interest rate. Customers and commercial banks receive 2.5 % interest on their deposits with the central bank . After the sight deposits have risen to 200 million the central bank grants 100 million in loans and swaps. The note circulation of the central bank, you could also call “peoplesbank” is, about 3’2 billion guilders, although the balance sheet’s total has meanwhile reached the sum of 3.4 billion. The central bank can also buy up the currencies of other countries. These foreign exchange holdings can be found on the asset side of the balance sheet of the central bank .

At the same time , the central bank will be converted into a stock corporation . Customers and companies can buy shares with credits of their current accounts. The share capital shall amount to 100 million guilders .

Now a decision has been made as follows. The economy has been booming and modernising. The growth is progressing and conseqently credit demand is  increasing. Therefore, the central bank decides now to create more money. What’s going to happen now? A paper of 100 guilders is still equivalent to 1 g of gold. The decision is that from now for the same note of 100 guilders only 2/3g gold is handed out. Thus the note circulation of currently 3.3 billion can be increased to 4.95 billion. But we still have a gold exchange currency.

The century of 1900 has just begun. Many revolutions are created on . The economic crisis intensifies. It is why the central bank is forced to do the following:

• The gold standard is canceled

• The money can no longer be exchanged for gold, gold ownership is prohibited by now.

This means that the central bank money is no longer coupled with a certain amount of gold . The gold exchange is history . The money supply can now be increased arbitrarily . How does it work? The central bank buys treasury bonds,mortgage-backed and other securities. Of course, money is not present ! Thanks to increased opportunities of electronic payments it’s a breeze. The posting record for this is simple:

assets (bonds, mortgage-backed securities, letters of credit ) to liabilities (current account).

The commercial banks have thus more liquidity in order to promote lending to the economy . At the same time, the central bank is also entitled to reduce the key interest rate and even to ask for negative interests by customers current accounts.

Meanwhile the central bank is called ,European Central Bank, ECB. chairman,Mario Draghi decided Thursday, 03.12.2015 to reduce the negative interest rate from 0.2 % to 0.3 %. Since the beginning of this year ECB acquires each month securities such as government bonds and letters of credit in the amount of 60 billion Euro. According to Mr. Draghi these monthly purchases will be maintained up to March 2017. The key interest rate remains at 0.05%.

The ECB’s balance sheet as at 01.12.2015 is as follows:

	Assets		Liabilities
	billion Euro		billion Euro
Gold	349
Foreign currencies	330
Debts, swaps, tenders,	700
Securities, treasury bonds, mortgage backed
and other bonds and securities	1’111
Other assets	216
Current accounts			982
Notes in circulation			1’057
Differencies in valuation			351
Other liabilities			219
Capital			97
Total Bilanzsumme	2’706		2’706

The balance’s total has increased from 2664 billions at 10.30.2015 to 2706 billions. The securities like government bonds, mortgages-backed assets and other security loans have reached the sum of 1’111 billions Euros compared with 989 billion of balance issue 09/25/2015 which is due to monetary policy measures, 60 billion purchase monthly. the circulation of real money, of notes and coins, however, remains virtually constant and varies little. Claiming the ECB prints money is not true therefore, since it is predominantly electronic financial transactions.

Literature:

• Roland Baader, Geld, Gold und Gottspieler, RESCH VERLAG 2005
• Rolf Dubs, Volkswirtschaftslehre, Verlag Paul Haupt Bern und Stuttgart 1983

previous issues

 

23.11.2015

Oxygen

Oxygen is an important survival factor. If a person deprives  oxygen for more than 10 minutes he dies. The green plants vice versa need  for its photosynthesis water and carbon dioxide in order to produce oxygen .

It is known that the air consists of about 80 % nitrogen , N2, and 20 % oxygen, O2. The question is, where does the oxygen come from originally with its oxygen atmosphere ?

In the geological layers of the older Precambrian , it has been found that the mineral components are not oxidized fully. The time of its formation there was no oxidation weathering. In the atmosphere no free oxygen was present.

During the cooling of magma water vapor, carbon dioxide and other gases are being produced, however free oxygen will never be found . Theoretically oxygen could be built by photodecomposition formed by water vapor. But in this way only a minimal percentage of Oxygen contained in the air could be the result, which would then be consumed by oxidation processes immediately. The original oxygen source must be sought in the organic nature. But just as the building blocks of organisms such as proteins and carbohydrates are undersaturated in oxygen. As soon their life processes stop, by the death, they oxidize in the air immediately into carbon dioxide and water ( decay ). The structure of the first organismens may therefore have been in an oxygen-free environment. The required compositions for forming organic substances, ie the primordial atmosphere consisted probably of water vapor, carbon dioxide, methane and ammonia. This first organismens must have been developed anaerobic, as the bacteria. The life process was based on the fermentation, not breathing. The body substance of this first organismens had to be built by carbon dioxide and water vapor using the sun’s energy (photosynthesis). These precursors of life were the basis for forming the first oxygen, and thus the oxygen atmosphere and life on earth. This first life processes converted the primitive atmosphere gradually, into a very lengthy process, in today’s atmosphere. In rocks of the precambrian substances similar to chlorophill could be detected .

The respiration

As stated above, the breathing is one of the most important functions of the organism. A person can live a relatively long time without food, but without oxygen a living organism is deadIn a quiet position, or while running (not jogging) about 500 liters of air per hour  are pumped into the lungs, resulting in 12,000 liters  per day .

(According to Avogadro one mole of a gas at T = 0 C° corresponds to 22.4 liters of gas (here air) 500 liters of air thus correspond to 500 / 22 , 4 = 22.3 mol, 1 mol = 6 * 10exp23 molecules, ie 22.3 * 6 * 10exp23 = 1.34 * 10exp26 air molecules.)

During the breathing process, only a certain amount of oxygen goes with the haemoglobin, while other components of air such as carbon dioxide, water vapor, nitrogen and noble gases (neon, argon, helium) are exhaled. According to Prof.Dr. Robert Tocquet with every breath about 21 % Oxygen, 79 % nitrogen and traces of CO2 are inhaled. On the other hand 16.4% oxygen, 79.5 % nitrogen and 4.1 % CO2 are exhaled.

The exhaled air contains less oxygen but more carbon dioxide! That little more nitrogen exhaled is due to the volume change, indeed it’s exact the same amount of particles N2.

Above all during winter in large cities and in poorly ventilated dwellings the air is rather poor in oxygen. Take a daily walk in the woods or do deep breathing:

It is best to lie down and open the windows wide . Slowly inhale and imagine that air enters your stomach, where you bend your stomach outward. Once the lungs are full, exhale slowly moving back your stomach slowly. The breathing should be done only through the nose. This exercise should last about 10 minutes.  Especially feeling dizziness in the stomach and in the abdominal area this exercise can be a miracle. It is important that you do not feel uneasy after this exercise and do not have heart palpitations, otherwise you have not done the exercise correctly.

Persons suffering from tuberculosis and epilepsy, this exercise should not be made. Blood Sputum and crisis could here be the result.

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