Brain Teasers

Brain with gearsIf every year it takes less time and effort to produce most things, due to productivity improvements and new technology, should prices rise or fall?

Prices should fall. And the truth is prices are falling, but your money is losing value faster. If a movie theater lowers the ticket price from $10 to $9, BUT then the value of $9 falls by 50 percent, the theater will double the dollar price to $18 to get the same value. The ticket price fell 10 percent, but your money fell 50 percent, so you have to pay more of your money.

People used to think the sun revolved around the earth, then they realized the earth revolved around the sun. If most prices are rising, the truth is that the value of your money is falling. Learn more.

If the price of an item rises, could this be blamed on the item used as money?

Yes. See the prior answer. If a business sells apples for $1.00, but then learns the value of the dollar has declined by 50 percent, then the business will raise the price to $2.00, to get the same value. This usually happens in a gradual way but this is the essence of the change.

If you agree to sell your home for $100,000, and you learn the value of the dollar has fallen by 50 percent, what will you change the price of your home to?

You renegotiate the sale to a price of $200,000. You would still get the same value. To illustrate this, when the home price was $100,000, then the price of a movie ticket might have been $10, and your home was worth 10,000 movie tickets. After the value of the dollar falls by 50 percent, you sell the home for $200,000, but movie ticket prices rose to $20, so your home sale price is still worth 10,000 movie tickets ($200,000 divided by $20). You raised the price so you could receive the same value.

What’s the longest running theater in London?

The Bank of England.

Why do kings, dictators, and governments take control of banking?

That’s where the money is.

How much does 10 dollars cost?

A movie ticket in Washington, DC, costs about $10.00. We can flip that around to answer the question. 10 dollars costs one movie ticket. Or, the price of 10 dollars is one movie ticket. How much did 10 dollars cost twenty years ago, in movie tickets? One movie ticket cost about $5.00. So 10 dollars cost two movie tickets. The value of 10 dollars has fallen 50 percent. If you owned 10 shares of stock that fell 50 percent, you would probably sell them. Learn more.

The king of England created the Bank of England because no one would lend him money for his war with the king of France. If no one would lend him money, where did the money come from for the bank?

That’s the point. The new bank didn’t have any money, which was silver at that time. The king created the “bank” so it would seem to have money but in truth the new “bank” simply created notes that supposedly represented silver, similar to counterfeiting.

Don’t be shocked. This was merely the new way for governments to steal from citizens. Since before Roman times, kings have melted down gold coins that might have one ounce of gold, added worthless metals, and then recoined the gold and claimed the coins still were all gold. People would check the value of coins by hitting them, leading to the phrase “sound money.”

How can dollars lose value? Isn’t a 10 dollar bill always worth 10 dollars?

Like every other product, from oranges to computers to coffee, the value of the dollar is based on supply and demand: how many dollars exist and how many people want them. Not everyone wants dollars; a person in London wants British pounds. When the supply or stock of money increases, the value of each dollar decreases.

Federal Reserve and other banks create more dollars every day. When they do this, they take the value of your dollars, and give it to those who receive the new dollars, usually the federal government (due to that deficit!) and other people receiving loans. Learn more.

How does money come into existence? Why do people accept colored paper as payment?

1. People directly trade one product for another.

2. People indirectly trade products by using a popular product as a medium of exchange.

3. One product becomes a popular media of exchange and this is referred to as “money.”

4. Entrepreneurs store money and issue receipts or “bank notes” and people start trading these as a substitute for the actual money. They are still trading the money product, just using the piece of paper as token of the money. There’s more.

If Federal Reserve Dollars didn’t exist, what would you accept as compensation?

If you planned to use the product, you would accept whatever you need. If you planned to use the product as a medium of exchange, then you would accept a popular product that will hold value. See the list of what other people have accepted.

Are low interest rates good for everyone?

Low interest rates favor people who need loans at the expense of people who offer money to loan. If a person was going to charge 10 percent for a $100 loan, then the debtor would pay $10 for the loan. When Federal Reserve forces the interest rate to one percent, then the person lending money could only charge $1 for the loan. So Federal Reserve has forced the lender to give $9 to the debtor.

An interest rate is the price to rent money. Government officials should not set the price to rent cars or money.

If you read a news report raving about low interest rates, the journalist is speaking to people who want to borrow money, many of which are people seeking to buy homes. But not everyone owns a home and many more people want to save their money and gain interest on the money. With low interest rates, savers, including the elderly and the poor, subsidize home purchases.

If you sell your all your stocks, did you leave or “exit” the market?

You can’t leave the market. When you trade stocks for dollars, you now own simply another item that can gain or lose value. You end you investment in stocks and begin an investment in dollars. You may or may not have a more stable and secure portfolio since dollars, euros, and other national currencies can lose value and sometimes rapidly. Plus when a stock market crashes, many people sell a diversified portfolio of stocks and bonds only to “buy” one item: dollars.

You value your stocks in dollars. One stock share might cost X dollars. With what do you value your dollars?

You don’t, or at least most people don’t, and banks don’t offer this option. You probably check your bank account each month to see how many dollars you have. That’s like checking a stock portfolio and only checking the quantity of shares not the value of the shares.

Seeing that you might own 10 shares of XYZ company means nothing. You need to know the value of the shares in something else, usually a national currency. For this reason, you need to see the value of dollars or euros in something else, from coffee to movie tickets to plane trips to the Bahamas.

If you own 1,000 dollars, one month it could be worth 100 movie tickets, and the next month just 90 movie tickets. You’d still have 1,000 dollars but the value has fallen. Faced with this information, you would be more inclined to hold your wealth in something besides a national currency since you would be reminded national currencies can lose value, just like stocks in XYZ company.

Federal Reserve dollars used to be receipts for gold and silver and their value was based on the supply and demand for gold and silver. What is the value of Federal Reserve dollars based on today?

The value is based on the supply and demand of dollars. Federal Reserve has drastically increased the supply of dollars, or the stock of dollars, during the past three years. More dollars means each dollar is worth less.

It’s not the stock market you should be worried about. It’s the amount of dollars. The chart below shows the changes since 1985. Simply imagine an inverted chart to see the value of the dollar.

Monetary Base

 

 

 

 

 

 

 

 

How do you buy gasoline with gasoline?

Use an exchange-traded-fund to purchase oil futures, as you might buy stocks, and when you need to pay your gas credit card, convert some of your oil futures to your local currency and pay your bill. If the price of gas rises from month to month, you won’t mind since you own oil. Most airlines do this when they price airline tickets so when it comes time to obtain the fuel for that ticket, the price was locked in at the time the ticket was sold.

The Roman government stole from citizens by secretly mixing cheap metal into gold coins. What’s the modern way for governments to steal from citizens?

Paper and digital money. Governments issue paper notes and claim they are receipts for gold, when, in fact, they are not. When too many people try to redeem their paper notes for gold, the government eventually stops redeeming them. U.S. President Nixon did this and it’s euphemistically called “going off the gold standard.” That’s like a restaurant coat check not returning your coat and everyone referring to it as going off the “coat standard.” The restaurant stole your coat and Nixon stole the gold from the people to whom it was owed.