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Joe Barbieri has Bachelors' degrees in both Civil Engineering and Commerce from the University of Toronto. He has worked in the Financial Services field for over 13 years, with over 10 years on the institutional side of the business. He has covered positions from Fund Accounting to Investment... More
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  • Does China Know Something That America Does Not?

    The US became the world's richest nation by manufacturing quality products in house and trading them all over the world. America built up the largest trading book after World War II. US Treasuries became the safest and most widely traded debt globally. The US accumulated the most gold reserves after the war and they are not letting anyone verify if they are still there. Gold is one reason why the US dollar was used as the reserve currency, and access to cheaper oil through Saudi Arabia is another. The US has large influence over the IMF and World Bank which solidify its global reach. As the debt spirals upward, the empire is showing signs of cracking. U.S. debt is now often cited as a large problem as the American taxes have increased, unemployment has soared and world influence is waning.

    China began to enter the world economy in a big way by manufacturing goods in house and trading them all over the world - first by doing it cheaply and then by doing it in quality. China's economic influence has been surging and they now have one of the largest trading books in the world. China is accumulating large amounts of gold and they are not telling anyone how much they have. China is helping to start up the BRIC syndicate and the Asian Development Bank which is competing with the IMF and World Bank for global financing. China is gaining access to natural resources through Russia, Africa and buying controlling stakes in mines and oil companies all over the world. Chinese debt was largely not talked about until 5 years ago when it began to soar. As the Chinese debt spirals upward, China's growth is now beginning to stall.

    Will China follow the same fate as the U.S. in having too much debt and having other countries begin to compete with them as they have done to America? Is China just naïve, or do they know something that America does not? The Chinese empire has a lot more experience running the world then America given China's much longer history. Going back to empires before America; England, France, Spain, Italy and Portugal have all done similar things and have all had similar results. The beginning of the end of an empire happens when the creation of money is diluted as it leads to the widening gap between the rich and the poor and a lack of trust in the ruling classes. A revolution and rebalancing happens most of the time, and another empire starts over again in a different area once the revolution is over. Is the Chinese debt a strategic move or is this the empire rulers' same old same old?





    May 21 11:10 AM | Link | Comment!
  • From Where Does Debt Originate?

    When people think of debt, it is assumed that there is only one type. While it is true that all debt has common features like there must be a lender and a borrower, there is an interest rate that is charged and it is usually above 0%, and there is collateral involved in ensuring that the borrower will pay the loan back.

    The idea of two types of debt comes from the question: Where is the money that I am borrowing coming from? The first type of debt stems from someone who already has the money and is lending it to you as an investment. For this article, it will be named old money debt. Someone is lending you money rather than buying a company, buying an asset, keeping the money is cash for a better opportunity or reinvesting into a business. The person has already earned the money from past economic activity, it is already in the economy and it is part of the money supply. The lending in this case is a decision about how or where to invest the money. The terms between the borrower and the lender can be whatever terms are agreed to.

    The second type of debt is tied to the issuance of money. In this case, the money being borrowed did not exist prior to the loan being created. This is in effect new money that is not part of the existing stock of money in the economy. This type of debt is issued by banks tied to the central bank of a nation and is primarily related to fractional reserve banking. This money was not earned and was not anywhere else in the system prior to this debt being set up.

    Does this distinction matter? The new money debt adds to the money supply and would create higher prices for goods that are not warranted otherwise. The creation of money is not a new topic for discussion, but how it relates to debt is not that well known. New money being provided in an existing market would distort the supply and demand curves by creating more demand or flooding supply through making a good more accessible. The new money can determine which markets benefit from its creation versus letting the market players determine what is important - much like a subsidy in terms of funding. The issuers of the new money debt can influence markets through the process of bringing the debt into existence. Most of this debt is collateralized by real estate and investment assets, so these areas are where bubbles may form first and then would ripple to other assets as the market sees fit. As an example, when new money is created through mortgages, residential homes become more accessible to people who may not borrow otherwise, creating a higher demand for housing all things being equal. This makes the prices rise and makes housing more expensive. The new money debt is only limited by the amount of reserves available to the issuing bank, and the demand for loans that are collateralized.

    The old money debt has restrictions in its availability in that that there must be money in existence in order to lend it and the lender must receive a competitive return versus other options. This type of debt also has a much wider range of players who can only exert as much influence as the money they have collected. Debt cannot be created from nothing just because an asset that can be collateralized is available as security.

    May 15 4:26 PM | Link | Comment!
  • The Advantages Of Paying With Cash

    There is a growing trend towards paying for all goods and services with electronic means based on debit or credit. Has any thought been given to the advantages of paying with cash?

    The disadvantages of paying in cash are frequently noted: It can be stolen and never recovered, it is bulky to carry and it takes more time to go to a bank or cash outlet and withdraw bills then to use a card that is already in your wallet. You also cannot buy anything on the internet with cash which is becoming very popular among people. On the banking and government side, you are being discouraged from using cash since carrying large amounts is assumed to be criminal activity. Obtaining cash is becoming harder as some places like airlines or government offices are not accepting cash for certain purchases. The counterfeiting of $100 bills has also restricted the use of large bills, which is convenient if you buy something costing hundreds of dollars.

    What about the advantages of paying with cash?

    Cash is cheaper than any other means of payment. Yes there are withdrawal fees from your bank, but if you make few withdrawals with larger amounts, you can reduce these fees significantly. You can also go to credit unions that do not charge for withdrawals, but doing this for all of your accounts is more limiting if you need access to funds outside of your home town. Many vendors will give you a discount if you pay in cash or waive the sales taxes, which will result in cheaper prices. One reason why this happens is because electronic means of payment are expensive to the merchant - usually 3% of the transaction amount or higher. The merchant has to pass that cost onto someone, and that someone is the final consumer. If every layer of business is using electronic means to purchase supplies, these merchant charges can add up and all of them will be passed on to the consumer.

    There is no risk of identity theft with cash. Your credit card information can also be stolen, which is identical to a mugging. This can be done at short distances through wireless card readers where someone will not have to see or touch your credit cards. Credit card numbers can be changed periodically to mitigate this risk, but there are risks of theft with electronic means as well as cash, and they are harder to identify. There will be fewer unwanted emails, telephone calls or unaddressed admail coming into your mailbox because people will not know what you are buying. By extension, there is also more privacy in using cash. There is a lot of concern about the erosion of privacy, but this is directed correlated with how much technology you use. Even if the entity you are dealing with is reputable, there are viruses, hacking, data being sold, companies being merged and other compromises which can erode your privacy.

    You will spend less money if you pay for things with cash. Taking the time to withdraw the money and counting it gives your mind a chance to reconsider impulse purchases, which in some cases will prevent you from making them. Cash also has a way of forcing to see what you are doing directly at the time you are doing it, as opposed to electronic means that feel painless until the bill arrives that you have to pay. The debit card can solve this type of issue, but the reconsideration period only happens when you are carrying and handing over tangible bills.

    There are times when using electronic means is better than cash, but the reverse is also true. It may be time to consider looking at both methods carefully and having both of them at your

    Apr 14 5:43 PM | Link | Comment!
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