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# Question about math behind money.

Tue 26 Jun, 2007 03:55 am
To me it seems obvious that are monetary systems are flawed. Inflation? wtf!?!

Why is it that we continue using a system when it is bound to fail eventually? Is our monetary system flawed?

Can someone explain how money works mathematically?

All i see is "a lucky few are born rich, they hold on to wealth, poor people take up slack caused by system failure"

I mean there has to be a better way to do things.
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contrex

1
Tue 26 Jun, 2007 04:26 am
I respectfully submit that you do not know what you are talking about. Your comment, "Inflation? wtf!?!" amply illustrates that. The question you raise is to do with politics and economics, not mathematics.
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OGIONIK

1
Tue 26 Jun, 2007 04:31 am

read before you post, if im asking a question OF COURSE I DONT KNOW.
go stroke ur epeen elsewhere.
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jespah

1
Tue 26 Jun, 2007 04:36 am
How money works mathematically: like any other numbers, you just stick a \$ in front.

But seriously, what are you asking about? Interest? The stock market? Bonds? Loans? Credit cards? National debt? Salaries? Benefits? Taxes? Foreign aid? You mention inflation but with zero context.

Inflation, essentially is what in dollar (or pound or lire or whatever you like) amounts it costs to get a certain item or items -- economists often look at a market basket of stuff although it's not necessarily stuff you'd get at a grocery, I believe gasoline is included. Inflation is a comparison between what a dollar buys in one era or year versus another.

So gas, for example, is currently \$3/gallon or whatever it is by you. And milk, bread, eggs, meat, etc. cost whatever they cost. But salaries are x and rents are y. This does not necessarily mean people are worse off than they were in, say, 1950 or 1970. Costs change (they usually go up), but so do salaries. The question is really what you're getting for your salary, not the raw numbers as they're kinda meaningless.

Case in point. When my folks bought their first house, I believe it was in 1960, they paid something like \$9500 on the GI Bill. It was a small split-level but it still had 3 bedrooms. Their second house was something like \$30,000 in 1968. It was larger. Their third and current house was about \$55,000 in 1972. It's, I think, a little larger than the second one. It's been well-maintained and a lot has been put onto it, but hardly \$400,000 worth of materials. Yet at the height of the housing bubble it was probably worth about \$600,000. Currently, it's still worth about \$550,000, or ten times what they paid for it.

Are they wealthy? Not necessarily. Since they are both over the age of 65, if they were to sell it they wouldn't get whacked with quite the capital gains burden that you or I would, but they'd still pay something on that kind of a windfall. And the reality is that if they were to sell it in the next few years, it would probably be due to some sort of medical issue and so any windfall would hardly go to beer and skittles. More likely it would go to pay any gaps in Medicare coverage and the like.

Anyway, one meaningful comparison is not on the raw dollars but on percentages of salary. Between my husband and me, our salaries are pooled and something like 1/2 of what we make goes to our mortgage. We actually have a decent mortgage (we bought before housing got really high) and the interest rate is low. Contrast this with my folks who paid more like 1/4 to 1/3 of their combined salaries (their mortgage was paid off around 10 years ago). That is a meaningful measure of inflation.
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OGIONIK

1
Tue 26 Jun, 2007 04:43 am
thanks for the info. i am using the POS google to try to find out how we will deal with a monetary system failure, its extremely tiring.

I want to know how we , well im not sure what im trying to find out.

Im guessing im trying to find mathematical formulas used in monetary transactions?

Ok ill just write it out i suck with math.

If i buy a car in america for 1000 dollars. and 10 pesos is 1 dollar (example only of course)

i would be paying 10000 pesos for the same car in mexico, right?

But my friends buy stuff in mexico for cheaper than in america, i dont see how a company would charge less, damnit i really hate numbers let me try google more.
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Chai

1
Tue 26 Jun, 2007 04:44 am

You claim to want to know the math behind it, which is, in essence, multiplying one number by another. However, you are tossing into the mix questions that can be debated forever re: rich vs. poor, systems failing, etc...

whoops, I note Jespah just addressed this much better above.

You can't expect a simple answer when you've asked and stated such complicated theories.

As far as a better system, what would you suggest?
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OGIONIK

1
Tue 26 Jun, 2007 04:46 am
im guessing im forgetting the law of supply and demand, but then why sell in mexico at all if you can sell the same product in america for more?

wow i hate money, funny thing though because im so good at budgeting. O_o
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OGIONIK

1
Tue 26 Jun, 2007 04:51 am
theres alot of questions, im trying to google and think and read at the same time.

I want to know why we have "depressions".

Why a company would sell a product in another country where it sells for less money.

Those were just my "opiniated observations" of how we deal with economic failure, i guess just "paying the poor people less"
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Chai

1
Tue 26 Jun, 2007 05:07 am
OGIONIK wrote:
im guessing im forgetting the law of supply and demand, but then why sell in mexico at all if you can sell the same product in america for more?

Think about what you are asking here. First, the law of supply and demand is the first rule of economics, and everything else is built on that.

When you ask above, why sell in xyz country at all, if you can get more in abc country, don't you see that would be perpetuating the idea that the rich stay rich and the poor stay poor?

Also, you are leaving out the type of goods being sold. You are assuming all cars, in this case being sold in, your example, Mexico are in every case identical to cars being sold in the U.S. as far as age of the vehicle, condition of it, etc.

Are many of the vehicles being sold there even ones that people would want to buy in the U.S.? i.e. an older, less reliable vehicle?

I don't have any figures but I'm sure more used american cars are sold in Mexico, percentage wise, than in the United States. We have the Supply, someone else has the Demand.
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jespah

1
Wed 27 Jun, 2007 04:22 am
OGIONIK wrote:
...

I want to know why we have "depressions".

Economies go up and they also go down. A lot of this used to be tied to agriculture, e. g. a bad harvest could plunge a nation into a serious economic depression. That's a piece of what happened in 1929; it was not just the stock market crashing because of overaggressive speculation. It was also because the midwest, the breadbasket of the country, had depleted its topsoil and so became a dust bowl. Read The Grapes of Wrath, which is fiction but a very good account of that time. You might also want to read Studs Terkel's Hard Times which is nonfiction. He's an excellent writer and he lived during the Great Depression.

Economies also suffer if supplies are cut off, such as during the oil shocks of the 1970s or a war cuts off consumer goods (although during wars the weapons economy kicks in so, while consumer goods may be rationed, there is still some wealth; this is what happened in particular during the Second World War).

Corruption plays a part, too, although more in smaller economies or places where capitalism hasn't really dug in. It's not a depression in Somalia but it might as well be for the poor folks living there, stymied by a corrupt government withholding aid and selling it elsewhere. I'm not just picking on Somalia; that happens elsewhere in the world, too. The US isn't immune to such things but our economy is so much larger and more diverse that, if someone cut off the supply of butter, we'd just eat margarine or cream cheese. Not so in other, more fragile, economies.

OGIONIK wrote:
...Why a company would sell a product in another country where it sells for less money....

A few reasons in no particular order:
2. Lower office overhead or taxes
3. Lower shipping costs
4. The market in a wealthier country may be saturated

Sales aren't the only part of a company's wealth equation. It's also overhead. The costs of things like salaries, rent, lighting, the coffee in the coffee maker -- all of these things factor into profitability. If a company can cut its costs by renting instead of owning an office building, it will sell that building (and often rent space back from the firm it sold it to). If a company can pay lower salaries in North Carolina rather than Massachusetts, it'll move there, assuming it can find comparable talent (which it may or may not be able to do). Salaries can be slashed further in Mexico, China or India, but again the question is of local talent. Plus a company may want or need to have a local presence of some sort. Laws may even require that a company maintain an office in a particular state (I believe this was sometimes required by insurance commissioners).
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