It is Time For Americans To Learn About Their Money

Now that gasoline is above $4 a gallon, I guess this is as good a time as any to talk about oil, the U.S. dollar and the price of gas.

Oil by the barrel is priced in U.S. dollars. Yes, I know oil can be priced in a basket of currencies or even just the Euro, but for the most part, oil is priced around the world in U.S. dollars. If those that sell oil believe that the purchasing power of the U.S. dollar is going down, and that the demand for oil will rise or remain the same, then the price of oil in U.S. dollars will go up. Some people that buy oil have no intention to ever take delivery of the barrels of oil they buy, and they are called speculators. They play the commodity oil for a possible pop in price and then sell their contracts when the price goes up. Speculation in oil like any other commodity can drive the price up or down depending on which way speculators believe the price of a particular commodity is going.

Because of the financial crisis and the economic recession that followed, our central bank the Fed has pursued a monetary policy of easy money, or more correctly they have helped banks with their problems of liquidity. Unfortunately, many banks made loans and gave credit and invested in mortgages that turned to shit. That means they were stuck with investments that had no marketability. The Fed decided to help keep these banks liquid by keeping the cost of borrowing reserves from the Fed low, or near nothing. The Fed also said they would buy the banks' shit loans and mortgages and help them out. These actions by the Fed inflated the currency, and while we haven't seen all aspects of this inflation in all products and services that does not mean inflation will not be a major problem in the future. While the housing market has seen prices decline, other markets have seen their prices rise. Precious metals such as gold and silver have seen their prices go up as people speculate that the U.S. dollar will fall in value, and as such lose its former purchasing power.

If people do not get a raise in their pay check and the purchasing power of the U.S. dollar declines, people have less money to spend even though they are receiving the same amount of dollars in their pay check. Then they have to spend $4 or more for a gallon of gasoline and they now have even less disposable income than they had when gasoline was selling for $2 a gallon. So, the amount of money you have is only a part of the equation. The important part of the equation is: how much can you buy in goods and services with the money you have?????

So, you now see that there is a connection between monetary policy and what your money will buy and how far it will go. For the last few years, I have written about the fact that monetary policy is made by the Fed for the benefit of the banks, and the banks are only part of the monetary system. We, the people are the other part of our monetary system and yet the 300 million of us that use our monetary system and its currency have no voice in how monetary policy is determined.

I believe in bank regulation by the federal government. I believe that the Glass-Steagal Act should have never been repealed. One of these days, when more people will understand money and banking, banks will be more regulated as they should be. Otherwise, we will have another financial crisis, and another economic recession, and the middle-class in the United States will become poorer and poorer as those helped by the Fed get richer and richer.

It is time for Americans to wake up and learn about their money.

Stay tuned.

Money: Much More Than A Medium of Exchange

One thing is almost certain, we all like money. Some of us would like to have so much money that money would not be something we worry about having enough of. Some people in the world have so much money that they don't worry about having enough money to pay for what they need or want. When you have more money than you need, you can invest your money. You can simply put it in a bank and earn interest, or, you can put it with an investment bank and have the money invested in an assortment of investments that will pay you interest, dividends and/or capital appreciation. Money in this form becomes a commodity. People can borrow your money and pay you interest, or, you can buy equity in a corporation and be paid dividends. But, for most of us money is a medium of exchange. If we want to buy food we use money. We don't take our widgets to the food store and exchange them for food. We need money to buy things. But, when we want to buy something very large and we don't have all the money to make the purchase, or, we don't have all the money on a particular date to buy something, we use credit. Credit is a form of money as it allows us to make a purchase when we don't have the money on hand at that moment. Buying a house or even a car might be a more common occasion to use credit. But, when we use credit, we are essentially renting money for a period of time. That rent is expressed as a percent, and we pay that rent over the life of the loan. When we buy a house, we may pay rent on the money we borrow for as long as 30 years. However, when we rent money to make a purchase on our credit card, we pay no rent if we pay the total sum of the money we borrowed at the end of the month. So, in this situation, we might think we are borrowing money for a month rent free.

Banks collect deposits from people that either have more money than they need to carry in their pockets, or people that choose not to carry money in their pockets, but would rather use credit cards or debit cards. Banks can lend a percent of the money deposited with them, but they are required to keep a small percent of that money as a reserve should people want to withdraw their money. If a bank runs short of reserves, the bank can borrow reserves from the Federal Reserve Bank, or, they can buy reserves from another bank that has free reserves. The Federal Reserve Bank can raise or lower the interest rate they charge the bank for these reserves. When the Fed wants to help the economy as it did in the last financial crisis, the Fed might make the cost of reserves for the banks near to nothing, 0% interest. The bank then can meet its reserve requirement and turn around and lend money at an interest rate above their cost of money. The difference between the interest rate that banks borrow money and lend money is called the spread. At one time, banks made their money on the spread between their cost of money and the rent they charged people for borrowing money from them. That was in the old days. Today banks can borrow at near nothing and invest in government notes and make money on the spread that way. Unfortunately, that form of lending does little to help the private sector of our economy.

People can bet with money too. No, I am not talking about going to a casino and betting your money. Since the world has several different currencies, all of them used as money, people with large pools of money can speculate which currencies might go up in value. If you take your U.S. dollars and exchange them for another currency and that exchange rate changes over a period of time, the move back into U.S. dollars may result in a capital appreciation. So, now we have made money by betting on the changing value of money. We can buy Euros or we can buy any currency we want. If you believe that holding your U.S. dollars is not a good thing to do, you can exchange your dollars for a currency of your choice in the hope of that currency going up in value so when you need your money in U.S. dollars you will not only have the amount you started with, but receive more dollars when you exchange your foreign currency back to U.S. dollars.

So, money can take on many forms. It is important to understand that money is not only a medium of exchange for buying things. Money is a commodity that people can rent for a period of time at a rate of interest. But, more than that money's value can change. Inflation is a word that we use to express the fact that prices have gone up and that it takes more money to buy a product or service than it did a period ago. That period may be just a matter of minutes or a matter of years. But, until we all understand what money is and what it can become, the Federal Reserve Bank and the commercial banks will dictate monetary policy in the United States. We, all of us, are part of our monetary system as we all use money, but we need to change the way monetary policy is made in the United States. And, before that happens, everyone will have to understand a lot more about their money. Money is much more than just a medium of exchange.

Stay tuned.

Pakistan: A Complicated Situation & Western Logic

The country of Pakistan is a complicated situation for the United States and the rest of the West. In this part of the world, things are not always so clean cut. Not everyone wearing a friendly uniform is on your side. In our western logic we say, it isn't black and white. No, everything in the world is not black or white, but it would be nice if life was that simple. When two teams line up on the field, one team is in one color and the opposing team is wearing a different color, and players can tell in a split second who is on their team and who is an opponent. But, that is the way things are in a controlled game where everyone agrees to the rules. The Pakistanis have not agreed to any rules, and obviously they don't play by our rules.

So, Why do we need them? The answer is quite simple. Pakistan is a nuclear power, and as such we need them on our side. They might not be on our side for everything, but we can live with that so long as they are on our side when it comes to their nukes.

So, perhaps now is it time to adopt the Pakistani logic of the situation. Osama bin Laden is dead; time to move on.


P.S. Later this week, I might try to write a piece about money and the various forms money takes. Water can be found in 3 states - a solid, frozen water we call ice, a gas, we call steam, and as a liquid which we call water. I might try to explain how water and money have properties in common.

Stay tuned.

Osama bin Laden is Dead: Shot in the Head

The moral of the Osama bin Laden story is: If you want something done right, do it yourself. The United States first tried to work with other governments in our pursuit of Osama bin Laden, but that did not work. Pakistan while they say they are our friend compromised our efforts. The bottom line of our success in finally killing Osama bin Laden is that we told no one of our plans and we carried them out with our own people. Had we done that years ago, we may have been successful then. But, for all those countries and people around the world that think we are soft, a paper tiger, let them chew on this USA success for a while. USA! USA! USA!!!

Saturday Is For Art: Simeon Zigler's Tree

My father immigrated to this country in the early 1920s, about the age of 12, with his mother and father and older sister Ida and his younger brother David. At the age of 16, he left school and took a job as a printer setting type. This job not only permitted him to help out in the support of his family, but importantly, it helped him learn English. He was an avid reader his whole life. Many times he would tell me if I wanted to learn something to go to the library and get a book. While in his late teens he attended the Cincinnati Art Academy's evening classes where he received instruction in his quest to become an artist. But, the Great Depression derailed his and many others plans for their futures and making art was placed on the back burner for several years. However, we do have a few drawings that he saved that he did in India ink. These black and white pieces and a few drawings in crayon are what we have from the 1930s. This tree is just one of those India ink drawings from that period of his life.

TREE by Simeon Zigler (1911-69), pen & India ink on paperboard, 1930s.

Simeon Zigler Art Exhibition: June 26, 2011

I can now announce that the art exhibition of my father's artwork will take place on Sunday June 26, 2011 at 5 pm at the Skirball Museum on the campus of Hebrew Union College-Jewish Institute of Religion in Cincinnati, Ohio.

There will be approximately 35 to 40 pieces of his work ranging in dates from the early 1930s to when he resumed creating artworks in the 1950s and 1960s. The earlier pieces will be pen and India ink drawings followed by his watercolor paintings.

It is my hope that local and nearby artists, and people that love to see the fine workmanship of a man who loved his craft and created some very nice pieces will attend.

Stay tuned.

Simeon Zigler Self Portrait

Saturday Is For Art: A few Old Drawings From Past Projects

I have been working on what I hope will be a series of paintings from the photographs I took during the summer of 1964. Long before I actually started to paint, I was thinking about painting these pictures. Now at 68 years, I guess now is as good of time as any to get started. I am in the process of transferring the photos that are printed on 8.5 by 11 inch paper, to the wood surfaces that I like to paint on. I have decided to do a few drawings and then starting painting after the drawings are pretty far along. I have painted one piece, the view looking out from the back of the Norwegian freighter. When I have 4 pieces drawn, I think I will restart painting. Here are a few drawings for past projects.