Hi. I am trying to learn about economics and have a question I was hoping someone could clear up: If investors demand a return on investment, this means they will gain money and become ever richer exponentially since they will be able to reinvest more money. At first sight then, money will flow from the poor to the rich as a consequence. But this can’t be the whole story, I assume, since the game would be over pretty soon then. Investment works because production grows as a consequence of it, the interest rate is then the growth of the economy basically? (not necessarily always of course, inequality grows when the interest rate is larger than growth, as Picketty shows.) I guess the money supply should grow with the economy in this case, central banks will need to create money at a steady rate to follow the growth of the economy. Do I have that right? Thanks.
central banks need to create money as GDP expands to keep prices constant. This allows resources to be compared based on price and allocated most efficiently.
Hopefully they will become ever and ever richer, yes. However, the amount they gain must be larger than the amount they spend plus the amount of inflation. So if my investment pays me £10,000 in dividends per year I must live on less than £9,800 per for my capital to increase. My capital increases by the amount under £9,800 I spend. By my savings each year. If my capital grows do you get poorer? Not necessarily. Not usually. If the worker is paid £10,000 per year he gets richer if he spends less than £9,800 in a year too. As long as he saves he gets richer too. He only gets poorer if his wages minus inflation are less than his spendings. His increase or decrease in wealth is directly linked to his budgeting and not directly linked to mine. I may get higher dividends/ more profit, if he gets less wages, but normally, we don't give workers pay cuts. Because that pisses them off and they leave. If the company makes more money, I may choose to pay the workers more or myself more or reinvest in the company/ any combination of the three. I can give myself more without taking anything from the workers. My pay can go up and their profit margin is the same. It does not reduce. They still make their £10,000, still do their saving, still get richer just as before. The acquisition of capital is cumulative. It is not a zero sum gain. I extend my house, your house does not shrink as a consequence. Each year a tree grows I make new planks. The old planks from last year are still there. Capital grows. It doesn't take from anyone else. Wealth creation vs wealth redistribution. So the above was an example of wealth creation. Below we will discuss wealth redistribution. A zero sum gain. One person's gain is another person's loss. If banks print money in line with the increase in goods, deflation is removed from the economy. The inflation of printing money, is hidden. Goods should naturally reduce in price as they become more available due to the laws of supply and demand. Money when printed reduces the value of all money. For the same reasons. When you print money, you reduce the value of everyone else's money by a proportion equal to the amount you have printed vs total monetary supply.. Essentially you give yourself a share of everyone else's monetary wealth. Wealth is not created, it is redistributed. Printing money makes no planks of wood. So if more goods are available no one notices when the government steals some. And the rate at which you can steal/ print money without people noticing is the rate of growth in the economy. It does not make the economy bigger or smaller. Adds no growth at all. It just makes the person printing the money richer at everyone else's expense. The interest rate on the investment is the amount the investor wants back in return for it vs the amount the investee is willing to offer in return for it. A play off between the two.
I don't mean to promote other forums, but "r/askecon" would be the best place to ask economic questions for "by the book" answers. I've used askecon lots of times to help me formulate my opinions and debates for this forum.
Partially - YOu need to study, go to : https://matasii.com/ and https://www.youtube.com/user/itmtrading 2 GREAT resources that tell the Truth. I do think the latter has a (reset evaluation in her portfolio) that maybe a few cycles away. The FED has been Printing at a MAD pace. You need to go back and also watch Mike Maloney here : People need to understand that OUR process is broken, once 1972, Nixon, and removed from the GOLD standard. Printing more money and ruining the world economy was done by the USA. Fractional Reserve Banking and so on. We are destroyed in reality, just a matter of time, how long they can keep this shell game going. YOu cant prepare enough, I will tell you that...
