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Money Created by Banks


wealthymatters.com

For all of you who have been watching the Paul Grignon videos here is a little something about money created by banks.

The basic text book view is that commercial banks create  money through fractional-reserve banking,i.e. the banking practice where banks keep only a fraction of their deposits in reserve (as cash and other highly liquid assets) and lend out the remainder, while maintaining the simultaneous obligation to redeem all these deposits upon demand.Commercial bank money is non-physical, as its existence is only reflected in the account ledgers of banks and other financial institutions.Also there is some element of risk that the claim will not be fulfilled if the financial institution becomes insolvent.So central banks make deposit insurance mandatory for banks. Read more of this post

The Money Masters


I had trouble sleeping last night and so watched ‘The Money Masters’ on the internet.I found this documentary pretty biased.But that’s not to say that the narrator didn’t make some good points.

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The Ascent of Money


wealthymatters.comThe Ascent of Money by Niall Ferguson is a fantastic book.I was drawn to read it after watching the TV series based on the book and I have no regrets.It’s time and money well spent.

The book describes how banks, joint stock stock companies, bond markets, insurance companies, etc. originated at different places, at different points in time, in response to specific needs .While I was reading the book I had many aha moments and I heartily recommend the book to anyone who wishes to understand our modern financial world better.

Prof.Ferguson also tells the fascinating stories of how time and again with every financial innovation there have been abuses and excesses.These stories are great to remind us that neither good nor bad times last forever,that frauds and scams are par for the course and that no financial crisis is the end of the world though it might end the world as we know it. Read more of this post

Economic Life,Sinking Funds,Amortization and RDs


wealthymatters.comHaving an abundance of material resources and never having to hustle round in the last-minute to find the funds to do what we want to do is a good indicator of wealth.

I first came across the concepts of economic life,sinking fund and amortization as an engineering student.Adapted to our personal finances and business these concepts help us to always have enough money at the right time.

Economic life , a.k.a useful life is the period of actual usefulness of an asset.Beyond this period it is cheaper to replace or scrap the asset than to continue maintaining it.

A sinking fund is a reserve created by periodically setting aside certain sums in an account to replace  an asset in future or to repay a liability.

Amortization refers to spreading an asset’s replacement cost over it’s economic/useful life. Read more of this post

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