Feels like a good time to reread this classic - For the unfamiliar, its a famous investment book that explains how monetary policy can lead to financial disaster.

opening lines -
“Between 1929 and 1939, millions of Americans lost billions of dollars in savings and investments. The stories have been told and retold so many times that we tire of hearing them. But forgotten are the thousands of Americans who made their fortunes during the same period of time. These are the people who “sold short” during 1929. They are the ones who removed their cash from the banks before they closed, and then used their cash to buy businesses and homes when prices were at rock bottom and on one else had any cash.”


Feels like a good time to reread this classic - For the unfamiliar, its a famous investment book that explains how monetary policy can lead to financial disaster.  opening lines - “Between 1929 and 1939, millions of Americans lost billions of dollars in savings and investments. The stories have been told and retold so many times that we tire of hearing them. But forgotten are the thousands of Americans who made their fortunes during the same period of time. These are the people who “sold short” during 1929. They are the ones who removed their cash from the banks before they closed, and then used their cash to buy businesses and homes when prices were at rock bottom and on one else had any cash.”

Rain10233

Most Finance books suck but
“The Psychology of Money” book changed my mind. It’s a must-read imo
#The Book Club 📚

The Book Club 📚

Most Finance books suck but “The Psychology of Money” book changed my mind. It’s a must-read imo #The Book Club 📚

Nate

Harry Browne does an outstanding job taking complex subjects and breaking them down in a way that’s comprehensive yet easy to understand! Just take a look at this passage which explains inflation:

“America is the land of opportunity. So I’m going to suggest that you and I go into business together (at least in your imagination, so that I can pose my puzzle to you). 

You and I form a partnership, a company that prints counterfeit money. We print 1,000 new $20 bills. Then we go into San Diego where our affluence (or lack of it) is not known to anyone. We start spending the bills and are immediately praised by the local merchants and the newspapers. 

They proclaim that it is a great thing for San Diego that we have come to town, for we’re bringing prosperity to a city that was in a recession. Two weeks later, we leave town with $20,000 worth of goods. The townspeople bid us grateful farewell for all the business we have brought to them. 

It’s obvious that we have benefited from the situation. We traded paper dollars with no real value for products that have real value. Assuming that no one ever learns our little secret, has our gain actually hurt anyone else? In other words, does anyone ever pay for the benefits gained by counterfeiters? 

Set the book down for as long as it takes to think about that question. Did anyone lose in order for us to gain from our counterfeit spree? And, if so, who? What is your answer? The merchants who received the counterfeit bills did not lose. They could pass the bills on to others for things they wanted. (Part of our assumption was that no one would discover the counterfeiting.) We gained; the merchants didn’t lose. Apparently, no one lost.

But we’ve overlooked a few people. Not just a few, in fact. We’ve overlooked everyone else in the marketplace. For everyone else will lose in order to make this gain possible. We can see this easily as we imagine our car leaving San Diego- loaded with goods removed from San Diego’s marketplace. We leave San Diego’s residents with less property than they had before we came. There will be fewer goods available to divide up among the people there. In exchange, they received additional paper money that will circulate in the community. But paper money isn’t wealth. It simply means there is now more paper money to bid for fewer goods and services. 

Referring back to our price level formula, we see that the general price level is determined by dividing the available goods and services into the available money supply. 
Since the money supply has gone up and the goods and services have decreased, the result can only be a higher price level in San Diego. The price increase will be irregular. Those who get their hands on the counterfeit money first will gain from it; for they’ll have extra spending money, and prices will not have gone up yet. But as that extra paper money passes through the community, it will bid prices upward. The other people in the marketplace will be paying for our gain- and they will do that through the higher prices they pay for each product.”

Harry Browne does an outstanding job taking complex subjects and breaking them down in a way that’s comprehensive yet easy to understand! Just take a look at this passage which explains inflation:  “America is the land of opportunity. So I’m going to suggest that you and I go into business together (at least in your imagination, so that I can pose my puzzle to you).   You and I form a partnership, a company that prints counterfeit money. We print 1,000 new $20 bills. Then we go into San Diego where our affluence (or lack of it) is not known to anyone. We start spending the bills and are immediately praised by the local merchants and the newspapers.   They proclaim that it is a great thing for San Diego that we have come to town, for we’re bringing prosperity to a city that was in a recession. Two weeks later, we leave town with $20,000 worth of goods. The townspeople bid us grateful farewell for all the business we have brought to them.   It’s obvious that we have benefited from the situation. We traded paper dollars with no real value for products that have real value. Assuming that no one ever learns our little secret, has our gain actually hurt anyone else? In other words, does anyone ever pay for the benefits gained by counterfeiters?   Set the book down for as long as it takes to think about that question. Did anyone lose in order for us to gain from our counterfeit spree? And, if so, who? What is your answer? The merchants who received the counterfeit bills did not lose. They could pass the bills on to others for things they wanted. (Part of our assumption was that no one would discover the counterfeiting.) We gained; the merchants didn’t lose. Apparently, no one lost.  But we’ve overlooked a few people. Not just a few, in fact. We’ve overlooked everyone else in the marketplace. For everyone else will lose in order to make this gain possible. We can see this easily as we imagine our car leaving San Diego- loaded with goods removed from San Diego’s marketplace. We leave San Diego’s residents with less property than they had before we came. There will be fewer goods available to divide up among the people there. In exchange, they received additional paper money that will circulate in the community. But paper money isn’t wealth. It simply means there is now more paper money to bid for fewer goods and services.   Referring back to our price level formula, we see that the general price level is determined by dividing the available goods and services into the available money supply.  Since the money supply has gone up and the goods and services have decreased, the result can only be a higher price level in San Diego. The price increase will be irregular. Those who get their hands on the counterfeit money first will gain from it; for they’ll have extra spending money, and prices will not have gone up yet. But as that extra paper money passes through the community, it will bid prices upward. The other people in the marketplace will be paying for our gain- and they will do that through the higher prices they pay for each product.”

Just a Zennial trying to make sense and thrive in this crazy world! 🗺 

Never stop learning 🚀

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Britney

Overdone and poorly/ineffectively distributes

US government injected so much liquidity into the system. How did they not know inflation was coming?

There’s a chance the inflation is actually transitory from too much cash from stimulus, home equity, unemployment and other subsidies, and rate hikes could CAUSE the recession

D J

A group of likeminded people in The Book Club 📚 are talking about this.