I once went to a guitar lesson to learn a song in my school. But they started with all the strange things like first learn to play Sa Re Ga Ma and all that kind of stuff. I got impatient and left the idea all together. Because I thought why should I learn all the gibberish when I want to just play few songs? In short I gave up, something I do often. Now I know that I went there to learn how to play the song on guitar and not to learn the guitar. What will you do when at later date you unfortunately like more songs. Will you go every time to be coached for a song. Its always wise to make a system that is sustainable. I recalled this incident because the above incident is an analogy of stock market. Learning the song is like Earning Money. Sa Re Ga Ma is all the theoretical knowledge. Yet people never learn the Sa Re Ga Ma of the market and seek advice every time they want to learn a song(Earn Money). That is the reason of their downfall. Advices are free and always be cautious of those things that come free because there is always a huge price attached to it( This Blog is also free but as you see there will be no advice. So everything is up to you to believe or not). You must know how to improvise. when a different/tough song (different/tough situation in stock market) comes up to you, you must be well aware to improvise yourself for that. That is why you must learn the Sa Re Ga Ma of the stock market before we can jump into reality. Trust me, end result will be very satisfying and you will say that this is too simple. But like many things in life, most of the things are simple. It is our non-belief in simplicity which makes life complex.
Continued from Money 2
We start with another example. Let’s assume you and me are trapped on an island (Yeah It will be really depressing if you happen to be a guy. Forget that part please). Now we have 2 rupee each (I am talking about currency). So as Money part 1 says we both start producing something and convert that currency into money. Let’s say that you start climbing trees and bring coconut and I started catching fish. One fine day you bought a fish from me. So now I have 3 rupees and 1 rupee. But you being more intelligent come up with a recipe involving both fish and coconut, call Cocfish. You price it at 3 Rs. I bought it because it is very delicious.
Now you have 4 Rs and I have zero. I start to work hard and produce 3 fish for every CocFish you produce. Of course we are transacting through currency. After five days I sold 15 fish and you sold 5 Cocfish to me. But if you had produced 15 coconut also then you have extra 5 Cocfish, you ate rest 5. That is you have goods worth 15 rupees. Now since I am working hard I start to eat 2 Cocfish everyday. Since we don’t have the currency. So you come up with concept of debt. Next 5 days I bought 10 Cocfish and sold 15 fish. So I am in debt of 15 Rs and you have 15 Rs in account. Ofcourse this is on paper but you know that I am addicted to Cocfish and will pay for it in future or you took from me the CD of Resident Evil as collateral. As you can see you don’t have to work for next 10 days (you used 5 for Cocfish) and live off eating fish and on the other hand I have to work my ass off to pay my debt off. We should halt here and review the whole thing now.
You can see from the above example that we started with currency worth Rs 4 and in the end you had 15 Rs in account. How is this possible? Where this 11 Rs came from? Now you shouldn’t be astonished because you know that you created this money because of your ingenious recipe of Cocfish. You can see value of creation as 1 Rs per Cocfish as fish and coconut was worth 2 rs and you sold it at 3 Rs. Now its is getting ugly but stay with me. You had 15 Rs even when you had 5 Cocfish. But that was hidden form of money. What we say “Net worth”. But when I took the debt from you, you converted that hidden worth into a mathematical figure on the ledger and to enforce it you took my precious Resident Evil CD. This mathematical figure is as good as currency and it exists because we have only 4 Rs in currency form. So you see the money is continually created and converted into mathematical figure and mathematical figure is continually converted into net worth. Mathematical figure can be created into networth when I can’t repay your debt and you keep my precious CD.
Now lets come to real life. It is evident that currency is less than the total mathematical figure we have in our accounts all over the world. So currency is not even close to be equal to money in mathematical form yet alone leave the net worth( in form of real estate and stock market and etc) and since we are able to delink currency from money, it is easy to understand that money is continuously created and stored in the form of net worth and mathematical numbers in the banks which has no physical equivalent but just faith and promise from banks that when you will need the cash you will get it. But if everyone out there ask for their money, banks will not be able to give you the required currency.
In island example you converted Cocfish into currency when you lend money to me and by doing it you converted your net worth of 15Rs in Cocfish form into mathematical number in ledger which can be turned into currency. Think about it, it is sublime and beautiful. These concepts are testimony to the power of thinking. to be continued.....
Continued from Money 2
We start with another example. Let’s assume you and me are trapped on an island (Yeah It will be really depressing if you happen to be a guy. Forget that part please). Now we have 2 rupee each (I am talking about currency). So as Money part 1 says we both start producing something and convert that currency into money. Let’s say that you start climbing trees and bring coconut and I started catching fish. One fine day you bought a fish from me. So now I have 3 rupees and 1 rupee. But you being more intelligent come up with a recipe involving both fish and coconut, call Cocfish. You price it at 3 Rs. I bought it because it is very delicious.
Now you have 4 Rs and I have zero. I start to work hard and produce 3 fish for every CocFish you produce. Of course we are transacting through currency. After five days I sold 15 fish and you sold 5 Cocfish to me. But if you had produced 15 coconut also then you have extra 5 Cocfish, you ate rest 5. That is you have goods worth 15 rupees. Now since I am working hard I start to eat 2 Cocfish everyday. Since we don’t have the currency. So you come up with concept of debt. Next 5 days I bought 10 Cocfish and sold 15 fish. So I am in debt of 15 Rs and you have 15 Rs in account. Ofcourse this is on paper but you know that I am addicted to Cocfish and will pay for it in future or you took from me the CD of Resident Evil as collateral. As you can see you don’t have to work for next 10 days (you used 5 for Cocfish) and live off eating fish and on the other hand I have to work my ass off to pay my debt off. We should halt here and review the whole thing now.
You can see from the above example that we started with currency worth Rs 4 and in the end you had 15 Rs in account. How is this possible? Where this 11 Rs came from? Now you shouldn’t be astonished because you know that you created this money because of your ingenious recipe of Cocfish. You can see value of creation as 1 Rs per Cocfish as fish and coconut was worth 2 rs and you sold it at 3 Rs. Now its is getting ugly but stay with me. You had 15 Rs even when you had 5 Cocfish. But that was hidden form of money. What we say “Net worth”. But when I took the debt from you, you converted that hidden worth into a mathematical figure on the ledger and to enforce it you took my precious Resident Evil CD. This mathematical figure is as good as currency and it exists because we have only 4 Rs in currency form. So you see the money is continually created and converted into mathematical figure and mathematical figure is continually converted into net worth. Mathematical figure can be created into networth when I can’t repay your debt and you keep my precious CD.
Now lets come to real life. It is evident that currency is less than the total mathematical figure we have in our accounts all over the world. So currency is not even close to be equal to money in mathematical form yet alone leave the net worth( in form of real estate and stock market and etc) and since we are able to delink currency from money, it is easy to understand that money is continuously created and stored in the form of net worth and mathematical numbers in the banks which has no physical equivalent but just faith and promise from banks that when you will need the cash you will get it. But if everyone out there ask for their money, banks will not be able to give you the required currency.
In island example you converted Cocfish into currency when you lend money to me and by doing it you converted your net worth of 15Rs in Cocfish form into mathematical number in ledger which can be turned into currency. Think about it, it is sublime and beautiful. These concepts are testimony to the power of thinking. to be continued.....
Go to Money 4 or Go to Money 2
Please leave your comments as it is always better to discuss things rather than one sided conversation.
Please leave your comments as it is always better to discuss things rather than one sided conversation.
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