Wednesday, January 23, 2013

Aircraft Engines Are Not That Complicated.

Here is Jamie Diamon, CEO of J.P. Morgan explaining why you don't need to know what bankers do. It's too complicated, like an aircraft engine. Just trust him, all the money J.P. Morgan is making is only fees for managing all this complexity.

This is a straight turbine engine.  It is really marvelously simple.

This is a turbo-fan.  It is a little more complicated, but not much.

When I was in the Air Force they were teaching this stuff to 17 and 18 year old kids who didn't even have high school diplomas.
Banking is not that difficult to understand either.
Banks pay interest on savings and charge interests on loans.
When banks need more savings they increase interest on savings.  Consequently, they must charge higher interest on loans to offset the higher rates they offer to attract savings.  When interest rates are high it is a signal to producers that people are spending now, not saving, so they concentrate on short term projects that quickly satisfy consumer demand.
When banks have a lot of money in savings they pay a lower interest rate.  Consequently, they can charge lower rates on loans.  When interest rates are low it is a signal to producers that people are saving for future consumption, not spending, so they concentrate on long term projects to meet future consumer demand.
It is a wonderful feedback mechanism that balances what the producers are producing with what the consumer is consuming.
It only gets screwed up when a central bank forces interest rates lower by artificial means.  It makes producers think people are saving for future consumption so they start long term projects.  Since the consumers are not saving they are not planning on future consumption, so when those long term project come to completion there are no deferred saving for people to spend on them.  The feedback mechanism is completely destroyed by false signals.
I have a GED and community college degree in Arts and Sciences, mostly I concentrated on history, literature and the social sciences.  Basically a glorified high school diploma.  I am not a Harvard MBA, but I did listen to Ron Paul and read Murray Rothbard.
Jamie Dimon can eat a big bowl of dicks.

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