How an Economy Grows and Why it Crashes chap. 16-17 overview

Study of Economics via Literature

Study of Economics via Literature

How an Economy
Grows and Why it

Crashes

Vocabulary and concepts for chap. 16-17

Study of Economics via Literature

Study of Economics via Literature

Vocabulary and

economic principles

for chapter 16

Stepping on the Gas

deteriorate

Verb p. 194

become progressively worse.

Evene after the stimulus and
bailouts the economy continued to
deteriorate.

Poll

Do you feel the US is deteriorating?

• Yes, the US is not what it was.

• No, the US is growing in power

• Things are basically the same

devastated

Verb p.194

destroy or ruin

The real estate market was
devastated

Multiple Choice

What has devastated the banking system in 2007?

• The banks have a lack of fish

• Much of the banking collateral was in real estate, and the real estate market collapsed

• Much of the banking collateral was in real estate, and the real estate market kept getting stronger

• Much of the banking collateral was in US bonds and the US bond market collapsed.

Pivotal

Adj. p.194

vitally important : critical

Multiple Choice

What was the pivotal event that stopped the complete collapsed of the world financial system in 2007?

• The government started making free houses for everyone

• The government started QE, the government started buying all the empty houses

• The government started QE. The Fed started buying bond and real estate bonds that no banks wanted

• Brian Chen was born and the world rejoiced!

Inadequate

adj.
lacking the quality or quantity
required; insufficient for a
purpose.

Open Ended

What is something that you feel is inadequate in your life?

Barry Occuda

Allegory or pseudonym

This is President Barack Obama

“Devised a number of new programs”

Clarification p.196

Devised means to plan, as in
planned a new idea. The programs
are basically jobs or businesses
paid for by the government (I am
trying to write this in the easiest
way possible).

One such program is buying
second hand cars from people in
order to give people money so
that they can buy new cars-- very
Keynesian.

Multiple Choice

What might government programs sometimes be unproductive for the economy?

• ChatGPT is a good program. I sleep with it under my computer to make me smarter.

• They might provide a lot of useful jobs that will make the world a better place for all

• They might be designed just to raise GPD and get votes but not actually help the real economy

“Interest rates get lowered
once again”

Note (p.196)

The trend of interest rates has been one of decrease. The media asserts that the government will have to increase
interest rates in the US next year. I really doubt this will happen. I am not saying it will not. I just don't see how
they can do that since the economy is getting weaker and everyone has so much debt.

Open Ended

Why might cheap money (extremally low interest rates) distort and damage the economy? You can discuss the answer with classmates

Misuse of investment and labor
capital

Note p.199

Peter Schiff argues that while not
all government programs are
bad, there is a danger that there
can be a misallocation of capital
investment and labor in
programs that the free market
may have no interest in.
Moreover, all these programs are
funded on increasing debt.

US debt clock link

If the debt to GDP ratio is over 130% it is game over.
The country can no longer generate enough money to pay
the debt.

Open Ended

Name a misuse of government spending. There are A LOT!

“Sinopia’s fish reserve purchases, which
pushed up the value of Fish Reserve Notes”

Note p.201

China continued to buy US debt (treasuries, Bonds,
and Notes) as did countries all over the world.

Keep in mind that US bonds provide a
comparatively good interest rate. Also buying US
bonds helps other countries push up the value of
the USD which in turn allows those countries to
make more money trading.

Furthermore, increasing demand for US debt
lowers the interest rate in the US. This makes it
vene easier to borrow more money.

Sinopia wises up

Note p.202-204

This section of the chapter is about China and other countries
realising that the US will continue to inflate their currency. This is
probably the only way the US will be able to pay its debts. So, if
you are holding a large amount of US debt, you are not in a
happy situation. If you try and sell all you bonds, the price of the
bond will quickly drop and you lose most of your money. Or, you
sell it off slowly and you lose money via inflation

Schiff is misleading us here:
While there has been countries, such as Japan and Russia sell
their US bonds, there are still plenty more buyers of US debt. So,
Schiff has got it wrong here. However, he is right in claiming that
China is not happy with the US system. Thus, mcu of the world
has been slowly dedollarizing (slowly get out the US dollar
system.)

Study of Economics via Literature

Study of Economics via Literature

Vocabulary and

economic principles

for chapter 17

The Fish Hit the Fan

Multiple Choice

Why is real-estate considered a safe investment for banks?

• Houses are cheap and everyone likes them

• The price usually goes up and people usually pay their mortgage

• Brian Chen said so

• Abby Lin is way smarter than Brian

The Fish hit the Fan

Phrase

If you replace fish in the above
phrase with Sh@!, you get the
common usage of the phrase.

This basically means when things
get really bad.

Mirage

Noun

Savings in fish reserve notes
turned out to be a mirage for the
Sinopians (p.212).

A mirage is something that is not
real. You think you see
something, but it is actually not
there.

Multiple Choice

Why might banking described as a mirage?

• Because banks don't actually have much cash at all; rather, they own debt which they call an asset

• Because banks make money through money trees which the grow along with the golden goose

• The money that banks lend is derived from the money people have deposited in the bank

• Because banks use Bitcoin for all transactions.

Disarray

Noun

“The Sinopian economy was
pushed into disarray.”

disarray= in a state of
disorganisation.

meaning= the
economy became
a mess.

Capacity

Noun

the maximum amount that
something can contain.

So, the the story the author
believes that the Sinopains will
use their industrial capacity for
their own needs and ignore the
Usonia market as usonian dollars
have become worthless.

Domestic consumption

Phrase p.213

Domestic means something in
the country (in one’s home).

Consumption is a measure of
goods and products purchased or
used.

SO, domestic consumption are
those goods and services that are
used in the country rather than
exported to other countries.

Multiple Choice

The American economy mostly relies upon what part of the economy?

• Farming

• industrial production

• consumer

• polticians

Politicians blame retailers and
greedy “business people.”

Authors claim

Peter Schiff believes that the
government will blame business
leaders and retailers for the
inflation crisis.

As we already know, the author
blames the Federal Reserve and
the politicians for stagflation.

Peter Schiff on Fox news 2021

Open Ended

When the price of food goes up, why do people tend to blame businesses (such as supermarkets) rather than on government money printing?

The government plans more stimulus

even though they have no money.

Prediction p.216

Peter Schiff seems to have correctly
predicted what the US politicians will
continue to do in a major debt crisis:
They find more ways to stimulate the
economy.

Once the debt to GDP does over 130%,
countries eventually become insolvent.

Multiple Select

If the US government keeps issuing more and more debt that they will increasingly struggle to pay the interest on, what will likely happen? (choose 2 answers) *Please be aware that all is probability, and no one and can predict the future perfectly)

• Nothing will happen and all will be fine

• The FED will make a new digital currency (CBDC) and allow the USD to fall in value as they print money to pay the debt

• The US will stop paying all its debt and the US dollar will quickly rise in value

• The FED will start to buy US debt and the US dollar will crash in value.