Survivalship in a world of dis-information: information, signals and noise (part 2) - How I made money with Brexit

In the previous post, we have seen that we live in a world that, they say, is bombing us with information. To me this assertion is deadly wrong. We live in a world which is bombing us with noise and biased information.
Among the others, the problem with this so-called  information is that this so-called information is quite often copied and pasted from one newspaper/TV news to another, hundreds of times. So the source is mostly the same, typically it is an institutional source, from a government's spokesman, and the outcome is that information is unavoidably biased and amplified at every stage of replication: you look at the event of the notice always from the same angle, super shiny. If there is a blind spot, you cannot see it.

Plus, the information we are getting is so overwhelming that, as a matter or fact, becomes useless: what kind of useful decisions can we take if we do not understand the root causes behind events and we have no time for thinking in a clear and unbiased way?

So, are we really talking about information, or about noise? Are we dealing with useful signals, or with glitches, spikes?

We have to be clear about what information is, and what is not.

There is an engineering branch, called information theory, which is extremely important and, to me, fascinating. It is not so trendy as microprocessors and fiber optics.  Yet, bear in mind that the personal computer, the mobile phones, the internet are based on the theories developed in the '40s by the founders of the information theory. These theories are high abstract and mathematical models which paved the way for the revolution of the digital media and the fall of the analog systems.
You can find all the details about its founders, types like Shannon, Hartley, Nyquist on internet. Shannon is the pillar.

Coming back to our original question, what is information for our purposes, within the scope of this blog? Information is whatever proves to be useful to take your decisions.

In information theory, the concept of information is strictly tied to the concept of the likelihood of an event to occur. If a remote event occurs, the information is very valuable. On the contrary, if an event is expected to happen with high probability, the information it brings is poor.

It is a (philosophical?) point that is very important to understand. Information is not only the news that you learn about an event that has occurred. This is a news. Information is linked to the expectation you had if that event would occurr or wouldn't. The less likely the event to occur, the most important the information content.

Let's make a real example: Brexit.

Brexit was mostly unexpected. The news carried out by the outcome of the referendum fetched a huge information content. It was a huge information content because it was highly unexpected. And, since the information it brought was important, the effects were immense.

NOTE: for geeks, if we consider I as information, and p(E), the likelihood p of an event E to occur, we can say  that

I ~  1/p(E)

where the symbol ~ means "proportional to". So if the likelihood of an event E to occur is remote, the associated information content is high. 

Information is always conveyed through a signal. That is, a signal is the carrier of the information. In the case of Brexit, the signal was the outcome of the referendum poll.
So, signal and information cannot exist without each other and they are often used interchangeably.
Anyway, there is a distinction. A signal always, ALWAYS, carries noise, which hides the true information. In electronics, noise is simply an unintended electric quantity that superimposes or modifies or distorts the useful signal. Useful signal is another term for "correct information".

A corollary, ie an immediate consequence of this definition of information, is that most of the news we listen on the radio, watch over the internet, does not bring information, but noise. They are completely useless to help us take the right decisions. They can flow so fast, their intensity can be so large, that we lose the real useful information hidden inside these signals.

Let's move back to the Brexit's example.

While giving the news, the opinion makers were repeating that old, uneducated (not to say boorish) people leaving in the suburbs or in god's forgotten lands had decided for the future of the young generations, driven by populist leaders like Nigel Farage.
Is this information? No, it is not.
The information was that there was a referendum, the outcome of the referendum was highly unexpected, and it created panic in those who were not ready for such a change.
Is the blame on old generations noise? yes it is. Why? well, let's just make the following observations:

1. if democracy is so valuable for young generations, why didn't young people go to vote on mass?
2. if young people are so attached to the euro-values, why did they consider not important to fight for these values putting a cross in a poll station? it was too much of an effort?
3. since young people are complaining that whatever they vote, nothing changes really (so the hype about "occupy Wall Street", Podemos, Movimento 5 Stelle), why did not they use a "people's tool", like a referendum, to change things?
4. if you are getting older and your future is detrimental, and all you can hear from the government is that if you vote against Europe you make a mistake without explaining the reasons why your conditions are worsening, what do you do? you protest to change those things that the policymakers have not been able to change until now. It is simple, straightforward. It is called vote of protest. Why are you so scared if you believe you are working in the right direction despite what old generations and unemployed people think? On the medium and long run, people will be better and nobody would vote for a Brexit.
5. People vote against something if something is not good for them. Did the old took away Erasmus from the young generations for the sake of spiting him or was there something else more important at stake?
6.  Are there any other points we missed in this question list?


This is an example of the use of LOGIC. It is bizarre that journalists that are supposed to have studied philosophy, of which logic is a branch, forget about how to implement what they used to study at the high school or at the college when they have to apply it to everyday life.
Well, actually, they did not learn how to apply logic: they simply passively learned what others had written.
Nevertheless: by using logic, you decrease the amount of noise and start seeing the right pattern. The problem with the correct use of logic is that it requires time, energy, memory and, above all, training.  The nice side is that it is a never-ending process.


NOTE: for geeks, the simplest form of applying logic with news is the equivalent of a low-pass filter in electronics or a moving average in a chart. You narrow down the fluctuations and look into the real pattern of data. The problem is "what do I measure to get the right information? what correlation analysis shall I perform? what regression analysis shall I run? what may be the links between two different events that occurred far away in space and time? what model validation do I need?", in other terms LOGIC is an active and self-learning and energy-consuming process, while low pass filters and moving averages are simple passive and low power demanding tools, like a google search with key terms. 

So, information is essential to drive you take the right decisions. Noise is whatever is superimposed to the correct information and drives you take the wrong decisions.

Now, in engineering the noise can have a stochastic (ie chaotic) nature or a deterministic (yet unknown) nature.

To adapt the engineering noise into real world news, we can think about the hype on Brexit as a  stochastic noise: you cannot foresee all the stupid things the policymaker and opinionmakers can say about the causes of the vote. Nevertheless, some newspaper will be left-wing biased, other right-wind biased: this deterministic approach is known and you may take it into account. You know that a populistic right-wind newspaper will mostly blame European bureaucrats in Brussels, and a left-wind populistic newspaper will blame their so called rightish populist leaders.
In order to train properly your logic, you have to demolish both positions as far as you can: what is left, is the real information, the real causes of the Brexit according to YOUR brain. 
When you understand the root causes, you can start taking advantage of the outcome, whatever it is.


I have made mine this famous quote by the English philosopher Herbert Spencer:

In other terms, I do not follow the attitude of the typical teacher who repeats like a parrot the concepts she has studied on textbooks without ever applying them to the REAL life.

The ultimate aim of knowledge is action.

In the case of Brexit, it was very simple to make money whatever the outcome would have been. I followed this approach.

1. If the Brits voted for the leave, this would have send a huge shock throughout the markets. So, Gold would have skyrocketed as a response to the collapse of the fiat money system.
2. If the Brits voted for the remain, this would have reinforced the EU leaders to go on with the austerity plan. The rage of the lower class would raise, because their protests would have been ignored so the risk of riots and protests in UK would ramp up. In this case, Eurozone would have breathed only a momentary sigh of relief, and gold would be constant, or slowly rising, due to presence of world spreading negative interest rates.

So, in any case, a bullish position in gold was a win-win strategy because this referendum was a lose-lose for Bruxelles and the European Central Bank. To get a risk-free leverage effect, the position was buying gold mining stocks. I did not use futures, nor other derivatives. If I had been British, I would have taken FURTHER profit by buying gold in Sterling two days before the vote, so taking advantage of the currency exchange.
1. Leave wins: sterling collapses, gold skyrockets in pounds, I sell the gold I bought in pounds and I kill two birds with one stone.
2. Remain wins: this was what markets were expecting, no information, so things would not change. I keep gold in view of lowering interest rates that kill people's savings.

And I made money due to this approach. I paid up my Summer holidays entirely. Correct information, logic-proof, and separation between noise and useful content were extremely important to take correct decisions.

It took me three years to get to this point from zero, while changing country, job, colleagues, and working as an engineer in aerospace companies, not as an economist immersed in the "right environments" or as an investor. And If I can do that, you can do that too. You have to change "vision" and exercise your logic constantly: not an easy task, but rewarding.

Survivalship in a world of dis-information: information, signals and noise (part 1)

Figure 1: if you can read the pattern inside, you are not daltonic :-)

Today I am gonna talk about some key terms that you hear from the TV news, or read on the newspapers, especially when they are misplaced.
Bear in mind that this blog is meant for a family father or a curious guy who wants to understand what is really going on in the world of economics to protect his wealth, or to increase its assets, with the aim of providing his family with:
1. a good education
2. a nice house, worth its price
3. an understanding why the eurozone is a complete fail, no matter what the newspaper may write
4. why on average you are getting poorer and poorer if you are employed and you live in the Western Countries.
5. ideas on how to invest your money, or not to waste it, to improve your well-being

The aforementioned examples are only a few cases I have been covering: I will expand examples and studies as long as I go on writing on this blog. Of course, before you start to invest, it is important to understand what money is, what credit is, and how to avoid epic mistakes by getting into debt without knowing the risk associated.

As you may have guessed, I like having the  complete picture clear in my mind before writing. There are bloggers who are very good in keeping up to date with news and decisions from Central Banks or the European Parliament. I prefer a long term approach, and explanations that can be applied for years and years and can help you identify a trend, that is a path inside a large deal of information, quite often contradictory.
TV news and papers copy the news from each other (I will cover the reason for this in a dedicated post, because it is a very important and interesting topic), so it is very difficult to build a good opinion from information which is the same wherever the direction you look in: in other terms, it is difficult to get information with an acceptable degree of diversification.
Now:

• whatever you political orientation is (left-wing or right-wing), 
• whatever your education level or kind is (graduated, under-graduated, technical or humanistic)
• whatever your personal interests are
• whatever your personal attitudes may be

you take your decisions on the basis of the information you get from the world around you, that is friends, relatives, children, tv news, radio, books etc.

What your ears hear, what your eyes see, your mind is inclined to believe. You cannot escape this: you are a human being and yout brain correctly take decisions on the basis of the inputs it gets from the surrounding world.

The problem is:
what if the inputs are biased, wrong or incomplete? 

There have been cases of philosophers who so strongly believed in what there schemes about the world were, that they preferred to end up losing their mind or their physical faculties than recognizing that the experiences coming from the outer world were contradicting their sophisticated architectures. In philosophy, this attitude is called solipsism and, in a moderate doses, it is extensively valuable to live better and to focus on the right news and right signals.

NOTE: have you read the book "The big short" or watched the homonymous movie taken from the novel? In the movie, which is very close to the book, the character of Michael Burry, an investor who took huge profits from the american subrime crisis, was wonderfully played by Christian Bale. The guy was an man who, thanks to his genius and especially to his sickness - he suffered from autism- could see hidden patterns in million data that nobody was looking into and that no one else would have gut a clue from in any case!

Figure 2: gifted autistic for "unusual" pattern recognition

There is a drawback, or a risk, in this attitude:  if you look for hidden patterns everywhere, and every time, you end up going out of your mind in the worst case, or becoming a permanent conspiracy theorist in the best case.
In both cases, you get your feet off the ground and look only for evidences to confirm your theories: you become biased, and you are unable to look at the world with a detached view.

Typically, the more sophisticated and educated you are, the more you look for a general "scheme" behind things and you tend to isolate your mind from the daily noise coming from the customers in a bar, the chronicle, the economic and social complains from your neighbor etc.
You try to look at signals that are worthy to you, valuable to help you take decisions (change house, change job, change country) with the minimum risk and the best outcome.

So, we have three key terms here, that I have emphasized:

• information,
• signals, and 
• noise.

In some of the next posts, I will cover the meaning of these three terms, and I will make examples taken from today's world and news to show up how information is rigged, especially in Europe's press. I will try to provide you with the means of understanding when information sounds "strange" or "rigged".

My moving to the Netherlands: expenses

I already explained in another post the reasons why you should leave your country if the expectations for improvements for you and your family are vanishing. Sometimes our mind is extremely brilliant in finding explanations for not moving. Here I recap some of the justifications we give to ourselves:

"I am too old to leave."

"I don't speak the language."

"I don't have enough capital to make a move." 

"I can't leave my aging parents behind."

"My parents and grandparents were born here; I have roots in this country/I'm not going to be a coward and I want to fight for my country".

I respect everybody's decisions, but, really, if you are unhappy with your situation, or if you are scared about your job, your financial safety, just take a sheet of paper and WRITE pro's and con's for staying or going. 


I will tell you about my experience. 

First, you have to be aware, of course, that moving with a family may be hard and expensive, especially in the first year. So you need some savings apart. That's why you must evaluate carefully what you are going to do. If you are on your own, then this post is not meant for you: you typically have a native family to come back to if situation gets worse. You are in a lucky position. 

Second, I consider that you and your family rely on your own: no extra aunts, grandparents to ask for help. Me and my wife, personally, had our parents and relatives hundreds of kilometers away. If you have a network of relatives to rely on, that's good for you. 

I moved from Italy to the Netherlands in the Summer of 2014. I got the job after an interview in May. 
I had to plan:

1. the moving
2. what to do with my house in Italy
3. where to live in the Netherlands
4. how to organize the new school for my child

So, me and my wife spent one week in Leiden, close to the place I would work, in early Summer. I contacted some real estate agencies for a house to get for rent. I visited 12 houses in two days, I made up my mind for one of them with my wife ( we wrote on a piece of paper, in a pub, in front of a couple of beers, the advantages and drawbacks of each solution), finally one day before leaving we signed the contract. In the meantime, my kid was with his grandparents, in the South of Italy (extra expenses to go there, leave him with his grandparents and go back to Rome and fly to Amsterdam).
I say it again: you have to plan it carefully. 
Be aware we had our own furniture to move to the Netherlands: so we wanted an unfurnished house.
We also got information for the school that our kid would attend and for registering and getting the residence in the country. 

When back in Rome, we contacted several moving agencies to get an estimate for moving our furniture:  the cost was around 5000 euros. Fair price to cover 1750 Km, and the owner of the company removals was a nice and straight guy in his late fifties.

So, no vacation in 2014. Too many expenses and too many things to organize. 

It was just the beginning. Soon I would have to deal with:

1. Car registration - a nightmare!
2. Healthcare system
3. Social Security system
4. Tax office

plus a collapse of the real estate market in Italy that has prevented me from selling my house at a decent price. 
That's nice, eh?

Until next time. 

Money Series: difference between credit and money - Is there any?

​

This post is part of the money series.

Last time, I explained my position about money, that is there are currently three types of money, namely cash, bitcoin and gold.

Cash is legal tender currency, that is it is backed by the government. If the government collapses, between toilet paper and cash I would prefer toilet paper because toilet paper would be much more useful. In any case, no government will crash overnight, so this is simple academia.

Bitcoin is digital cash and, differently from ordinary cash, its issuing is decentralized. It is not very much diffused, ​it is extreme volatile with respect to other currencies, and its main use is still speculative.

Gold is the ultimate form of money, and it is used especially as the store of value of last resort, since it is physical, atomic number 79. That's why, even if mondern Keynesian economists look at gold as a barbarous relic, it is jelously stored in super guarded vaults and countries like China and Russia are piling it up.

NOTE: There are many reasons why gold has been used as a form of money for centuries in the western countries, and it is not only because it is beautiful and shiny. I will talk about this in one of my next posts. 

Why I consider these three types of "entities" like money? Is your debit card money? what about your credit card? what about your savings deposit? What about cheques? What about the securities that you have in your portfolio -if you have any-, like bonds, stocks, stock options, futures etc?

Well, I consider all the aforementioned examples of money as, indeed and more correctly, instruments of credit or debt.

The difference is the following: 

1. money does not bring interest or commission costs when you use it. 

2. Credit brings interest and commission cost when you use it

3. Debt is the other face of Credit, ie, for every credit, there is a debt. For every creditor, there is a debtor. 

Let's make some examples taken from real life:

1. You go to the local market and you buy a sack of potatoes which costs you 5€. You pay cash. You get your sack of potatoes. The shopkeeper takes your cash. End of the story. There is an exchange of cash for goods, ie potatoes.

2. You go to the local market and you buy a sack of potatoes which costs you 5€. You have run out of cash and you pay with your debit card (bank card). You take your sack of potatoes. Your bank account is decreased by 5 €. The shopkeeper's bank account is increased by 5€. This is not the end of the story. To use your debit card, you need a bank account. This costs you in terms of commissions. To have the right for using the bank card reader, the shopkeeper needs a bank account, plus she pays extra cost for using the card reader. It is less money for you and the shopkeeper, more money for the bank.

3.  You go to the local market and you buy a sack of potatoes which costs you 5€. You have run out of cash and you pay with your credit card . You take your sack of potatoes. Your bank account is not decreased by 5 €. The shopkeeper's bank account is not increased by 5€. To use your credit card, you need a bank account. This costs you in terms of commissions. Plus, you need a contract with, for example, Mastercard. Each time you use your credit card, you are paid a commission for the transaction. At the end of the month, 5 € are subtracted to your bank account. 

Let's come to the shopkeeper, for her the situation is worse: to have the right for using the bank card reader, the shopkeeper needs a bank account, plus she pays extra cost for using the card reader. Plus, for each transition, part of the 5 € are kept by Mastercard, let's say 2%. At the end of the month, on the bank account of the shopkeeper ony 98% of the 5€ are transferred, ie 5*0.98=4,9 €. Ten cents less. 

If the shopkeeper 1  uses 4.9 euros to buy another thing by means of her credit card at another shopkeeper 2, and shopkeeper 2 goes to buy something at shopkeeper 3, and again and again, after 10 transactions, the original 5€ have become 4.1 euro. 0,9 € of the street guy's purchasing power have been destroyed or, which is the same, have been transferred to the types of Mastercard. 

4. You go on internet. You buy an antivirus license for 30 dollars. You pay with paypal. Paypal takes 2.9% + 0.3 dollars for each transaction from the seller's account. The principle is the same as example 3.

5. You go on internet. You buy an antivirus license for 30 dollars. You pay with bitcoin. 30 USD in bitcoin are 0.0465 BTC. You transfer 0.0465 BTC from your wallet to the seller's wallet. End of the story. 

NOTE: In some cases, a minimum fee may be required, a few USD cents, but the larger the pool of users, the less the fees will become.

With cash, after 10 transitions, 5€ are still 5€. With bitcoin, after 10 transitions, 0,01 bitcoin are still 0,01 bitcoin, with gold, after ten transitions, one ounce of gold is still one ounce of gold. No hidden costs. No commission cost, no interest.

6. You go to the bank and you ask for a mortgage, let's say 300 thousand dollars. The commercial bank, out of thin air, creates 300 thousand dollars, in your bank account. Now you have 300000 dollars of purchasing power. Of course, this comes at a cost. Firstly, you need to open an account, and, secondly, you have to pay an interest on that money. This interest is higher than the interest the bank pays you keep your money. So, it is not "real" money, it is CREDIT. You know how three hundred euros look like in the ledger of the bank? They look like this: "1001001001111100000". 

Now, let's suppose that you get out of the bank and withdraw 250 dollars from the cash machine. Your bank account has decreased to  299750 dollars. Now you have 250 dollars in cash and you can buy lots of sacks of potatoes. Is it real money? Yes it is, you can use it whatever you please. The problem is that you are paying interest on the original 300000 thousand, not on the remaining 299750! 

So, can we conclude that all money nowadays is in reality credit?

Yes, we can. The key point to understand here is how money is created, because money is created by commercial banks and each time a bank creates money, it creates an instrument of credit (for the bank), and an instrument of debt (for us, because we have to pay the original sum PLUS an interest).

NOTE: also Central Banks create money, but this money does not intervene directly in the economy of average Joe. We will talk about this in future posts.

The main difference is that, once credit has become cash, because you have withdrawn your money from a cash machine, the banks have no possibility to track it and to ask for extra commision costs or interest for each transition.  

So, in a nut shell:

1. Banks create money
2. Money is credit for the bank, debt for you
3. Money always come with an interest
4. When money becomes cash, or bitcoin, it can be transferred without extra commissioning or interest costs. Nevertheless, you still pay interest on the original creation of the money that you have withdrawn from the cash machine. You cannot escape from this.

I hope these examples have made things a bit more clear about the difference between money, credit and debt today. 

I will come back to these points many times in the future. 

Money is not related AT ALL with the effort that you make to do something. Not any longer, not in the present world. 

In most of the situations we only use the word money, even if what is behind it is actually credit. 

No problem. The important thing to understand is that nowadays money is credit, since it is created by commercial banks. 

So, in my future posts, unless I want to stress the difference between the three, I will use the term money, credit and debt interchangebly. And I will also explain why Credit is essential, and why Debt can be a good thing.

See you back in August.

Money series: what is money?

This post is part of the Money Series.
In a recent post, we have started to grasp the deep reasons of raising inequality in the western countries: in a nut shell, due to globalization and fiat money system, the western countries have undergone deindustrialisation, which has caused salaries to stagnate and debt to raise exponentially. At the same time, due to the huge mass of money created by commercial and central banks, the guys of Wall Street and of the financial City of London have seen their wages and benefits skyrocket.

In another post, we have discovered that amongst the many trends coming from the USA, there is the burden of debt taken by students who desire to get a degree: quite often, instead of finding a good job, they simply jump from one degree to another and remain unemployed or become waiters, bartenders or receptionists in call centers.

And, in another post, we have seen why countries like Italy, Spain or Greece have been suffering a lot since the crisis in 2008. Due to the stiffness of the euro system, creditor countries have literally "sucked" away wealthy from the peripheral countries. In other terms, not only the western countries have been struggling to escape from the grip of debt, but the euro zone countries in the Mediterranean belt have had to face extra problems coming from the adoption of a common currency. Italy, for example, has been experiencing the worst crisis since the unification, in 1861 (if we exclude two World Wars, but the TV news tell us we are in peace time).

From the examples aforementioned, we have started to catch a concept: money is not a trivial thing to understand.
If somebody is able to control how much money a country can dispose of, actually this somebody is able to make a country thrive or fail.

First of all, we need to understand what money is.
In essence, money is the means you have at your disposal

1.to be exchanged for goods and services, and
2.to be used as a store of value

In other terms, money is whatever is accepted between a large community of buyers and a sellers as a means of payment for goods or services: the place of exchange is commonly referred to as market. Therefore it is portable and it can be used as a store of value. And, due to the fact that you can use it for transactions of different quantities of the same stuff, it has to be divisible according to some metrics.

We are talking about large communities because an exchange between two persons may be a barter: there must be something that can be exchanged and exchanged several times, always being accepted and without losing purchasing power over the transitions.

Now let's clear up an important concept. According to my opinion, and I will keep this point in all my future posts in my blog, there are only three kinds of REAL money at present:

1. cash
2. gold
3. bitcoin

Let's discuss them one by one:

CASH: 
Cash, like banknotes and coins, is de facto the simplest form of money in circulation. It is used as a means of payment for transactions. It is portable. It is a store of value. Banknotes and coins are issued by the Treasury of a Country, in very limited quantity because nowadays most of the payments (over 97% of the total payments) are executed cashless, ie electronically.
The value of cash is based on the trust you rely on the government and economic situation of your country. If your country collapses, and you discover that to buy the same stuff you used to buy the day before you need the double of the notes in your wallet, well, cash become useless.
This is an extreme case, of course. But you need to understand the concept behind. Cash has a value because the government grants for its value.

Now there is an important point to catch here: cash does not return an interest. We will come back to this point in the future.

GOLD:
The most ancient form of means of payment and store of value, universally accepted. It is considered the definite money. Something that has "intrinsic value". This is not formally correct: whatever value is subjective but, since gold is universally accepted, both in time (present and past) and in space (different countries and states) then it is considered to have "intrinsic value". Of course if you are dying for lack of water in the middle of the desert, you don't give a thing of a gold bullion: you only want a bottle of water. But this is an example for academic purposes: when a grandmother gives her niece a present, it is generally a gold ring or a gold necklace , not a bottle of Perrier.
Like cash, gold does not return an interest.

BITCOIN:
It is an example of criptocurrency, at present the most diffused and used amongst the criptocurrencies.
Differently from cash (a promise to pay granted by the government) and gold (sound money), it is completely digital. It is a complex matter. For now, suffice it to say that there is no central bank that keeps control of the amount of bitcoins. The control of the payments is done via a decentralised set of servers. It has several pro's and some con's. The main drawback is that nowadays its market is tiny, very speculative, extremely volatile. Nevertheless you can purchase some things (both goods and service, like the subscription to an antivirus program for your pc) and it is especially suitable to grant anonymity (like cash) and for micro-payments (like cash) without paying fees to your banks. As far as I know, you cannot yet buy a car or a house in bitcoins.
Is it portable? well, not its classical meaning. You have a sort of "wallet"that is digital, and that is linked to your identity by means of a private and a public key. In any case, you can use it wherever you have a wireless connection with a smartphone. So, yes, it is portable, and thanks to your wallet, it is also a store of value. Bitcoin is, as a matter or fact, digital cash.

And, like cash, Bitcoin does not return an interest.


Today, cash is being banned. They say it is to contrast the criminal activities of drug dealers, tax evaders,  pimps and so on. Indeed, cash is such a small portion of the overall payments worldwide that this thing is ridiculous. There are many sophisticated and legal systems for eluding taxes; therefore the war on cash has another purpose, in my opinion. Cash grants for anonymity. Cash is not under direct control of banks. If there is a bank run, and the ATM's are closed (like in Greece in 2015), those who have cash are in a very strong positions with respect to all the others that have to queue in front of an ATM at five in the morning. By banning cash, if banks overnight shut down, you are shut down with them. So, in case of a bail-in, your savings can be sucked up to recapitalize the banks.
The simple idea of a bank-run would simply cease to exist. If cash is banned everywhere, which bank can you run to in order to take your money back if your bank is going bankrupt? Or if the government needs to raise funds from private citizens without formally raising taxes?
This is already happening: if you try to withdraw an important sum of money from your bank, this is seen as a very suspicious activity, even if you have worked hard for that money, for which you have paid all the taxes to the government, the town hall, the region, plus contributions to welfare, retirement funds etc. Just remember: when you deposit your money in a bank, that is not your money any more. It is a liability of the bank towards you. You become a creditor for the bank.


The main problem for a lover of civil freedom is that the control over the issuing of paper money (notes and coins) is centralized. This gives bankers and the government a huge control over your life. Bitcoin seems to overcome this problem: it is anonymous, it is decentralized. Plus, you cannot create bitcoin at will as you can do with paper money. This is important: the maximum number of bitcoins is mathematically fixed, so for sure the bitcoins in you digital wallet cannot lose value overnight once the bitcoins are sufficiently diffused and used by the people.

There are many other implication behind the ban of cash, but it is out of the scope of this post.
One point that I want to highlight is that the recent surge of gold is mainly due to the lack of confidence of major investors in the banking system. That is, lack of trust in the present credit system. This has driven also to a raise in bitcoin. Differently from bitcoin, gold is real, it is made of atoms, atomic numeric 79. Bitcoin is not electrons, it is even less than electrons: it is complex coded information. I do not fins in any books I have read about bitcoin this concept, ie that bitcoin is coded information. Ans, as information, it can be potentially hacked and needs hardware to be stored and used.

In one of the next posts, we will discuss what credit is, why it is different from money, even if we use the words credit and money interchangeably. Indeed, doing so, we are confusing the average street guy. And we will also talk of the other side of credit: the debt.

Survivalship: is still the college worth it?

I do not know if you have ever paid attention to this, but how often are you told that you need to improve your skills to emerge in today world?

Quite often, I guess.

The problem, here, is that very often it is completely up to you to get the necessary skills to cope with today's world challenges. School/university does not help you.
Let's make an example.

Thirty years ago, if you were a simple undergraduate, you could find a decent paid job easily.
Today, even if you have a degree, it may become impossible. Or, even if you find it, the wage is so low that you struggle to get to the end of the month with your payments.

I have discussed the reasons behind the raising of inequality in Western Countries in this post.

Newspapers and magazines and TV news continuously hammer the average citizen with headlines like "unemployment is raising (in Europe)" or "unemployment is decreasing (in USA"), but there is a common line: wages are decreasing, or are stagnating, and in order to keep up with the payments, household debt is raising. This is due to decreasing productivity, we are said, in that we cannot compete with chineses and indians (it seems our fault, indeed) so in order to increase productivity, we can choose between two paths :
1. Decrease salaries, so that the final product of our factories is more attractive to foreigners
2. Increase technological innovation, including skills of the workers

The first solution, that is to stop increasing salaries, is the preferred one by mainstream economists and politicians: it is immediate. It also perfectly matches another policy: currency devaluation.
NOTE: currency devaluation is that process that makes your currency less expensive to  foreigners. This is vey on hype nowadays, and it is only possible in today's world ruled by central banks. In a Gold Standard, that was not possible. I will cover this topic in one of my next posts.

The second solution can be achieved only on a long term basis: it requires investments, it requires cooperation between universities and industry to educate and train young generations, and, above all, it requires political stability, in that if each newly settled government changes their idea every three to five years, the long term investment policy is not achievable. And, since governments are always broke, they typically do not invest as much as it is necessary. They need to raise cash here and now.

NOTE: you could object that productive investments only come from the private sector. It is not true.
Real huge technological breakthroughs have been achieved only thanks to government fundings: internet, GPS, nuclear energy, radar, touch screens, electric cars, telecommunications advancements etc. are products of large scale government investments. The reason is simple: only a government can take upon itself the risk of developing complex and challenging new technologies. I will cover this topic in one of my next posts.

In order to escape from this debt spyral (low wage --> high debt --> less resources to keep up with technological innovation --> lower wages --> higher debt --> etc) they are suggesting you to increase your skills.

At first glance, it makes perfect sense: to get a better job, you need to be better than the competitors.
But, as usual, the devil lies in the details.

Just ask yourself these two questions:

1. what will be the wage increase for this extra studying? In other terms, let's suppose you spend three to five years to study and get extra skills, and it costs you 50 thousand euros, how long do you need to repay your debts?(and just imagine that before even asking for a 300 thousand euros, you have already 50 thousand euros of student's debt on your shoulders...)

2. WHAT am I going to study to increase my skills?

What follows is based on what happens in the USA, that may become also a reference in the future in Europe (hopefully not, but I guess we will follow USA's policy, as usual)

Let's get to the first point, that is the "return on investment (ROI)" of your studies. In other terms, for each dollar invested in education, how many dollars shall I get? Well, the situation may become frustrating. "What is not in doubt is that the cost of university per student has risen by almost five times the rate of inflation since 1983, and graduate salaries have been flat for much of the past decade. Student debt has grown so large that it stops many young people from buying houses, starting businesses or having children. Those who borrowed for a bachelor’s degree granted in 2012 owe an average of $29,400". (see here)

In other terms, if we look at things from a different perspective, we understand that creating a private collage for an entepreneur in US can turn out to be very very profitable, especially thanks to government tax breaks and the fact that students get overburdened with debt to pay the education fees . For a student, it may not. A student can become a sitting duck. 

Education is expensive, there is no getting around it. In US, a four-year degree at a public university costs, on average, 37343 dollars, while an education at a private school will cost 121930 dollars, on average!

This brings us to the next point: What to study?

For sure, some degrees pay for themselves, others do not. And, according to this table, we discover that you may need up to 20 years to repay your student's debt if you choose a degree that leaves you with with a low salary but high student's debt, like a degree in veterinary medicine.

So, to get the RIGHT skills, at a decent prize, is mandatory.
Just think about your education as your most important asset. I mean professional education, your culture is another thing. Culture helps you live your life better, professional education gives you the means to sustain yourself and grants the free time to get yourself a culture.

Which are the college degrees with the worst ROI, ie the worst salary with respect to the bent-over- books years?

WORST (from the worst of the worst to the least worst):

1. Sociology
2. Fine Arts
3. Education (teachers  - very sad, since they are the pillars for future generations)
4. Theology
5. Tourism
6. Nutrition
7. Psychology
8. Communications (for ex. news reporter, marketing coordinator)

BEST (from the least of the best to the very best):

1. Math
2. Information Technology
3. Human Resources
4. Economics (be aware that there is the desk clerk and the banker..)
5. Biology
6. Engineering
7. Marketing
8. English (for ex. mean speech writers, communication managers and web content managers)

It is interesting to remark that attending private colleges is so expensive that, on average, it is better to go to public colleges. 

Now, let me give you an advice: average salary will grow less and less, and I explained the reasons  here. Due to deindustrialization and globalization, many jobs are moving from the Western Countries to the Asian countries, so there is less need for engineers, doctors, etc with respect to the growing population of graduates. There is going to be an oversupply of professional figures almost everywhere.

Therefore, be aware that to get better salaries, you will likely end up in moving to another country or state. Just try avoiding manufacturing divisions of big companies(which are delocalizing, will be massively affected by 3D printing and by the forecoming robot revolution); focus as far as possible on disciplines with high human added value or with an expanding market.

And, increase your financial IQ to understand where the world is going.

So, to answer the question in this post's headline: is the college still worth it? the answer is YES, but 

1, you have to pick up the right degree

2. knowledge is becoming "distributed", thanks to online training and teaching. And the quality is improving. So, if you are not rich, do not get too desperate, public colleges are better than private colleges in terms on return on investment and very cheap on line universities may be a very good choice in the future. 

Finally, I leave you with this graph: unemployment is less severe for college graduates, even if the salary is not as good as it once used to be.

Italy: story of a crisis

I left Italy in the Summer of 2014.

I should say: I escaped from Italy in 2014. Maybe I am part of the "brain drain"since I have a degree and experience in the space business. But the point here is that I had a permanent job in Italy. I was not unemployed. I was not "young" (I was 40 years old), I had a family, a house without a mortgage, many good friends and a much-loved elederly father. If I had failed abroad, I had no parents to come back to. And I was asking my kid and my wife to learn a new language, find new friends, get used to new habits.

You know, I want to speak about economics applied to everyday life, and I have to start from the life of a guy I know best than anybody else: myself :-)

Differently from those who move from one country to another simply following the decisions of their companies, so their company is always the same, I was leaving a giant of the aerospace industry to move to another place.
So, to leave all these certainties, I had to had a very strong motivation.

Where was this motivation coming from?

The motivation in my case was the firm belief that Italy sooner or later would collapse. And that the labor crisis was eating my salary, the ability of my wife to find a better job. I wanted to have a better wage, work in a multicultural environmnent, count on my strength and skills to improve my life quality. I wanted to have extra time for myself, to study economics and finance to take care of my future retirement. To have extra time for studying was imperative: it makes no sense to give all your time/life to your company, or to find a second job for a living because money is never enough and you have to "downsize"; I simply HATE the idea of downsizing.

The main point of course is that had not Italy been in crisis, and had I not the strong belief that the crisis would have gone deeper and deepert, I would have never left my Country.

So, why is Italy on crisis? and like Italy, Spain, Portugal, France, not to mention Greece, which is only a shadow of the country it used to be before 2009?

There are many reasons, of course: some blame Italians for being too lazy, for having too many unproductive civil servants, for not investing enough in new technologies, for having a labor force that is enslaved to unions, for having too many and too small enterprises. Not to mention that they say Italians have mafia-spaghetti-mandolino issues (I have not seen a mandolino in my whole life, but let's make Americans happy with their classic views of Italy), they are corrupted, their justice does not work, their politicians are ineffective and ignorant.

This is what you typically find out if you read Italian press. We have to acknowledge Italians for being absolutely self-racist.

I have worked with many engineers coming from different countries, I have met many people in Europe and I think that Italians, on average, have the strenghts and weaknesses like any other other people. Not the SAME weaknesses and strenghts, of course.
But this is a personal consideration. I may be wrong. So let's use another metric.
Since so many countries are struggling in Europe, how is it possible that we share the same weaknesses, from Ireland to Finland to Italy to Greece? And how's that possible that 15 years ago all of us were in a better shape?

To me the answer is simple: the euro. The currency euro.

You see, a currency is not only the means you use to pay for your groceries or the gasoline. Those who control the currency, control an important part of our freedom and the range of our choices.

Let's start with two countries, that we call I and G. Let's suppose that they produce the same products, for example automobiles. In a free currency market, if I has a high rate of inflation than G, then the same product will cost more. In this situation, less people abroad will ask for the cars manufactured by I, and more people abroad will ask for cars made by G.

So, more people will be willing to pay cars, that are priced with G-currency. If demand is raising, G-currency will appreciate with respect to I-currency. As a consequence, G-cars will become more expensive than I-cars. There is an automatic balancing system, obtainted through the free currency exchange market.

When a currency is fixed between I and G, this balancing system does not work any longer. Country G will not see its currency, the G-currency, appreciate, if many people buy its cars,  and its cars will always cost less! for year and years running. At that point, also people living in I will buy only G-cars, because they will become cheaper and cheaper, year after year. And I will get de-industrialised because nobody will buy I-cars. Unemployment will raise. Taxation weight will raise since the country I will see the return from taxes collapse due to the crisis. Banks will see bad loans skyrocket  because unemployed people will not have money enough to pay for the mortgage. Therefore, real estate market will collapse.
Country I could, in principle, save the distressed banks and companies by increasing the public debt, but, maybe, country I is part of a political club that prevents I from doing that. If I want to get money, I must approve "structural reforms", that is cuts to welfare, cuts to education, cuts over cuts. Only at that point, country I has the right to ask for loans to the IMF, International Monetary Found, of course by paying interests on those loans.
In addition to that, also if country I could start spending public money to help its citizens get through the bad moment, the citizens would start again to buy G's stuff, because G's stuff is still more competitive, due to the mechanisms explained above.

Whatever you do, you end up badly.

Let's suppose that I is Italy, and G is Germany. But I could also be France, Spain, Portugal or Greece.

You do not believe me? look at this graph.

This graph shows an interesting point: starting from 1999 (when euro was born) Germany's trade balance exploded while the trade balance of Greece, Ireland, Portugal, Spain and Italy collapsed.

NOTE: the current account, in the picture, comprises the trade balance, which is by far the most important contributor to the current account. 


If you want to have a better insight, there it is.

So maybe now I have provided a good explanation of the reason I left Italy.

1. Italy is part of the eurozone
2. Italy saw its manufacuring industry collapse
3. The salaries were decreasing and the taxes, for those who still had a job, were raising
4. The real estate market was collapsing, and the welfare was getting worse and worse
5. Unemployment was raising
6. I was working in the manufacturing sector, in a company owned largely by a French multinational. So, they had to focus on investments in France, not in Italy. It was a sensible approach.
7. They had started sending me (and many other colleagues of mine) here and there, wherever there was a bit of demand for an engineer, even if I was overqualified. I started also working in night shifts. I was just a "hole filler". My company could do nothing else to prevent that. We were overstaffed for the amount of work we had been given for the following two years.
8. Should Italy decide to leave the eurozone, the financial markets would punish my Country by selling billions of Government securities all at once, sending Italy to bankrupt. Technically, this is called default. It already happened in 2011, and we know what happened afterwards. Three prime ministers in 5 years, and none of them had been elected. This is called the end of democracy.

In a nut shell: due to the euro constraints, the situation cannot improve for none of the countries depicted above, including France and Finland.

It is not my opinion. I wish it was my opinion.

It is mathematics. Like two plus two equals four.

And now? well, now the situation has vastly improved. I am still trying to sell my house in Italy, since the real estate market is ...well, distressed to use an euphemism. I will buy a house in the Netherlands when times are mature enough.
I think that had I started studying economics five years before, I would have made completely different choices. It is my only, big regret. It is never too late, I say to myself, and I always foster people who find themselves uneasy in their home country, to leave and face new challenges elsewhere. 

Money Series: Origins of inequality

Who drives economic growth in the world?

Answer: the United Stated of America, by far.

In this post, I am going to explain why the importing countries ARE the drivers of economy in the world, and the deep causes of raising inequality in the western world.
There are many important concepts in this post, and, as far as I have read on internet, nobody has put so many different slides in one single post in an amateur blog to explain the origins of inequality from such a large number of different angles.

When newspapers say that Germany is the locomotive of Europe, they are dead wrong. It is the net importers in Europe that are the locomotive of Europe.

Here's why.

First of all, every country has imports and exports. When there was a gold standard, the trade balance had to...well, balance! if a country exported more than what it imported (the country was in trade surplus), there were compensating mechanisms that made its exports more expensive. As a consequence, after some time, the exports became more expensive and the exporting country became less competitive. Imports would rise, and a new balance was reached.

NOTE: we will examine the compensating mechanism in the gold standard in another post. Today I want to draw your attention to the trade imparities in a fiat money system, like the one we are living in today.

Today, this compensating mechanism no longer exists.
A country can increase indefinitely its trade deficit or surplus, for many many years in a row.

First, let's have a look at this graph:

NOTE: This graph is taken from here. The data are referring to 2014.

We can see that there are countries which are net exporters (that is in trade surplus, bars on the right) and countries that are net importers (that is in trade deficit, bars on the left, negative numbers). The USA, last line, are by far the most important net importer in the world (800 billion dollars in 2014 means that they could buy all the excess production from China and Germany combined!).
This means that if the USA should end up in crisis, and stop buying German vehicles and Chinese computers (and broadcasting equipment, telephones, integrated circuits etc), then for China and Germany the situation would be really bad.

In other terms, if the two most important net importers like UK (ops, did I mention Brexit??) and USA would stop printing dollars and pounds to buy stuff  (ie goods and services) from Germany and China, the world economy would collapse.

It is the net importers that drive the economy. If net importers, like USA and UK, stop creating money out of thin air and buy products and services from the rest of the world, there would be nobody to sell stuff to.
But, is it possible to buy stuff simply printing money?? It sounds like a free lunch, and we are told that that there are not free lunches in life.
The answer is..yes. With several "buts".

To understand how this is possible, let's have a look at the US trade balance historical chart. US are the big champion of trade deficit, and we are very intrigued to see if they have been in trade deficit only sporadically, or on a systematic basis.

WOOOOOOOWWWW!!
Since the mid Seventies the US has been always in deficit! they have always imported more than what they have exported. We can see that the peak in the deficit was reached just before the big crash in 2008.

Now I would like to show you another graph...the stagnation of US wages

NOTE: folks, wages in Europe have been following the same downward trend.

The graph is taken from here.

The dark blue line shows the productivity in US, that is how much product you create during your working time. You can think of it in this terms: if technology evolves, to build a car you do not need one month, but one week, with the same number of workers. In other terms, the productivity for a worker has increased four times.
You would expect that if you build a car four times faster, you are paid four times more. This graph shows that  this was not the case. The light blue line shows the increase of compensation, that is how much you are paid.
You can see that, starting from mid seventies (again the mid seventies!), there is a gap becoming larger and larger between productivity and salaries. Now, you may question: if cars are sold, and I am paid the same, who gets the  profit from the extra cars that have been sold?

Ehm....the answer is the corporations. And the guys of the Banks and Wall Street that work to give corporations enough credit to build new factories and enterprises.

How's that possible? Well, if I am right, then banks should have seen their balance, that is their assets literally explode from the mid seventies. The commercial banks should have created other money to let people buy all those imported stuff and, since wages were suffering, to give families extra credit to buy theirs homes with 10, 20 and then 30 year mortgages!
There is a metric that lets us understand if there is more money around. This metric is called M2 Money Supply. Just think of it as the sum of all the money in your bank account.

NOTE: The exact definition of M2 can be found here

WOOOWW! (again)

The money created by banks has literally exploded since the mid seventies. After mid Nineties it has become almost parabolic.

So, we can say that we have seen things from quite different angles. And we have some clues. From all these charts, we can say that something happend in mid Seventies that changed the rules, ie:

1. The US became net importers (financing Japan and China boom in different decades) 
2. wages started decreasing
3. banks started having bigger balance sheets

It is no mistery that the guys of finance have become richer and richer, since they were managing more and more money. But do we have another metric to verify that inequality has become wider in US in the last 40 years, since the mid-seventies?
Indeed, such a metric does exist, it is called the Gini index: the higer it is, the bigger the gap between the richest and the poorest in a country. In other terms, the Gini index is a measure of inequality.

NOTE: the exact definition of the Gini index can be found here.

This graph was taken from here.

Indeed, we find a confirmation of our findings: the inequality has become larger and larger since the mid Seventies. Before that, inequality had been decreasng since the beginning of WWII.
At this point, we have all the evidences we need to understand that something in mid seventies happened. This let the US to run huge trade deficits: this has caused raising debts for families, increasing inequality, huge profits for people working in the finance sector.

Now you start grasping the surface of why we are so deep in debt.
Since the Seventies, wages have not risen at all, while profits for multinationals and the guys of Wall Street have skyrocketed. This has led a family father of the Seventies to apply for a 15 years mortgage to buy his house and a family father of the 2000's to apply for a 30 years mortgage.
Money has been vastly created, but much part of this money have gone to the richest.

The main event that led all of this happen, since the very beginning, was the abolition of the Gold Standard in 1971 by the USA. 

By abolishing the Gold Standard, trade balance had not to balance any longer: USA could print dollars and buy all the stuff they needed. In this way, they fell heavily into debt: normal workers had to survive, the guys who managed the money thrived.

Thanks to the invention of fax, of tele typewriter, by the beginning of 1970's it was possible for the guys in the finance to move capital from one place to another over the planet. So, it was possible to buy stuff on a large extent from overseas. These huge amount of freshly printed money let Japan first, and China later, to boom.

Unfortunately, if other countries are producing, the countries that buy the imported goods and services get deindustrialised. If are so eager of a Green economy, then you hae to accept the fact that your unemployment will raise, if you want to be competitive: becauses factories will move abroad.
This topic is very intereseting and a MAJOR impact on our lives.

But the key point I would like you to remember from this post is that it was the break up of the gold standard that triggered booms in Asia, deindustrialised Western Countries and make wages stagnate.

Home Sweet Home: when to ask for a mortgage?

Last time, in the Home Sweet Home series,  I wrote about the mortgage issue nowadays, ie that when the interest rate that a bank asks for your loan falls, it is convenient to stay on rent for some time, waiting for the interest to reach a "floor", a minimum, before buying a house.
A person may argue that if interest rates are falling, then more people are willing to buy a house, to real estate market is going to raise, so the benefits coming from a reduction in the interests are completely wiped out by a raise of the house price.
You may have a point on that, theoretically, but you have also to consider that:
1. The real estate market depends on the possibility for ordinary households to get into more debt: if your wages are stagnating, and taxes are raising because there is no growth but the government has to pay to keep the welfare system alive, and confidence in the future is low, not many families are willing - or can afford- to buy a new house and the stay at the window waiting for better times. The bust of 2008/2009 is still vivid in our memories.
2. Elderly people are getting older in nice districts and sometimes they die, often leaving vacant expensive houses. Many migrants are coming, but their wages typically are very low, so they tend to live in bad disctricts and poor outskirts. So, good mansions are raising less, or not raising at all, than low level houses.
3. Rich people abroad invest in hi-prestige mansions in the centre of important cities, not in the outskirts or in small town close to Amsterdam or Rotterdam.
4. Due to Amazon and internet selling and improved logistics, many malls are dying, so freeing further cubic meters for renting or selling. This is a very long term process, but it is going on right now.

The key point, here, is that households are deep in debt. My opinion is that in the near future (within 1 year from now) interest rates will be lower and house prices in the Netherlands will not raise that much. I guess that a good time for buying a property will be in the first quarter of 2017. Why? because at that time the market might already start to price the end of Mario Draghi's Quantitative Easing (QE), ie there will be less liquidity in Europe for banks and house prices will fall again, while the interest rates will still be very low, close to zero. I also think that there will be a new QE in USA, which will further drain liquidity from Europe to USA. So, less cheap money for banks to be invested in real estate for "buy to let".

Many analysts foresee that another world crisis is looming. Well, for sure there are important banks in very bad shape in Europe (Deutsche Bank in Germany and Unicredit in Italy, notably), China is slowing (maybe it has not grown at all last year), and USA are tightening their imports: remember, if the USA stop buying, the world collapses. It is not the exporters who make the world a decent place for a living, it is the importers. Because if everybody is exporting, and there is nobody to buy stuff, your investments and your factories, go bananas and the bank system that financed those investments go bananas too. And if workers in factories are fired, then the property houses fall. Everything is connected.
You should also consider that, differently from a family who has a ceiling on the debt it can tolerate, a country with a Central Bank, that is a lender of last resort, can always create money from thin air, by means of securities issued by the Treasury that its Central Bank buys.
In other terms, unless a Country owns debt in a foreign currency (for example like Argentina or Brazil that are full of debt nominated in USA dollars), the Treasury can always issue debt that is bought by its Central Bank and whose profits are then turned to the Government. Zero cost and lots of credit around. I know, it is a bit complicated, but I will explain this point another time(see Money Series in this blog)

If a crisis will strike this Summer 2016, well, it is even better if you have a secure job and some cash to buy a house. If you don't, save money and improve your financial QI in the meantime. Your best asset to invest in is between your ears.

Money Series: Index

What is money?

Fig.1: Stone money

Fig.2: modern money

This is one of the most difficult questions to answer ever. Money can be different according to the historic period you are living in; something may be money for somebody but not for somebody else. Sometimes money is a physical piece of metal, sometimes money is only a promise to pay. Today it may be even a promise of a promise to pay.
In today digital era, money can even be virtual, intangible. It is a sequence of 1's and 0's in a ledger, typically a hard disk, in one or more banks.

Can money be created? if so, who can create money? how is money created? where does money come from?
We always hear at the TV that we are full of debt, that countries have huge government debts. Is debt a form of money? Is government debt different from household debt? Or are they essentially the same, since a government is the executive branch of a country and a country is made up of families?

As you see, the more you question about the nature of money, the more you may get confused.

This is the first post of a series that I call "the money series". We will see what money is, how money is created, who is in control of it, in today's world.
We will cover (well, at least, try to cover) the following topics, not necessarily in order since I am not going to write a textbook. Some of the posts are also available in Italian.

1. Origin of money (no, it is not the barter)
2. Characteristics of money, whatever means you use as money
3. Sound Money, intro to Gold Standard
4. Fiat Money, current era
a. Origins of inequality

(in English, here); Le origini della disuguaglianza (in Italian, here)

5. Difference between money and credit

(in English, here) 

a. What is money

(in English, here)

b: how money is created nowadays by commercial banks:

Part 1 (in English, here) - (In Italian, here)

Part 2 (in English, here) - (In Italian, here)

Part 3 (in English, here) - (In Italian, here)

c: What bank reserves are and why they are fundamental

(in English, here) - (in Italian, here)

6. Fractional reserve banking demistified: an inaccurate model

(in English, here) - (in Italian, here)

d: difference between money created by Central Banks and Commercial Banks
e: what are the consequences on trade between countries in a fiat money system
f: bubbles in a fiat money system: ex. Japan and China
g: how can financial crisis and wars be so frequent or long?
h. Virtual Money
i. Criptomoney, like Bitcoin
l. Technology innovation or financial innovation? root causes of raising inequality

If you may find this interesting, please leave a comment with suggestions.

I would like to stress the following point: I am an engineer, so a person with a strong technological background, therefore I started my economic studies with an important bias in the methodology for approaching finance and history of money. I used to think that technological innovation drives almost everything: this turned out to be a mistake. Technology innovation is only possible when financial tools are available. I will prove you that in this money series. I had to turn inside out some very deep convictions that I have had all my life. Literally, I had to eradicate many of the certainties I used to have (because those "axioms" were taught to me at school) in terms of progress and historical causes for wars and famines.

This is to tell you that studying how money is created may change your view of life forever: for sure, it changed mine.