in which kevin reoccupies wall street, part two

[erf_]

Most of this post was originally written in response to a question by my former housemate on Facebook on what Wall Street actually does. It summarizes what I spent this afternoon telling the protest camp at Zuccotti Park today. He requested that I post it on a blog somewhere, so here goes.

Comments

[elentiriel]

Good posts, but I have a question about the bit when JP Morgan tried to buy the entire supply of silver.

I remember that in the news last year, and the outcry it provoked. My question is that given banks have gold and silver bullion and then some in "abstract" to peg money values to, if a bank tried to buy all the gold in the world, and that some countries have pegged their currencies to gold or silver, then wouldn't a bank own the country's money if the bank was successful in buying all the precious metal?

And you're right about how economics should be a mandatory high school class. I'm glad I was required in the end to take agricultural and environmental economics even if it was more specific than basic econ, but at least I got some basic general econ concepts out of them.

[erf_]

Yes, they would--which is why countries that back their currencies with gold or silver traditionally keep reserves (i.e., hoard) vast quantities of it. Fort Knox, for example, was intended to house US gold reserves back when the US was on the gold standard. Countries could defeat a run on gold or silver by simply ceasing to sell theirs, and also fill their treasuries in an emergency by putting some on the market again. Their economies would still be vulnerable to other countries (or corporations!) that held more enough of it to override their own influence on market prices.

Nowadays, however, the most common reserve currency is the US dollar. Which the US Treasury does hold in large amounts, and bring out to to control the value of the currency. See quantitative easing.