Your Guide to Economic Jargon, Lingo, and Gobbledegook
Many folks find economics confusing. Not only are the concepts sometimes a bit much, the reader can get lost in a sea of jargon, lingo, and gobbledegook. With this set of definitions I hope to aid in this confusion. We'll start with some basic terms, which would be jargon. Next we move on to secondary terms, that's lingo. Lastly we have specialized terms, known as gobbledegook.
When you invested your money you hoped to get richer, instead you're broker. Your broker is there to help you do this. No matter how much money you lose, have no fear because the broker makes a commission so they'll always be around to help you do it again.
The Central bank is in charge of the money supply and interest rates. This is supposed to smooth out booms and busts and protect the value of the currency. At least in theory.
In the U.S. the central bank is the Federal Reserve created in 1914. The longest, deepest depression ever began 15 years later. Since the Fed started protecting its value, the dollar has gone from one dollar to four cents. Give them some credit though, the boom in the number of dollars has been going on smoothly for about 100 years now.
Stock markets go up and down, there are booms and busts, inflation and deflation. These are called economic cycles. This happens because people keep making the same mistakes over and over. Only over time it's different people, but the mistakes are the same because every generation has to learn the lessons over again for the first time, if you know what I mean.
As Friedrich Hegel said, "The only thing we learn from history is that we learn nothing from history."
They say economics is the dismal science, which would make economists dismal scientists. Economists work with theories, models and aggregates, also known as lies, damned lies, and statistics. If you let economists do your bookkeeping you'll go broke. Though you'll be rich on paper.
This is where money is redeemable for itself. So a dollar is worth a dollar because it's worth a dollar. Which sounds like circular logic, but that's the essence of it. With fiat money when banks or governments need more money the central bank just prints some. This is called accommodation. Though if you tried accommodating yourself this way it's called counterfeiting.
This is where money is made of or redeemable for something real and hard, like precious metals, rare stones, or cartons of cigarettes. It's hard to make coins out of stones or cartons of cigarettes so gold and silver are usually used. This is unlike fiat money where there is very little gold in coins. By very little I mean none.
Banks and the ultra-rich transfer money around, sell imaginary goods and services and make commissions and bonuses off it all. Then when all their monetary shenannigans blow up they get bailed out by the government. If you tried any of it and asked the government to save you they'd ask, "Are you high?" Hence, high finance.
Stocks and Bonds
Stocks are ownership shares in a company. Bonds are loans to businesses or governments. These are the goods your broker bills you for when they sell you a bill of goods.
This is an economist who believes the less government intervenes in the economy the better. Not surprisingly nobody in government listens to Austrian economists. Not even in Austria.
A balance sheet is bookkeeping designed to show an insolvent entity is rolling in dough. This is done with an accounting method developed by economists consisting of extinguishing debts by pretending they don't exist and calculating asset values by wishful thinking or how much they'll bring in a government bail-out.
This is where the ultra-rich elite are in bed with the government. Only it's everyone else who gets screwed.
This is an economist who thinks governments and central banks should manage the economy. Problem is, economists, politians, government bureaucrats, and central bankers all have different ideas on how this should be done. They can't all be right. But they might all be wrong.
This is someone who doesn't believe in supply and demand, but supply and command. In practice they're good at commanding, but not so good at supplying. They solve shortages of supply by eliminating demand, meaning people.
This is an economy that's partly free markets and partly centrally planned. This way a country can have the problems of both crony capitalism and communism at the same time. This works politically so each side can blame the other when it fails.
This where the capitalists of crony capitalism are. The cronies are in Washington DC passing rules and regulations. The legislation is usually unworkable. That's OK because so are the economic theories they're based on. This is a double negative that creates a positive. At least a positive for Wall Street, for everyone else not so much.
The term comes from the word agree. Aggregates take the actions of millions of people and turn them into a single action as if they all agreed on this action, which they didn't. But then, economists don't agree on what aggregates should be so it works out. In aggregate.
Consumer Price Index (CPI)
CPI is a way to measure inflation. They do this by checking the prices of a representative basket of goods. Since the experts recommend inflation of 2% they change the items in the basket so it comes out to 2%. Economists call this adjustment. Though everyone else calls it lying.
This is where the value of money increases and prices and wages go down. This is good for savers and bad for debtors since they owe money that gets harder to come by. Since all governments are debtors their central banks will try every trick in the book to avoid deflation. When that doesn't work they rewrite the book.
Since mainstream economists dread deflation they use the euphemism disinflation instead. With deflation the economy shrinks. Whereas with disinflation the economy experiences negative growth. And your income disincreases or you become negatively employed.
Gross Domestic Product (GDP)
GDP is a series of aggregates added up to a single dollar amount. (consumption + investment + government + exports - imports) This figure is essentially meaningless to everyone except government central planners and central banks who use it in a series of formulas to mismanage the economy.
The word comes from the same root we get hedonism which means if it feels good do it. Hedonics is the same idea applied to economics. Just as a massage feels good, massaged numbers feel good, too. This is supposed to bolster consumer confidence. In this way no matter how poor you become you'll feel good about it.
This is more money chasing fewer goods. Inflation happens when the banks loan gobs of money to grow the economy, figuring if there's more money everybody buys more stuff. It's a way to make everyone a millionaire, though a loaf of bread costs 10,000 dollars.
The extra money gets its value from existing money, sort-of like dividing a dollar in half and calling each half a whole dollar though it's then worth 50 cents. Over time each dollar is worth less and less until it's worthless. If anyone else gave you little bits of paper for $1.00 which turned out to be worth 50¢ it'd be called theft by fraud. When central banks do it it's called monetary policy.
Instead of stealing by fraud half your money at a time as explained above (inflation), the central bank sets a target to take it a little at a time so you might grumble but not revolt.
Quantitative Easing (QE)
Quantitative refers to quantity, in this case the amount of money. Easing means easier to come by. So QE means easy money. This easy money is provided to Wall Street banks who went broke through malfeasance and incompetence. This keeps the banks in business to continue their malfeasance and incompetence which is deemed indispensible to the economy.
This is not all the jargon, lingo, and gobbledegook used by economists. They also have fun-sounding terms; dumb money, liquidity, fiduciary, trickle-down, and fungible for example. We've barely even scratched the surface of the many acronyms; POMO, ZIRP, TBTF, FUBAR and on and on. Still, the only term you really need to know is...
Greater Fool Principle
This is where fools overpay for overpriced goods which they intend to resell later for even more to a greater fool. Everyone gets rich reselling the increasingly overpriced goods until they run out of fools or the fools run out of money. Then the government bails them out as the greater fool of last resort.
Of course, the government gets its money from taxpayers, making the taxpayer the greatest fool of all. After all, they elected the politicians. As P.J. O'Rourke said, "A little government and a little luck are necessary in life, but only a fool trusts either of them."
© Terry Colon, 2011