How important is the work done by people who work in finance?

[Grands]

Hi guys.

Due to the reason that I do not have a great knowledge related to finance, I wanted to ask if someone can simply explain me how important is for the society, the work of the people that work in the finance.
How their job is useful for the people?

Thanks
Grands.

 

[Borek]

work in the finance.

Define what you mean by that.

 

[phyzguy]

Hi guys.
Due to the reason that I do not have a great knowledge related to finance, I wanted to ask if someone can simply explain me how important is for the society, the work of the people that work in the finance.
How their job is useful for the people?
Thanks
Grands.

I don't know about you, but I find it very useful to be able to buy things with my credit card, and to be able to put the card in an ATM and have it give me cash. Who do you think makes that happen? Also, I much prefer to have my savings stored in the bank instead of under my mattress.

 

[Grands]

I don't know about you, but I find it very useful to be able to buy things with my credit card, and to be able to put the card in an ATM and have it give me cash. Who do you think makes that happen? Also, I much prefer to have my savings stored in the bank instead of under my mattress.

Engineers, computer scientists and bankers.

 

[phyzguy]

Engineers, computer scientists and bankers.

All of whom work in the finance industry.

 

[Grands]

All of whom work in the finance industry.

I was referred to people that have a specific degree in Finance.

 

[phinds]

@Grands, your question is excessively vague. You have cleaned it up considerably by adding that you are talking about people with business/economics degrees (which is how I interpret "Finance") but you have given no clue what you mean by "important for society"

 

[Grands]

important for society"

With the expression: importance for the society I was referred to their contribute to people, like engineers create technologies and energy, lawyers defends people, veterinaries take care of animals, computer scientists write codes etc...
In this way, what a person with a degree in finance do?

 

[phinds]

With the expression: importance for the society I was referred to their contribute to people, like engineers create technologies and energy, lawyers defends people, veterinaries take care of animals, computer scientists write codes etc...
In this way, what a person with a degree in finance do?

Basically all of our lives revolve to one degree or another around the global financial system. It's what greases the wheels of the commerce that allows us to buy the clothes on our back and the food we put on our table. How much more important could it get?

 

[Grands]

Basically all of our lives revolve to one degree or another around the global financial system. It's what greases the wheels of the commerce that allows us to buy the clothes on our back and the food we put on our table. How much more important could it get?

How do they do that?
They decide how much money to put in circulation ?

 

[russ_watters]

How do they do that?
They decide how much money to put in circulation ?

That's one small part of a huge set of industries.

Have you googled "what jobs can a finance degree qualify you for" or "what is the finance industry"?

 

[newjerseyrunner]

How do they do that?
They decide how much money to put in circulation ?

No, that would be the Fed. The "global financial system" usually just refers to the banks. They don't rely on actual money, they rely projections based on how much money they think they'll have in the future (credit). Bank A will borrow money from Bank B on order to fund something big. Bank B borrows that money from Bank C, which in tern borrows it from Bank A. This cycle works as long as everyone pays back what they owe in time, but it's finicky because if one of those banks can't pay, you end up with a chain reaction and an economic implosion. That's kind of what happened with the .com bubble and the housing boom, banks were borrowing and lending way more money than they actually had and it caught up with them. Credit is the basis for our modern economy and has been since the 20s, not money.

 

[TeethWhitener]

https://en.m.wikipedia.org/wiki/Financial_services
Pretty important stuff here. On the other hand, more than a few economists have argued that many of the recent financial innovations (complex derivatives, etc.) essentially constitute a form of rent-seeking (a debatable proposition, but probably at least partly true).

 

[phinds]

How do they do that?

https://en.wikipedia.org/wiki/Global_financial_system

 

[BWV]

The USSR had scientists and engineers of comparable quality to the West, but no finance people-how did that turn out?

 

[Grands]

The USSR had scientists and engineers of comparable quality to the West, but no finance people-how did that turn out?

Do you mean that knowledge without money became useless ?

 

[Grands]

No, that would be the Fed. The "global financial system" usually just refers to the banks. They don't rely on actual money, they rely projections based on how much money they think they'll have in the future (credit). Bank A will borrow money from Bank B on order to fund something big. Bank B borrows that money from Bank C, which in tern borrows it from Bank A. This cycle works as long as everyone pays back what they owe in time, but it's finicky because if one of those banks can't pay, you end up with a chain reaction and an economic implosion. That's kind of what happened with the .com bubble and the housing boom, banks were borrowing and lending way more money than they actually had and it caught up with them. Credit is the basis for our modern economy and has been since the 20s, not money.

In the end someone will have less money and someone else more money, I mean, they do not borrow the same amount of money.

 

[phyzguy]

Here's another answer to your question of what finance people do. Suppose you have a business, either a large or small one. Don't you think it is important to know how much money is coming into the business and going out of the business each month? Keeping track is the kind of thing finance people do. In the US (and I suspect elsewhere), you are required by law to keep track of your financial situation, otherwise you don't know how much you owe in taxes.

Or suppose you want to start a business, like Elon Musk starting SpaceX. Where do you think the money comes from? He didn't make enough flipping burgers tos start SpaceX, he borrowed the money from financial institutions. The engineers and so on can't do their jobs unless they have money to work with.

 

[Grands]

Here's another answer to your question of what finance people do. Suppose you have a business, either a large or small one. Don't you think it is important to know how much money is coming into the business and going out of the business each month? Keeping track is the kind of thing finance people do. In the US (and I suspect elsewhere), you are required by law to keep track of your financial situation, otherwise you don't know how much you owe in taxes.

I thought that this kind of activity was done by people with a degree in business or economics.

 

[russ_watters]

In the end someone will have less money and someone else more money, I mean, they do not borrow the same amount of money.

No, the economy is not zero sum. Over the long term, almost everyone ends up with more money.

 

[PeroK]

No, the economy is not zero sum. Over the long term, almost everyone ends up with more money.

... or more debt!

 

[BWV]

The amount of net debt in the global economy is always zero

 

[PeroK]

The amount of net debt in the global economy is always zero

That's hardly the point.

 

[phinds]

@Grands based on your questions and statements, it seems to me that you seem to have an extraordinarily poor understanding of finance. I suggest you do some basic reading in economics. It's really quite interesting and quite a bit different from what you seem to imagine.

 

[Grands]

No, the economy is not zero sum. Over the long term, almost everyone ends up with more money.

So how is possible that every nation have a public debt and no nation have a public credit?

 

[StatGuy2000]

@Grands based on your questions and statements, it seems to me that you seem to have an extraordinarily poor understanding of finance. I suggest you do some basic reading in economics. It's really quite interesting and quite a bit different from what you seem to imagine.

To cut @Grands some slack, he/she is still a high school student in Italy (in past posts, he/she stated that he/she is in his/her last year of secondary school).

 

[russ_watters]

So how is possible that every nation have a public debt and no nation have a public credit?

Same reason individuals do: because stuff is better than money.

 

[Grands]

Same reason individuals do: because stuff is better than money.

Yes, but in this way, if every nation have a debt, how is possible that the sum of all the money is 0?

 

[russ_watters]

Yes, but in this way, if every nation have a debt, how is possible that the sum of all the money is 0?

They have debt but not net debt.

 

[phinds]

Yes, but in this way, if every nation have a debt, how is possible that the sum of all the money is 0?

If the sum of all money is 0 then how did we progress from, say 200 years ago, to today? Seriously, do you think the sum of money today is the same as 200 years ago? You are asking for simple answers to a very complex, but interesting, set of knowledge.

Really, you are getting nowhere with a small Q&A session on an internet forum. Read some economics.

 

[Grands]

They have debt but not net debt.

It seems that a country more debt have, more rich is.

Really, you are getting nowhere with a small Q&A session on an internet forum. Read some economics.

Suggest me some title then.

 

[russ_watters]

It seems that a country more debt have, more rich is.

Yes, in general you would expect that to be true.

 

[BWV]

A good popular book of financial history

https://en.m.wikipedia.org/wiki/The_Birth_of_Plenty

Much better than trying to start with theoretical economics

 

[Grands]

A good popular book of financial history

https://en.m.wikipedia.org/wiki/The_Birth_of_Plenty

Much better than trying to start with theoretical economics

How is possible that a neurologist wrote a book about economics?

 

[PeroK]

How is possible that a neurologist wrote a book about economics?

Rather that than an economist writing a book about neurology.

 

[Grands]

Rather that than an economist writing a book about neurology.

I hope this is not a joke.

 

[phinds]

Suggest me some title then.

I'm not an economist and don't have a good recommendation for a starting book. Hopefully others here will.

I certainly agree with bwv ... you do NOT want to start out with theoretical economics. That stuff will make your head hurt.

 

[gleem]

Over the long term, almost everyone ends up with more money.

And we hope the ability to buy more stuff too.

 

[StoneTemplePython]

I think I've said it before to OP, maybe not:

start reading The Economist on a weekly basis. If he reads the "Business" section and especially the "Finance and Economics" section he will gradually pickup an awful lot. They even pioneered light-hearted but smart things like "The Big-Mac Index" to look at relative currency costs. It's not as dry or as technical as a textbook, though will walk-through textbook concepts. There are some other pretty good sections too.

 

[phinds]

I think I've said it before to OP, maybe not:

start reading The Economist on a weekly basis. If he reads the "Business" section and especially the "Finance and Economics" section he will gradually pickup an awful lot. They even pioneered light-hearted but smart things like "The Big-Mac Index" to look at relative currency costs. It's not as dry or as technical as a textbook, though will walk-through textbook concepts. There are some other pretty good sections too.

I agree. I read The Economist regularly.

 

[Grands]

The Big-Mac Index"

I heard about it and I heard what it is.
Anyway, my intent was just to understand what a person that work in Finance do.

I know that who study economist care about management of a company, who study business try to organize how that company should sell a products, who work in a bank have to be careful to approve loan to the "right" people, but I have no idea about Finance.

 

[Vanadium 50]

So how is possible that every nation have a public debt and no nation have a public credit?

It's not. It's also a very ill-posed question - it asks us to explain why something is true, when it is not.

If you mean "any debt at all", pretty much all organizations have some debt. If you order something on a Tuesday and pay the invoice on Friday, that's debt. But if that's what you mean, pretty much all organizations also have some credit. If you pay for something on Tuesday and they don't ship it to Friday, you have a credit. So the premise of your question is untrue.

If you mean "net debt", it's also untrue. Denmark, Germany, Japan. All have a net credit. So again the premise of your question is untrue.

 

[BWV]

Japan has the largest debt level (relative to its GDP) of any developed country, think what you are referring to is its positive trade balance

 

[Grands]

It's not. It's also a very ill-posed question - it asks us to explain why something is true, when it is not.

If you mean "any debt at all", pretty much all organizations have some debt. If you order something on a Tuesday and pay the invoice on Friday, that's debt. But if that's what you mean, pretty much all organizations also have some credit. If you pay for something on Tuesday and they don't ship it to Friday, you have a credit. So the premise of your question is untrue.

If you mean "net debt", it's also untrue. Denmark, Germany, Japan. All have a net credit. So again the premise of your question is untrue.

Thanks for your answers.
So basically the public debt is just something that State try to pay everyday and can't pay the entirely sum in one day?

 

[Vanadium 50]

Japan has the largest debt level (relative to its GDP)

But that debt is largely held domestically. Which exposes yet a third way of looking at Grands' ill-posed question: "why do governments borrow from their citizens instead of lend to them?" The answer is that while they do both to some degree, they're really not banks.

 

[Grands]

But that debt is largely held domestically. Which exposes yet a third way of looking at Grands' ill-posed question: "why do governments borrow from their citizens instead of lend to them?" The answer is that while they do both to some degree, they're really not banks.

My question was about what people that study finance is doing, which service they provide for people.
Then russ started to speak about public debt, and that the sum of all debts and credits is 0, and I asked how this is possible considering that all the countries have a debt.

 

[BWV]

Every debt is someone else’s asset - for every borrower there must be a lender. It is just an accounting identity.

 

[BWV]

Thanks for your answers.
So basically the public debt is just something that State try to pay everyday and can't pay the entirely sum in one day?

States generally never pay off their debt, they keep rolling it over and rely on a combination of economic growth and inflation to reduce its value relative to the economy.

 

[Grands]

States generally never pay off their debt, they keep rolling it over and rely on a combination of economic growth and inflation to reduce its value relative to the economy.

Ok, and who give the money to the countries ?

 

[BWV]

States borrow issuing bonds which are purchased by savers