John Botterbusch
Anderson
AP Macroeconomics
15 March 2014 2014
Wheelan, C. (2010). Naked
economics-undressing the dismal science. W. W. Norton & Company.
It
is of grave concern in American society that our citizens are uninformed of how
banks, the stock market, and investments actually work. For one thing, the
average American will probably say that the federal government are the ones
creating the money, rather than the reality that it is banks that do so with
their excess reserves. Stock markets are not lucrative “gold mines” that every
person can make a 1000% return in a month since stocks-just like any other
product being sold in a market economy-are subject to supply and demand laws
and do not fluctuate as much as people think they do. These false notions of
our financial system are possibly caused by the lack of proper information
being passed to Americans through our media mediums (i.e. television, internet,
radio, etc.). The lack of knowledge of how the financial system works is
concerning since an ignorant population is doomed to make careless mistakes and
cause harms to themselves. Even those with a Harvard degree in business failed
to realize the problems that would have arisen in 2008 when speculations
(betting on short-term price movements) on mortgage-backed securities would
lead to a liquidity crisis following the mortgage crisis in 2007. A simple
guideline for investment that has been painfully engrained in the minds of
America following the Great Recession is that betting on bad loans so that a
quick profit can be made is probably a not-so-smart idea. Rather, leaning away
from loaned-backed securities and investing in other sorts of assets such as
stocks, mutual funds, and bonds are a more secured and safe investment on
average. In general, it is important to diversify one’s portfolio in investment
in order to spread out risk and that if one egg in the basket cracks, the other
ones are safe. As an avid stock investor for many years, I have appreciated the
experience of winning and losing on stocks I invested in. As I continue to
invest, I will look more to different types of assets such as bonds and mutual
funds in order to increase diversification and possibly create better rates of
return. The key to financial success is always to keep learning.
