Debt Based Monetary System
Our current monetary system is based completely on the issuance of new debt(currency) to pay the interest accrued on the previous loans made by banks. This is how fiat currency (grows on trees)is typed into existence.
99% of people I encounter have no clue how money actually comes into existence.
When a bank loans money to someone to buy something, they type 2 balances into their computer and poof the money is created and enters the economy. 1 of the entries is the credit into your bank account, and the other is the debt into theirs that will be paid back with whatever interest rate you were given on the loan.
Once upon a time the banks were required to keep 1 dollar on hand for ever 10 dollars the created thru these loans. Now, durining the last 13 years that has dropped to a 3% backing after 2009 and then to 0% during covid. Yes you read that right, a bank could have ZERO cash on hand and still issue loans during covid. So if just 3% of all account holders went to their banks on the same day and asked for all the money in their accounts the banks wouldn’t have it and chaos would ensue. Also, after 2008, Obama passed the Dodd Frank act. In this document it explains that the government would not step in next time to bail out the banks(which everyone thought was great).
Unfortunately, it also allows the banks to perform “bail-ins”, using their creditors accounts as collateral to cover their debts if they were to become insolvent( which most are…)
This is a double edged sword.
On one hand there is no backing to our “money” which is actually just “currency” allowing the central banks to print/issue as much as they see fit to cause inflation and devalue all the other currency that is already in existence over time. Inflating the supply and the cost of all goods and assets over time.
On the other hand, if you understand how all this works, then you can use it to become part of the top 10% this type of monetary system actually helps!
If you know that whatever dollars you can get your hands on today will always be worth more than the same amount tomorrow, and that asset values primarily increase at the same rate or higher than that of the inflation rate. Then, you would take out AS MUCH debt as you could today, to buy cash flow assets. Doing so keeps the value of the money stable in the asset as its price climbs from inflation and the cashflow off of the asset allows you to service the debt. Paying for itself over the term of the loan.
Wealthy people who understood this have used it to their major advantage over the last 50 years, since Nixon took us off the gold standard- August 15, 1971.
This period of “free money”( zero or negative interest rates)is ending soon, and if you haven’t taken advantage of it I’d suggest doing so ASAP.