Posted: February 17th, 2022

Understanding How money works.

How money works.

There is a common belief that ordinary people cannot become millionaires. And nothing could be further from the truth in this case because the fact is that you have the power to accumulate wealth much above your wildest aspirations. Many people who have never earned a six-figure income have achieved financial independence in recent years. Well, what is their secret to accomplishing this? Not employment at a high level that pays a lot of money is required. Or perhaps even a substantial inheritance? Or how about hitting the jackpot at the lottery? Well, no. You can achieve financial stability regardless of your income level, but only if you put in the effort to learn a few essential concepts about how money works. Understanding the underlying principle or foundation of a concept to build on it is critical to mastering it. Our major goal as individuals is to convert it into more money as frequently as possible when it comes to money. This begs the question, what is money, and where does it originate? What is its role at its most fundamental level? And isn’t understanding what money is, where it comes from, and how it operates essentially? Well, stay tuned. 

As a start, if you want to be wealthy, which is to say have a lot of money, you must first grasp what money is and how it functions. Unfortunately, many people mistakenly assume they are knowledgeable about these topics when they are not. When you ask, “What is money?” the first thing you must recognize is that money has changed for history. Barter, such as the exchange of chickens or milk, was the earliest form of “money,” followed by shells and beads, and then gold, silver, and copper coins, all of which were used to purchase goods. The commodities in question were physical goods with a monetary value, and they could be exchanged for other products of equivalent perceived value. However, the vast majority of money in circulation today is paper money, often known as fiat currency, which is essentially a government-issued promissory note. Paper money, in and of itself, is insignificant. It is nothing more than a mathematical expression derived from the value of something else. It used to be that the dollar was a derivative of gold; now, it is a derivative of debt or an IOU from a country’s taxpaying population. The physical nature of money has changed, and it no longer resembles chicken, gold, or silver. Modern money is nothing more than a concept backed by faith and trust. Generally speaking, the more dependable a country is, the more valuable its currency, and vice versa. One of the factors contributing to the perplexity around the subject of money is the evolution of money from a tangible thing to a conceptual idea. Understanding something that we cannot see, touch, or feel might be challenging.

Well, now that we know what money is, we move to the next step: how does it function? In today’s environment, money serves as a form of currency. The dollar, rather than reflecting something of value, such as gold, signifies other countries’ confidence in a specific country’s economy. This is owing to President Nixon’s decision in 1971 to withdraw the United States dollar from the gold standard. It was at this point that it began to appear erroneous. To be conceivable, the United States had to give “full faith and credit,” thus issuing an enormous IOU, and other nations had to follow. The currency is derived from the term “current.” Money, like a river, needs to flow to exist in today’s world of commerce.

And well, the Treasury Department is the starting point for our current monetary system in the United States. The Treasury Department holds an auction for bonds to sell the issued bonds. “If you, the buyer, give me A dollars, I, the government, will pay you B percent interest on that money over c years, plus the entire A dollars in principal,” according to the definition of a treasury bond. Anyone interested in purchasing $1 trillion in bonds if the US Treasury proclaims, “We’d want to sell $1 trillion in bonds,” come’s forward to take the bid. But majorly, it’s carried out by the world’s top financial institutions. Those financial institutions then seek purchasers of the bonds at higher prices. The Federal Reserve enters the picture here. A tidy paycheck of electronic money will be sent to the large banks by the Federal Reserve in exchange for their bonds. And you might be asking where the Federal Reserve got all of that money. Well, they create it out of thin air, not by printing money, but by simply crediting the Federal Reserve accounts of the critical financial institutions.

Many of you are probably scratching your head, so let me explain. Here’s how it goes down: Big Bank A acquired a $3 trillion bond and resold it to the Federal Reserve for $3 trillion-plus a premium of $150 million. When the Federal Reserve suggests, “Rather than mailing you a check, why don’t I just credit your savings account here at the FED?” Big Bank A answers, “Sure, go ahead,” and the conversation continues. According to reports, with a few keystrokes, the Federal Reserve creates $3 trillion in electronic currency in the account of Big Bank A. But this sounds more like nonsense. Right! Well, Ben Bernanke, the former chairman of the Federal Reserve, made a statement at a lecture at George Washington University in 2012, stating, “Now, you could ask how the FED paid to acquire 3 trillion dollars of securities? And the answer is that we paid for those securities by crediting the bank accounts of the individuals who sold them to us, and those bank accounts were recorded as reserves held by the banks with the Federal Reserve System (the FED). As a result, the Federal Reserve has become a bank for banks. Reserve accounts are accounts that banks can open with the Federal Reserve and hold for some time. And due to this, as securities were acquired, we paid for them mostly by increasing the number of reserves held by banks in their Federal Reserve accounts.”

As a result, Big Bank A finds itself with a large sum of money in its Federal Reserve account. And again, we go, what does Big Bank A plan to do with all of this extra cash. Why not purchase some extra treasury bonds, given that Big Bank A has done so well with them in recent years? They must return to the bond auction and acquire other bonds, which the Federal Reserve purchases by crediting their account once again. As a result of this, the Treasury has accumulated a substantial sum of electronic money from the bankers. As a result, the Treasury is left holding a large sum of digital currency that bankers have paid them for.

And meanwhile, the premiums have left Big Bank well-off and comfortable in its current financial position. And because all they had to do to make it happen was type a transaction into the computer, the Fed is not harmed, and they are now receiving the B percent interest on the bonds that they own as a result. For those of you who are still scratching your heads and thinking, “No, they can’t do that,” consider the following statement from the Federal Reserve Bank of Boston. They went ahead to write, “when you or I write a check, there must be enough cash in our account to pay the check,” but “when the Federal Reserve writes a check, there is no bank deposit on which that check is drawn,” they explained. When the Federal Reserve writes a check, it is considered creating money.”

But hang on a sec! As a result, the Treasury now owns a large sum of money. What are they going to do with all of this? Well, they make excellent use of it! They allocate it to other government agencies, spending the money on infrastructure projects like roads and bridges, social services, and the military. Construction firm owners and employees, government entities, and any other businesses or persons that benefit from government spending then deposit their pay into their bank accounts to safeguard their funds from creditors. But, the question you’re undoubtedly asking yourself is, “How in the world does this pertain to me?” This is unquestionably true, and understanding how our money works helps you see the world in a different light. Furthermore, it will compel you to align yourself with the ultimate result of this craziness by pointing to you that our monetary system is a hoax.

What if we applied the monetary system’s financial ideas to a small subset of the population? So, what, in your opinion, will happen if the minimum wage is raised to $15 per hour, as an illustration? As many people would point out, “robots will replace all low-wage employees.” Yes, possibly some, but multiple studies have indicated that the costs of goods and services that are a major expense for persons in such a generation would rise more regularly in the future. In a free market, prices constantly adjust for surplus currency, but the currency will be coerced into specific demography in such an instance. Hence demand will rise, but supply will remain the same. So, would a rise in C and D-class home rental prices be reasonable if the federal minimum wage were raised to $15 an hour? Absolutely. Free market economics is just a fact of life; it is not an issue of whether it is ethically acceptable or immoral; it is simply a fact of life. It is vital to understand how our monetary system functions and why our government behaves in the way it does. After you’ve achieved that understanding, you’ll be able to view assets from a complete perspective.

Well, what have you learned so far? Tell us in the comment section. Until the following video, be safe. 

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