Is Money and Debt the Same Thing?

29 Nov

Written By Riley Caldwell

(The entire reality of money explained in a 10 min read)

Is Money Debt? - YouTube

Index:

Let me clarify something before we proceed with this absolutely CHEEKY topic.

“How does money work” is the biggest rabbit hole I’ve ever come across.

I’m not kidding.

This series on money is gonna need to be at least 5 blogs, maybe more I don’t know.

What is the typical definition of money?

A universally accepted means of value trade.

“It provides a fixed value to which any item can be compared” (How Money Works, 2017).

Like IOU’s, which were used in bartering times where people would state “I owe you” something for the future, money serves the same purpose today.

Whereby the one who receives it acknowledges that they can trade it for another item at a later date.

According to “The Philosophy of Money”, money creates freedom of choice because of it’s purpose thousands of years ago.

Its purpose was to ensure rational transactions between people and that the monetary value of items remained mostly consistent.

But you know what else money is?…

Debt.

I mean this to the largest extent you can possibly imagine.

And it all started from SOME people in bartering times trying to make money - with money.

So… money is debt.

That is what we’re going to be exploring today.

But first of all, what is the typical definition of debt?

Debt is money issued to a borrower (like a consumer) in the form of bonds.

An amount of money that is agreed to be paid back at a later date with interest added on top.

Examples for individuals include:

Credit to pay for common goods they can’t afford.
Mortgages for homes.
Car loans.

Now in a little bit, we’ll explore what I mean by this equation:

Money = debt.

For now…

Why was money created?

Fiat currency, be it tangible or digital, was introduced to fix a problem.

Value could not be reliably exchanged.

This is how all business works.

You spend money on a product or service because you believe that you’ll get something in return that’s equally valuable or hopefully MORE valuable.

In bartering times, a blacksmith could not necessarily offer anything of real value to the farmer he was trying to get food from.

His skills could not provide anything of sufficient value to the farmer to incentivise them to give the blacksmith food.

What makes a good form of currency?

A stable unit of account, a durable store of value, a convenient medium of exchange, limited supply, high replacement cost and portability.

Gold and silver served this purpose for a long time.

Do most people understand money?

No.

This is evidenced from the idea of the Money Illusion.

Irving Fisher’s book in 1928 states that “the individual doesn’t realise that the more money there is the less it will buy. He keeps thinking of a dollar as fixed”.

Inflation and deflation are commonly viewed as only effecting the cost of goods and not the value of one’s cash.

The cost of goods increases AND the value of your money decreases.

In an inspired study titled “Money Illusion”, it was determined that many US consumers hold this belief.

They think that as the numerical value of their dollar increases, that their purchasing power or the real value of their money does too.

This is wrong.

Since the cost of goods increases with inflation, which rise whenever there is an excessive supply of money in the economy, inflation will also kill your purchasing power…

Because when considering basic supply and demand, more available money reduces the demand and thus its value.

Moreover, if you’re given a 2% raise (yay!) due to 4% inflation, you’re still experiencing -2% purchasing power.

As inflation rises within an economy, there’s a period of time where consumers spend more and businesses invest in an attempt to combat the decreased purchasing power of their savings.

This is why inflation often leads to increased employment for a little while.

Businesses are able to higher workers for cheap, because while workers’ wages are increasing, it usually doesn’t fully compensate for the level of inflation.

This weird phenomenon is called the Phillips Curve.

Because the catch is - the cost of goods will inevitably rise.

At this point, people begin to realise that the value of their money has decreased.

Which makes them fearful and they borrow more money.

This in-turn FURTHER increases inflation…

Which the government then combats by raising their interest rates to incentivise people not to borrow.

So that people stop spending and they save instead.

If you’ve ever felt afraid that society and other people are holding you back, understand that it’s social norms that have done so.

Because as we’ll conclude at the end of this article, the majority of the population are slaves.

Separate yourself from the majority if you want to build a better life.

Now let’s talk about the most expensive thing there is to borrow…

Why is housing so expensive?

When you deposit your money into a bank, they loan the majority of it out.

Where?

The housing market.

This is because real estate provides the biggest return on investment (ROI) for banks, as loans for homes and buildings come with a much higher interest rate considering the commonly huge amount that a person needs to borrow.

And since most real estate and property is owned by the wealthy or upper-classes, the wealth disparity between the rich and the poor forever increases.

And the cost of homes inflates.

Now, you want to get really positive outcomes out of your life, right?

But you don’t know how.

Invest your time and money/debt into the things that the wealthy possess.

This doesn’t JUST include housing.

It includes business and the financial markets.

I’ll elaborate on those things more in a little bit…

Society’s conditioned you to be oblivious to how money works and where it’s distributed.

Figure that out with me as we continue with this investigation over the next 5 or so posts…

Whatever the ideal life it is that you want, you can have it much better.

Do banks lend out people's money to borrowers?

In a way… they kinda don’t.

When regular people loan their money to the banks via depositing it, the banks don’t actually loan out those people’s cash.

Instead they send digital money representative of the same monetary value created from thin air.

Similarly, whenever people sign off on a loan to borrow money, that very same money is CREATED on the spot.

In this way, people need to borrow money/debt in order to create more money that can be loaned out into the economy.

That’s why in countries like the US and even here in Australia, our debt will never decrease to zero.

Not unless the fractional-reserve-banking system (widely used around the globe) is changed to something new.

I’ll talk about that in the next part to this series.

Essentially, consumers generate money as debt when they sign a document declaring how much they owe the bank including the interest on top.

This principal amount of money borrowed on this document represents money to be kept in the banks reserve or to be loaned out.

The ratio of this “money” or debt to be loaned out - with money to be held in reserve, is known as the reserve ratio.

And as of 1988 in Australia and March 2020 in the US, reserve requirements or the reserve ratio are at 0%.

The majority of the eligible loan amount (usually all of it due to 0% of it needing to be kept in reserves) or debt generated by the bank when the borrower signs a document, will inevitably end up in assets where the interest owed far exceeds the principal amount.

This predominantly includes real estate.

And market investments.

Two areas primarily owned by the wealthy or upper-classes.

Remember my point about investing in the things that the wealthy possess…

An example is the Bank of England putting $375 billion into the financial markets in 2009…

They hoped that people would be happy with the immense rise in stock prices and then spend more, increasing the health of the economy.

But because 40% of all shares held in the UK stock market were owned by the top 5% wealthiest people in the country, most citizens didn’t actually see an increase in their wealth and it all went to this top 5%.

This is what you call a corrupt system.

So, do you want to feel like nothing external can stop you from improving your life, being yourself or doing things the way that you wanna do them?

You must know that gaining that control comes from decision.

Make more calculated decisions and you gain control over your life and your destiny.

How’re you supposed to make calculated decisions if you don’t even understand how money’s created and where most of it ends up?

You can’t.

Basically, subscribe to the email list and keep up with these.

I’ll incorporate as many actionable steps to take in response to this information as I can.

But I’m still trying to learn too!

So stick around for the next few blogs, which I’ll notify you of.

Anyway, this has merely been the tip… OF the tip of the iceberg.

Let’s understand something else.

Why do we use paper money instead of gold?

Otherwise known as “legal tender”, cash is something that businesses and governments are obliged to accept as whatever value that piece of money is labelled with.

Historically, the value of physical cash reflects an equivalent amount in gold or silver - in a bank.

Back when currency was tied to precious metals like gold and silver, people wanted to ensure they weren’t LOSING money (gold and silver) by keeping it in the banks…

So they started to demand interest be paid for keeping it there.

The individual would get 5% for example, while the banker then loaned out the same money for a higher interest rate, like 10%.

Since people didn’t ACTUALLY know how much gold and silver was in the bank, the banker could loan out money to them that didn’t actually exist.

Now whenever demand to withdraw money from a bank became too high at a single time, the bank was suddenly not able to give it all back because most of the money it had loaned out never existed.

This non-existent money is what we now call bank credit.

If the banks are unable to repay money deposited to them to “lend out” to other people, businesses and into things like real estate, people lose trust in the bank’s credibility as well as in the national currency issued.

To address this dilemma, the fractional reserve banking system was implemented legally.

And a limit was put on how much falsified money could be lent out.

This limit is called the “debt ceiling”.

It’s been continually raised for decades.

Money used to represent value as a ratio to things like gold and silver…

But since being decoupled from those metals, it now solely represents debt.

So…

Have you ever feared that you can’t make radical changes in your life - on your own?

Like you’ve tried, failed and now feel as if you have less power in dictating your life than society, your friends or your parents?

Well, you now understand that most money is bank credit and bank credit is debt which is money that is simply created REGARDLESS of how much real cash is around.

It’s fake.

So your duty now - is to learn.

Continue asking questions, because oftentimes you’ll find answers that are incomprehensible to most people.

OR you could invest yourself in real estate, the financial markets through ETF’s, start producing businesses as assets or invest in silver and gold.

But seriously - you’re gonna need to stick around for the rest of this money series.

Because we’re nowhere near the bottom of the rabbit hole yet.

Do banks really create money out of thin air?

When someone borrows $10,000 for example, that amount of money is created as debt and fragmented in accordance with the reserve ratio.

At a ratio of 9:1, that amount must be broken up into a $9000 loan with merely $1000 available PHYSICALLY in the banks reserve.

After this, that $9000 is loaned out to other people which will ultimately end up deposited in other banks.

This would happen via people giving this borrowed money to businesses who then deposit it in their own banks.

Or the loan would simply be invested in the financial markets, businesses or real estate directly by the bank.

At the same ratio of 9:1, that $9000 would be broken down into $8100 to be loaned out while $900 of physical cash would be kept in reserve.

This fragmentation would continue until the initial $9000 is depleted.

At this ratio, that $9000 loan that was created out of $10,000 of debt, can lead to nearly $100,000 being loaned out to the economy.

Money is created through borrowing.

HOWEVER, as of 1988 in Australia and March 2020 in the US, reserve requirements or the reserve ratio are at 0%.

This means that banks can loan out ALL money created out of borrowing and keep literally none of it physically in reserve if they so choose.

At this time, 97% of money in the entire world economy is bank credit or falsified money, while only 3% is actual, tangible cash.

This is an increase from 95% and 5% back in 2009.

This is why if all debt was paid off in countries like Australia and the US, the entire economy would collapse as only that 3% cash would be around.

Because as the borrower pays back the principal amount that they initially borrowed, they slowly “uncreate” the loan until “the books are balanced” and that money or debt ceases to exist any longer.

So basically…

Banks create money as bank credit and issue it in the national currency.

They don’t issue money itself, rather they issue “promises to supply money that they do not possess,” (Irving Fisher).

Governments give permission for this and legally enforce that people repay their debts to the banks.

Governments then also use legislative policy to determine consumer borrowing behaviour through things like changing interest rates to control inflation and also the reserve ratio…

In order to maintain the credibility of the banks and give people confidence in the national currency.

This assurance by the government that bank credit is money, rather than debt, as well as maintaining credibility of the national currency…

Makes it easy for everyone to accept this system.

When you sign a loan document, you literally create the money that the document states the bank has given to you, on the spot.

Your written number to borrow is newly generated money and newly generated debt that you need to pay back.

It didn’t exist until you legally signed off on the fact that you wanted to borrow it.

Money doesn’t exist unless it’s printed (only 3% of money in the world economy) or created by banks as debt.

This is confusing…

And it will only get more mind boggling in the upcoming posts…

But also make more sense.

Basically…

Society has been holding you back.

You don’t need to allow this anymore.

We’re not actually taught how money works in school…

So we need to learn together

And that’s what this article’s been about:

How money works.

Incredible.

Now subscribe to the email list!

So…

What would happen if a government “paid off” all national debt?

There. Would. Be. No. Money.

Because besides the relatively tiny amount of cash that’s printed, money is only created as debt and debt continuously circulates between borrowers, banks and assets.

Guess what this means…

This means that neither Australia, nor the US or any other economy running on the fractional reserve system can ever be free of debt.

Because as we’ve concluded, only 3% of money would still exist in the money supply as tangible cash.

So, debt will increase indefinitely.

We’ll explore this more in the next article which is part two of “Is Money Debt?”.

This article was gonna be too long otherwise.

Here’s one special quote to end us off:

“If you want to continue to be slaves to the banks and pay the cost of your own slavery, then let the banks continue to create money and control credit,” (Sir Josiah Stamp).

Talk soon, my friend.

Consider this information and these conclusions carefully.

Riley.

Disclaimer:

None of this was financial advice.

Do your own research regarding taking out loans and regarding how you spend your money.

Or take up the information provided with a financial advisor.