Hello again everyone! Today I will be a writing part 3 of my 10-part discussion on the topic on Achieving Personal Financial Freedom, titled: Money is no longer Real money. As this is a very long post, I will be splitting the post to 3 parts for easier reading. This will be part 3 of the post. The previous post can be found here: Part 1, Part 2.
However, the biggest, and smartest game that bankers play, is the separation on the value of bank notes from the physical equivalent. In the past, all bank notes are representative money. Representative money means that the bank note has a physical representation of something valuable, usually gold or silver.
Until 1971, due to several reasons (protectionist measures and other ideas that US held to ensure that they remain superior in the world economy), Richard Nixon decided to cancel the convertibility of their bank note into the physical equivalent of Gold. The effect meant that the bank notes are no longer representative money, but fiat money. Actually, the idea of fiat money is not original to the US, instead it has been implemented by China many centuries ago. Apparently the Chinese are actually very smart in terms of commerce and trade!
According to Wikipedia:
Fiat money has been defined variously as:
Any money declared by a government to be legal tender.
State-issued money which is neither convertible by law to any other thing, nor fixed in value in terms of any objective standard.
Intrinsically valueless money used as money because of government decree.
In layman terms, money is now worthless. There is no physical value to the bank note, other than the government promising that it is worth something (legal tender). The value of money is now the promise and enforcement of money by the respective government. Therefore if the government sucks, or if the country is a horrible place to trade with, boom, the value of money can turn to ZERO. This is by far the biggest magical thing that banks have done, by setting the medium to something worthless, it is no longer rare, and you have practically no use for it other than being forced to use it by law.
Now combining with the removal of value on money, and the power of giving credit, gives rise to the fractional reserve banking system.
According to Wikipedia:
Fractional-reserve banking is the practice whereby a bank accepts deposits, makes loans or investments, and holds reserves equal to a fraction of its deposit liabilities. Reserves are held as currency in the bank, or as balances in the bank’s accounts at the central bank. Fractional-reserve banking is the current form of banking practiced in most countries worldwide.
By removing the physical representative of money, banks can now borrow unlimited money, and then charge interest for money that does not exist. In effect, they have turned money into an IOU.
According to Wikipedia:
An IOU (abbreviated from the phrase “I owe you”) is usually an informal document acknowledging debt.
In essence, the value of money has changed from being simply a medium of trade, until today’s form of being a debt note. All the paper bills and the numbers in your bank account, they are now actually debt, where someone OWES you something that they have to pay in the future! Such is the extreme power of the current state of money, it is very hard to fathom, for the ordinary citizen.
That being said, not every government is run poorly, would you agree? Some countries are very well managed.
So here’s a tip from me to you: If you intend to keep your net worth safe, make sure to keep your money in a country where you PERSONALLY FEEL that the country is safe, and has a very well and fairly run government, with a large supply of things to trade. (It could be commodities, services, or even human talent.)
The next magic that the banks have done therefore, after removing the physical equivalent representation of money, is to involve themselves with monetary policy. Monetary policy is basically the act of controlling the supply of money, like what the BANKER did for the bottle of water, in the previous example I have mentioned. When governments have the power to control the value of money at will, imagine yourself not being a trader, or a buyer, or a seller of goods and services. Imagine yourself being just the employee, the earner, that trades their time for the physical representation of money. How valueless your time becomes, when everyone now has the capability to play around with the value of your time.
Now, the governments of each country claims that by doing so, they are protecting the interests of their citizens, by providing a steady inflation rate, and so forth. However, just take note that its exactly due to the abuse of monetary policy, whereby inflation and even hyper inflation appears in the first place. Money is not the target itself, it is only meant to be a medium for trade. However because it is much easier for countries to control the supply of currency than control each individual business, the game of money will never end. This act alone has given rise to multitudes of booms and busts of the economy cycle, and created market exchanges including Forex and other commodity exchanges, among others.
The biggest culprit of all by far currently, is the country with the largest “defense military” (i should say offense). I probably don’t have to say which country is that, I assume you will know, they are the United States of America. The country (or the monarchy) that controls the largest military, will now be the largest bully that forces everyone else to obey them by sheer force, not by the value of trade. And therefore this largest country in terms of defense spending, will also control the world trade, through the control of their currency, which everyone has to rely upon to trade. It is also this largest economy, that will therefore have the ability to create magic, by creating wealth out of virtually thin air, using methods of monetary policy and all other means to ensure they stay number 1.
There is another country, China, which is now growing in economical size and has recovered in their knowledge and games of money. Their next strategy shall be growing their clout using military strength and attempting to merge all other smaller countries to them by the use of their currency.
In the very latest method of monetary control, we have now moved into the world of virtual currency, whereby money are just numbers on a computer screen. By entirely removing the need for bank notes and any other medium, money is now just a thought. This evolution of money brings even speedier trades, and also brings higher risks of being manipulated by scrupulous parties. China appears to be leading the pack in terms of virtual currency control, with the advent of smart phones and fintech.
Please don’t get me wrong, if you feel this post is about dissent towards bankers, governments and finance. In fact, I think that they are all extremely bright, creative, smart people. It is due to this creativity, where all the evolution on trade, commerce and finance takes place. It is due to this group of creative people that makes the world go round, and therefore it is also this group of people that usually appear in the top 1% list of wealthy people. And not only bankers, people from all sorts of industries and walks of life are wealthy through the understanding on the fundamentals of how money works. Though bankers try their extreme best to hide it, to avoid publicity and negative thoughts towards these bankers.
As you can see, the subject of money is enormous, but hopefully by providing you with some fundamental knowledge, you start to see how the world works, and why some people stay so rich, whilst the others remain so poor.
Thanks for reading! I hope to see you on my next post.