Mo ‘Bout Money

Money has always held a fascination for me. Not in the “If I have more, I can buy more stuff” sense, although that is certainly true, but more in the way that we think about money while most of us have almost no clue what money really means. Perhaps a lot of this comes from working in financial services for a couple of decades, a field that I really stumbled into with little experience or training. What I discovered over the years is that money holds an almost mystical quality for people and that Americans have a faith in our money that borders on religious devotion. I have written a lot about the topic (see: Hello Money, My Old Friend and How Banks Make Money).

What is also almost a guarantee is that people who are proclaimed to be experts in money, finance and economics almost invariably are the opposite and have little experience in actual economics. We have a small business that pays the bills so I know first hand what it means to run a business. Most of the people pontificating on TV don’t. The basics are the same no matter what size your business is. You have costs to produce a good or service. You provide that good or service for a fee. The difference is profit.

Getting people to understand money and even more important to understand who manipulates our money and financial system and how is a critical step. Everyone needs to understand that the game is rigged and not in your favor.

This is a great video to share with friends and family. I would encourage you to share it widely.

One of my favorite lines: Money is not a good, it is a measure

Cash has no value in and of itself. It is a little slip of fiber with some writing on it.

As for the system being rigged, here is the gist of that and how big financial companies operate….

When you gamble big on an investment and it pays off?

Congrats! You get to keep the profit! Huge bonuses on Wall Street for people who manipulate make-believe “money”!

When you gamble big on an investment and it collapses?

Whoops, you are too big to fail! Can’t have a bank collapse, the serfs might start to wonder how safe their money is! Here is a tax-payer funded bailout for you!

Banks used to be very risk averse, very conservative and stodgy. For the last few decades at least, they have been engaged in very risky behavior. Why is that? Simply put, when your risk goes away, you get rewarded for risky behavior. There are people sitting in cubicles in the major financial centers all around the world this morning tinkering with stocks, money, precious metals, mortgages and other loans and all sorts of weird financial instruments. They are making nothing but money, and it is money making money. They are profiting hugely from something that is non-existent, strictly conceptual.

Making a profit from investment isn’t a bad thing, it is how our economy grows. I think you have a good or service that will be profitable so I loan you capital to create or expand your business. But what banks do is lend you money that never actually existed and charge you interest on it. Our whole economy is based on buying goods and services with promises of payment in make-believe money.

That is the whole problem with the financial system. Here are a couple of examples of how businesses should work, based on two local Amish businesses.

Business A is a cattle feeding operation. The Amish guy buys baby cattle, often a day old. They bottle feed them a milk replacer, vaccinate them and take care of them. When they get older they wean them from the bottle and feed them corn to fatten them up, selling them to someone else who finishes them before taking them to market. The raw material is the baby cattle, you add labor and inputs like feed and bedding, plus fixed costs like barns and then you sell them, hopefully for more than the combined cost of the buildings, raw materiel and inputs.

Business B makes wooden pallets. They receive boards, lumber that someone else cut from a raw timber. Some local shops cut up their own tree lumber to make their boards but that requires more labor and more infrastructure. So Business B takes the cut boards, trims them as needed, nails them together per their customer directions and sells them. They have significant sunk costs in their building and machinery, plus raw material and adding in labor and things like nails. The difference between the costs of material, fixed costs and labor is profit.

Banks don’t do this. They lend money that never exists to people and charge them interest on basically nothing. Again, lending money is not in and of itself wrong. Business A has a line of credit that is used to provide liquidity for purchasing cattle. The funds they lend theoretically come from the deposits of other customers. The liquidity they provide makes it easier for the cattle farmer to run this business, but it also allows people to extend themselves. Where the problem comes in is when they are lending money they never had in the first place, in essence creating profit from nothing via fractional reserve lending.

Another interesting video from one of my favorite content producers, Vertigo Politix, shows that this struggle over money, what it means and who controls it, goes way back in human history.

Money is involved in everything we do. We get money for our labor. We pay money in taxes. We spend money on goods and services, especially on essentials like food and shelter. For something that is so critical to life, most of us know very little about it. I worked in the business for decades and what I know barely scratches the surface. 99.9% of people know less than I do and that is pretty scary, and it allows the people who control the financial system to become incredibly wealthy and use that wealth to buy influence and manipulate the system so they can get even more wealthy and powerful.

Our financial system is not simply a means to facilitate economic activity. It is a wealth generating machine that churns out profits for a small percentage of the population while artificially inflating the cost of things like homes and cars for regular people. Most of us are on a hamster wheel of debt, running our little hearts out until we die, but for the financial wizards every spin of your hamster wheel makes them richer while they add nothing of substance to the economy. We have no control over the system and it doesn’t matter who is President, they just keep raking in wealth while we keep running on the wheel.

People need to figure this out and find ways to get off the hamster wheel.