1 Have you ever thought about what is money? How do we make money? :
Let's start with a short story. Once a kindergarten teacher brings these two pieces of money and asks those five-year-olds: Hello children do you know what is the difference between these two pieces of paper? One of the children answers: No, it is no different. Both are made of paper! As an adult, we can make children laugh, as we all know that the monopoly on the left is money, it has no value, while the right side is USD. It has value and we can use it to buy goods but in reality, the child is right. Both of them are made of paper. Why do we think that the paper on the left has no value while the paper on the right has value?
In the last five thousand years, money has engraved many forms and shapes. There was "barter", which meant "direct trade". There was "commodity money", where people traded commodities such as gold, silver, copper, salt, and others. There was "metallic money", where gold and silver coins were made and used as money. "Paper money", where banknotes were used for trade. And finally, "electronic money", where people use debit and credit cards for example. Money also has many functions such as the medium of exchange, measurement of value, the standard of deferred payment. Store of value This means that you can trade goods and services with it. You can measure the value of goods and services. You can use the loan. And your money can be saved, stored, and retrieved reliably.
Money also has many qualities. As: Interchangeability, stability, portability, cognitively, and stability of value. And nowadays there are many important currencies - the US dollar; - Euro; - Japanese yen; - Great British Pound; - Canadian Dollar; - Indian Rupee - Swiss Franc.
- Now how is money made? Each currency should have a central bank, an entity that manages the currency, money supply, and interest rates, that oversees the commercial banking system, for example, the Central Bank of the US is the Federal Reserve while the Central Bank of Europe Is the European Central Bank. These institutions are the only ones capable of creating more currency, which gives them a highly influential power in the world economy. I know what you're thinking... They should have printers all day, making stacks and stacks of cash. Well, of course not. Economists estimate that about 8% of the world's money exists in the form of physical cash, meaning that most of the money is not in physical form. Instead, most of the money created goes to the economy through bank deposits. Central banks deposit newly created money in commercial banks. Then, these commercial banks will invest the money to use by building the people and companies of Lonesto, which will spend it investing such as building a machine, buying a house, or building a factory. And this means that the money created by the parent bank will be used to increase production and generate employment for the economy. If generating money increases production and creates jobs, why can't banks? The short answer is "inflation", a generalization in the prices of goods and services. I will give an example to imagine an economy with 100 books and $ 1000. Each book is valued at $ 10. Now imagine that the central bank makes an additional $ 1000 which means there are now $ 2000 in the economy. The number of items is the same, but the moneylender. This means that consumers think the rich will buy more books. With so much demand, companies raised the price of books because people have more money to pay for it. Meaning, eventually, book prices will also double to $ 20. This means that if wealth creation is not used, it will have no real impact or harm the economy.
The best example of this is hyperinflation in Germany during the 1920s: to pay the large costs of the continued World War, Germany suspended the gold standard, printing more and more money tops for workers. However, this led to a surprising increase in prices. As an example, a loaf of bread had a cost of 250 points on 23 January and in November of the same year, the price has risen to 200,000 million points. During this crisis, workers were often paid twice per day because prices rose so fast that their wages were almost rendered useless by lunch. And in this way inflation can be dangerous. Prediction is needed for the economy to be able to grow an insane amount of inflation is not part of it.
2 How is our money made? : The secret to saving money: Before 1971, our currency was linked to USD under the Bretton Woods Agreement, which is indirectly tied to gold. This means that every piece of money you hold is supported by gold, however, when the US decided to move away from the gold standard after 1971, our currency is no longer supported. Instead of gold, it is supported by the government and we call it a fiat currency. To maximize our wealth we need to understand how the wealth creation system works. We have always heard that the government is printing money. They are increasing the money supply but how do they increase the money supply? Do they have a huge printer to print it on or just a sum in the bank? To answer this, we need to understand a banking system that applies worldwide. Fractional reserve system. Here we make a simple illustration to help you understand the whole picture.
Suppose you are in the bank for $ 100 There is a reserve requirement under the fractional reserve system. Let's call it. It is 10%. This means that the bank has to keep 10% of your savings in the bank and the bank can lend the maximum amount to others. It is 90%. Suppose bank loan is 90% which is $ 90 for others. We pause at this stage, the extra 90 dollars just made our money in the air in the market! When banks take a $ 90 loan, they are not taking out your $ 90 and lending to someone else. What does the bank just do to type the new $ 90 into other people's bank accounts? Because both of you also have the right to spend your money. Money spent in the market increases from $ 100 to $ 190! The other boy goes and saves his $ 90 in the bank. The same process happens again. The bank can keep 10%, which is $ 9 in the bank, and gives another 90% loan, $ 81 if the bank goes through a full cycle where they all take 90 percent of the loan each time. If they receive the savings, then the original $ 100 will be $ 1000. This is how our money is created.
3 how to make money: If you deposit $ 100 in your account, the bank can legally take $ 90 and loan it to the bank without telling you that you should keep $ 10 of your deposit in reserve if you want to Some of the money is called vault cash, but why is your bank account still there? You pay $ 100, say, if the bank has stolen $ 90 because the bank left the IOU, instead called bank credit, now I know it sounds crazy, but here the Fed Ice checkbooks in black and white from commercial banks make money verse, which they simply give a loan.
- In addition to a borrower's IOU adding new deposit dollars to accounts in their books are nothing but numbers that their Computers have the type of the bank and even though these bank credits are very different from IOUnnn base currency numbers because they only have computers that exist they are still currency. There are now one hundred nineteen sellers in existence, now the reason is that people ask banks To take a loan and to buy something, they are going to buy a house or a car or something worth $ 90 to the borrower that the bank lends it to your account and heaps the seller of the item, But then the seller deposits that currency in his loan and leaves 90% of his bank loan on it and leaves the credit number The inits place now in existence at $ 271 repeats this process and repeats under a 10 percent reserve ratio, an initial deposit of just 100dollars can build up to $ 100 bank credit, which is all $ 100 vault cashback 10 Supported by%, as I said reserve ratios will vary wildly. On some deposits it is 10%, it is 3% and some forms of deposits have reserve requirements, the result being that the expansion of the currency supplied by this is More than the example, leading you to believe that once again the currency has been deposited. Banks get it to lend and then it is redefined and redefined and redefined and redefined. And in this way, the bank is again dependent on creating credit. The huge currency where our money supply comes from 92 to 96 percent, not all the currency is created by the government but in the banking system.
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